Economic Slowdown: Ohio A Case In Point

COLUMBUS -- The party is over for state lawmakers. For several years, the booming economy had made their jobs relatively easy, but now, that's changing.

Ohio is a good example. For the past five years, the bustling economy brought in a bonanza of sales tax and income tax revenues. So much money flowed in, legislators were able to hand taxpayers $2 billion in income tax cuts, and at the same time give Ohio schools billions of extra dollars. All of the feel-good actions were funded without a tax increase, and to many citizens, the legislators looked like heroes.

But that was then. This is now. From July through November, revenue from the non-auto sales tax is $112 million below projections. That's five percent less than was expected.

Meanwhile, for the first time in four years, expenses are exceeding projections for Ohio's Medicaid program, which pays for low-income elderly Ohioans to live in nursing homes. In fact, legislators in December had to pass a $248 million bail-out. Part of the money is supposed to come from 2-4% spending cuts in other state government programs over the next six months.The slowing economy is prompting at least one top Ohio politician to back off ever so slightly from his promise that state government can be funded without a major tax increase. Republican Governor Bob Taft is now calling that his "goal," and he hints that if a major recession hits, all bets are off.

Because slowing tax revenues and a need to spend more state dollars on court-ordered school funding reforms, Ohioans should no longer expect a sixth yearly automatic income tax cut in 2001, Taft warns. He's now saying it's important to "dampen expectations."

Ohio still has a rainy day fund with about $1 billion, and the unemployment rate remains at close to a 30-year low, so the economic slowdown has not reached a disaster stage. Thats typical of whats happening in many other states. They're facing a crunch but not a calamity.

Still, the Ohio slowdown simply mirrors what is happening in many other states --- tax revenues running below projections, Medicaid expenses beyond expectations, and shrinking budget surpluses that will make tax cuts much harder for state legislators to enact. Studies by the National Conference of State Legislatures, the National Governors Association, and the National Association of State Budget Officers all point in the same direction -- downward.

Despite the relatively bad news, Ohio Senate President Richard Finan thinks the so-called experts are too pessimistic. He says the current yearly economic growth rate of two percent only looks bad because the growth had been a sky-high five percent.

"We have just been spoiled by such a booming economy that a normal economy tends to scare the bajoobies out of us," he says.

Finan worries that if politicians, economists, and reporters keep talking about the economic slowdown, it could become a self-fulfilling prophecy. Some economists agree. Lucia Dunn, economics professor at Ohio State University in Columbus, says if consumers simply believe a recession is looming, they buy fewer cars, computers, and home appliances, and the recession they feared becomes reality.