The Ohio Senate made a good move last week.  It removed a provision from one of Gov. Kasich’s “Mid-Biennium Review” bills, House Bill 487, that had been inserted by the Ohio House.

That provision would have forced the General Assembly to take a vote on what to do with any surpluses in the state General Revenue Fund (GRF).

Under current law, those surpluses would be transferred to the Budget Stabilization Fund (BSF), popularly known as the “Rainy Day Fund.”   Once the BSF reaches 5 percent of the previous year’s GRF appropriations, which currently should be over $1.2 billion, any remaining surplus at the end of fiscal year automatically goes into a special fund that yields across the board income tax cuts for all Ohioans.

It should pointed out that the BSF is a key tool for state policymakers as it acts as a cushion to buy time for the state in tough economic times.  That way when a recession occurs, the state has the time to be deliberate in its responses rather than being forced into precipitate cuts or, even worse, job killing tax increases.

Ohio’s BSF has only recently begun to be replenished from under $1, yes $1, to a bit over $200 million now.  Clearly, the BSF is way under the 5 percent threshold and many would actually argue the 5 percent number in present law for the Ohio BSF is actually too low and fails to provide enough cushioning.

At any rate, the House provision would have stopped this process cold and given any number of special interests an opportunity to inject themselves into the debate, trying to get their hands on additional money.  This would have been deeply problematic.

First, any surplus revenue at the end of the current fiscal year could easily evaporate for a variety of reasons.  Already, there are questions surrounding $100 million meant to go to JobsOhio, the Governor’s new job creation agency.  There are issues regarding ObamaCare and Medicaid expansion.  There are real worries that Europe’s massive fiscal problems could yield a recession there that could cross the Atlantic and hit the US too.  Any or all of these things could directly impact Ohio’s fiscal situation is rapid order so it makes little sense to spend something we have no idea will really exist.

Times of such uncertainty are exactly why one wants a “Rainy Day” Fund.

Another big reason is that one of the prime groups lobbying for new revenue are local governments.

As the Buckeye Institute has long argued (especially in our Joining Forces report and recent testimony before the Senate Finance Committee), local governments need fundamental reform not simply more taxpayer dollars.  However, the pressure to reform would be relieved if more money were simply funneled in their direction.  This could actually counteract many of the positive reforms that have been made in the last year, such as the creation of the Local Government Innovation Fund, which is offering seed funding to local governments to seek ways to better share services and collaborate.

Gov. Kasich and State Auditor Yost were outspoken in their opposition to this provision for many of the reasons just articulated.

While HB 487 will be in a conference committee this week and things can change, we can all hope the General Assembly will keep their eyes on the ball, and let reform take its course.