1. MBR hearings commence
House hearings began this week on House Bill 487, Governor John Kasich’s Mid-Biennium Review (MBR) proposal, named such because it is being considered half-way through Ohio’s two-year budget cycle. Prior to hearing testimony from the Office of Budget and Management Director Timothy Keen, the Finance Committee accepted a substitute version of the bill removing contentious severance tax provisions.
The Governor’s original proposal included an increase to Ohio’s severance tax, which is currently 20 cents per barrel of extracted oil. The administration said the state currently averages $2.5 million annually through this tax. Under the proposal, a new natural gas severance would be 1 percent of the value of natural gas multiplied by total production. Oil and all liquids would be taxed at 1.5 percent of the value for the first year with an option of a second year allowing a producer to recoup production costs. The tax would be 4 percent thereafter.
The substitute bill also removed an income tax cut that was proposed as a result of anticipated revenue enhancements from increasing the severance tax. The administration estimated the new severance would generate over $500 million for an income tax reduction by 2016. The severance and income tax provisions removed from the MBR are expected to be introduced in a separate bill for further consideration. It is unclear at this time when the issue will be taken up for further consideration.
In his testimony, Director Keen told the committee that total General Revenue Fund (GRF) state tax receipts are modestly above estimate, by $187.2 million. Additionally, All Funds Medicaid spending by the Department of Job and Family Services is $417.4 million (approximately $106 million state share) under estimate. The director said it is unclear whether the savings are due to Medicaid reforms enacted in the budget bill, or if it is due to timing factors associated with the implementation of the new Medicaid Information Technology System.
Tax portions of the MBR were discussed in the House Ways and Means Committee this week. Tax Commissioner Joseph Testa contended that the new financial institutions tax (FIT) included in the MRB proposal completes unfinished business from the 2005 tax reform package. The legislation would repeal Ohio’s corporate franchise tax as well as the dealers in intangibles tax that dates back to 1931. Financial institutions of all kinds, including dealers, would pay the new rate of 8 mills on the first $500 million of tax base apportioned to Ohio, with the rate reduced to 2.5 mills for every dollar of tax base over $500 million.
Additionally, the Commissioner addressed tax issues affecting insurance affiliates, saying that when the Commercial Activities Tax (CAT) was established, financial institutions and insurance companies were carved out as not subject to the CAT, instead paying the corporate franchise tax or the insurance premiums tax as in the past. He said the MBR proposes language that clarifies the CAT exemption only applies to insurance affiliates engaged in the business of insurance.
The committee will continue hearings on March 27, 2012. The FIT provisions may be taken out of the MBR and introduced in a separate bill for additional consideration.
2. Energy, education bills introduced
Two additional bills included in the Governor’s MBR proposal were introduced in the Senate yesterday. Senate Bill 315, referred to by the Kasich Administration as “Ohio’s 21st Century Energy Policy,” is scheduled for sponsor testimony on March 28, 2012 in the Senate Energy and Public Utilities Committee. The bill includes policy changes that the Governor’s office says rest on “10 Pillars” — shale, generation, electricity transmission and distribution, cogeneration, workforce training, compressed natural gas/alternative fuels, energy efficiency, coal, regulatory reform, and renewables.
SB 315 makes various changes to permitting requirements for drilling horizontal wells. The legislation requires permit owners to identify the source of water used in production operations of a well and requires drillers to disclose the type and volume of the fluids used to drill the well. Additionally, the bill increases fees for injection well owners.
The proposal also encourages the Ohio Department of Administrative Services to review cogeneration as part of new construction and major renovations in state facilities. Among other items included, the bill makes changes to the Energy Loan Fund to encourage financing energy efficiency and renewable energy projects.
The Senate Education Committee will hear sponsor testimony on Senate Bill 216, “Ohio’s 21st Century Education and Workforce Plan,” on March 27, 2012. The legislation contains Cleveland Mayor Frank Jackson’s plan for Cleveland schools.
Additionally, the bill:
- Creates a task force to align state policies with the needs of individuals and businesses to promote employment opportunities for people with developmental disabilities.
- Enables the Governor’s Workforce Board to develop a unified budget and performance management metrics for the entire workforce development system.
