Budget Update – Economic Forecast Good News

As the conference committee begins its work to finalize the state operating budget (HB 110) for fiscal years 2022 and 2023 (June 30, 2023), the conference committee received positive economic forecasts from both the Office of Budget and Management (OBM) and the Legislative Budget Office (LBO).

The conference committee heard testimony from OBM Director Kimberly Murnieks and Legislative Service Commission Director Wendy Zhan who presented the forecast developed by LBO. The OBM estimates for fiscal year 2022 general revenue fund (GRF) revenue has an upward revision of nearly $1.7 billion compared to the original forecast developed in February. The upward revision for fiscal year 2023 is $1.6 billion compared to the original February forecast. This is nearly $3.3 of increased revenues. The LBO upward revision is a bit more conservative and totals $2.4 billion for the two years.

The administration cautions that this upward revision is due to one-time circumstances caused by non-recurring injections of cash into the economy from the federal government. Notwithstanding this fact, the budget is also a one-time event that frames spending and receipts for a finite period of time that parallels the economic boost from the federal injection of cash into the economy. The current budget period will end on June 30, 2021 and may carry over a positive $1 billion balance from underspending and additional receipts and that is on top of a budget stabilization fund (“rainy day fund”) with a balance that sits at nearly $3 billion.

So, what does this mean? Looking at the Ohio Chamber priorities, there is clearly enough money to pay for the repeal of the sales tax on employment services. And that does not take into account the fact that the removal of the tax may unleash economic activity in this sector, which will increase income tax revenues offsetting the sales tax reduction. This new forecast also provides more ability to add dollars for broadband deployment.

Looking beyond some of the Ohio Chamber of Commerce priorities, the administration and the general assembly will begin an intense period of negotiations that may result in additional spending or additional tax reduction for the citizens of Ohio. These negotiations will take place during the waning days of June and produce a final budget sent to the governor before the June 30 deadline. These economy numbers are great news and definitely better than hearing the alternative as the conference committee begins. Time will tell if citizens see additional tax relief or if the government will use the money to increase spending.