Horse and Buggy Tax Structure Holding Ohio Back

Do you shop where you live? It turns out that most Ohioans do a fair amount of shopping away from their home county.  A recent study completed by Greater Ohio, shows that 70 percent of counties did not capture the amount of sales tax revenue that that would be expected if the residents of the county did all their shopping in that same county.

Why does this matter?  It demonstrates that shopping patterns are regional, but our county-based sales tax structure is not.  This system rewards a minority of counties while hamstringing the majority, which creates unbalanced service provision and tax rates across the region, contributes to sprawl by incenting the development of new retail centers on greenfields, and priorities individual counties over capitalizing on regional strengths.

Take the Columbus area as an example.  The graph below shows how sales tax revenue capture changed in Franklin and Delaware counties with the introduction of Polaris.

A closer look at the broader region shows that despite the increase in spending in Delaware County between 1992 and 2009, the total change in spending for the region changed only slightly from $129 to $138 per capita, especially relative to increases in household income for the region during that time.

This arrangement creates a situation where counties with big, new malls thrive while most other places struggle.  All the while, however, the amount of retail spending within the broader region itself remains virtually the same.  In other words, this dynamic of shopping destinations moving around the region does not increase the state’s prosperity. Instead it just redistributes spending from one place to another and leaves places without major retail destinations without many options other than to raise taxes or cut services.

To modernize the taxation system to reflect the regional way we live and shop today, Greater Ohio is currently advocating for:

• Legislation that makes regional revenue pooling permissive
• Legislation that makes permissive mergers, consolidation, shared services, and alternative governance structures and eliminates legal and constitutional barriers to new structures of government.
• Creation of a Governance Reform Commission to oversee and provide technical assistance to Ohio’s local governments as they adapt to the 21^st century

The complete study can be found here.

Sharing Services and Governance Reform in Ohio

By Gene Krebs. Senate Bill 125 would allow all local governments to share services through a Council of Government.  This is a good idea, but should be viewed as only a start to deal with our larger problems.  Sharing services requires willpower at the local level, which is like my diet; it works until I see chocolate cake.  I am testifying in support of SB 125 today.

We no longer live where we shop, live where we work, or work where we shop, but our whole system of governance and taxation is predicated on you conducting all your economic activity within five miles of where you live.  Our local governments expect you to conduct a mixed balance of your activities within their governmental entity.  However, this is no longer the reality in which we live; we live in a regional economy and our governance structures need to adjust to this change.

Ohio ranks 33^rd highest in state tax obligation and 6^th highest in local tax obligation.  SB 125 could result in lower local taxes. Furthermore, Ohio has 41.3 local governments per county, and the national average is only 27.9.  Becoming average would be an improvement.  Our excessive amount of local governments drives up our cost of doing business.  Sharing services would reduce these costs.

The only silos Ohio should have are located on our farms, yet unfortunately every governmental entity has their own funding silo, often from a different economic activity, and often with a local ballot funding mechanism.  This leads to ballot exhaustion for the citizens and a fracturing of tax transparency and accountability.  This separation of economic activity from our domicile is why school funding does not work in much of Ohio, for example.

For more information on this topic, please see our Sales Tax Analysis.  I urge you to examine it closely.

Gene Krebs Testimony for House Bill 153

Every two years the state of Ohio develops a new budget to fund all state activities and many local activities through a variety of subsidies.  In fact the state only keeps 15% of the tax money that flows through their treasury and sends the remaining 85% back to the local governments.  For seventy years the state has been distributing money to local governments without sufficient consideration for cost efficiencies. Greater Ohio has recently testified in the House Finance Committee that Ohio needs better data to understand how to achieve these cost efficiencies .  Better data will be the key in transforming Ohio's communities to become more competitive in the global economy.  Currently Ohio's fractured and duplicative layers of government undercut Ohio's economic competitiveness, and the most important tool to reversing these damaging trends is the accumulation and distribution of better data.  In order for each taxpayer to get the best best bang for their buck, better data is needed to know where and how cut, merge, consolidate or share.

For more information on this topic, read Gene Krebs' complete testimony.  If you're not interested already, here's a direct quote from Gene's testimony, "I can give more data about Kate Middleton’s dress than I can about most Ohio government, state and local."