- Establishes Ohio Learn to Earn — A program to allow those currently collecting unemployment to train with an employer while still receiving unemployment.
3. House passes Capital Bill
The first capital appropriations bill to be considered in two general assemblies was approved by the House this week. Absent from the bill was funding for community projects. House Bill 482 makes capital appropriations totaling more than $1.7 billion, largely funded from bonds backed by the state General Revenue Fund, for the fiscal year 2013-2014 biennium.
House Bill 482 makes the following appropriations:
- $400 million for higher education capital needs
- $675 million to the Ohio School Facilities Commission — the state’s K-12 public school construction program
- $300 million for the Ohio Public Works Commission, awarded to local governments in the form of grants, loans or loan assistance
- $290 million for state agencies’ maintenance and renovation projects
4. Board of Deposit replaced custodians
State Treasurer Josh Mandel announced at the March 19, 2012 Board of Deposit meeting that the state will replace Ohio’s international custodians, Bank of New York Mellon and Boston-based State Street bank. Treasurer Mandel said both banks have been accused of defrauding pension funds in Ohio and other states.
JP Morgan and CitiBank were designated to replace the previous international custodians, which hold investments such as securities, stocks and bonds and conduct financial transactions on behalf of pension funds.
The move to designate new international custodians follows a $16 million lawsuit filed by Ohio Attorney General Mike DeWine on March 12, 2012, against Bank of New York Mellon alleging fraud, deceptive practices and breach of contract when conducting foreign currency exchange transactions.
5. JobsOhio II introduced
Legislation being referred to as “JobsOhio II” was introduced in the House and Senate yesterday. The bill would complete the transition of the Ohio Department of Development (ODOD) to the Ohio Development Services Agency (ODSA).
Under the bill, ODSA would provide essential services to JobsOhio — the state’s private, non-profit entity created through House Bill 1 — including the administration and oversight of loans and tax credits that will further create and expand Ohio businesses.
The bill would:
- Create the TourismOhio pilot program — a five-year program that would link tourism marketing funding to the growth in sales tax revenues of tourism-related industries.
- Reform the tax credit process to allow a business to move forward on a project if both the CIO of JobsOhio and the Director of ODSA recommend to the Tax Credit Authority that the business’ application be approved.
- Prohibit JobsOhio from investing public money in private companies.
- Increase the amount of financing available for minority-owned businesses.
House Bill 489, sponsored by Representatives Mike Dovilla (R-Berea) and Christina Hagan (R-Alliance) is expected to receive hearings in the House State Government Committee in April. Senator Mark Wagoner (R- Ottawa Hills) is the sponsor of Senate Bill 314.
6. Legislation approved this week
The Ohio Senate met on Wednesday, March 21, 2012 and approved the following bills:
- House Bill 275: Sponsored by Representatives Ron Young (R- Leroy) and Lynn Slaby (R- Copley Township), the bill would allow suppliers and consumers to enter into a Right to Cure agreement.
- Senate Bill 289: Sponsored by Senators Bill Coley (R- Middletown) and Joe Schiavoni (D- Canfield), the bill would include cogeneration technology using waste or byproduct gas from an air contaminant source as a renewable energy resource.
- Senate Bill 312: Sponsored by Senator Chris Widener (R- Springfield), the bill would revise the law for new STEM school proposals, modify the Adult and Juvenile Correctional Facilities Bond Retirement Fund and make capital reappropriations for the biennium ending June 30, 2014.
The Ohio House met on Thursday, March 22, 2012 and approved the following bill:
- House Bill 482: Sponsored by Representative Ron Amstutz (R- Wooster), the bill makes capital appropriations and changes related to the laws governing capital projects.
For more information, please contact:
Rebecca M. Kuhns
Government affairs work is so much more than networking with government officials. It requires a strategic plan drafted by specialists who understand economic development and legislative issues. We help identify ways the government can contribute a solution to a business challenge, such as complying with regulatory and legislative mandates, securing funding for an important project, or obtaining government contracts. Our Government Affairs team has an impressive background. They work together to listen to clients, assess opportunities and recommend how government might contribute to achieving the goal.
600 Superior Avenue, East, Suite 2100, Cleveland, Ohio 44114
West Palm Beach