Municipal Finance in Ohio

The financial condition of state and local governments has been strained in recent years by inflation, a growing demand for public services, and a generally unresponsive tax structure. With prudent management, Ohio’s state and local governments generally have struggled through these problems yet signs of financial strain have begun to surface. Within the last two years, schools have closed from lack of funds, cities have been threatened with default, and the rating accorded to the state of Ohio’s general-obligation bonds has been downgraded from AAA to AA. Viewed against this background, the current budget problems, though not really a surprise, have become quite painful. The recession has seriously eroded state and local government revenues. The state’s 1979-81 biennial budget is now threatened with a large potential deficit. Recent estimates suggest that state income has fallen more than $300 million below projections, and payments to welfare recipients have risen by more than $100 million above previously budgeted levels. The state imposed a 3 percent spending cut in June 1980, and further outlay cutbacks and a tax hike are being considered. To provide a better perspective of recent budget adjustments, this Economic Commentary examines the budget performance of Ohio's state and local governments between 1962 and 1978.