- Ohio: Legislation Requiring Review of Tax Expenditures Hits Hiccup
- January 20, 2017 | Authors: David D. Ebersole; David M. Kall; Susan Millradt McGlone
- Law Firms: McDonald Hopkins LLC - Columbus Office; McDonald Hopkins LLC - Cleveland Office
Almost two years ago, state representative Terry Boose introduced House Bill 9 (HB9), intended to establish a Tax Expenditure Review Committee for the purpose of periodically reviewing existing tax expenditures, and to prohibit the Director of Administrative Services from making purchases by competitive sealed proposal without prior Controlling Board approval. It passed in the House unanimously in June of 2015, and then moved into the Senate, where it passed, again unanimously, in May 2016.
In the fiscal analysis of the version passed by the House, the Ohio Legislative Service Commission reported that there would not be any significant fiscal effect on Ohio; the bill focuses instead on making sure the state’s tax expenditures are sound. The implications of sound management are significant: in fiscal year 2016, the revenue reduction from tax expenditures was $8.49 billion, and in fiscal 2017, $8.86 billion.
Highlights of the House version of HB 9 include the following:
- The definition of tax expenditure as “any tax provision in the [Ohio] Revised Code that exempts, either in whole or in part, certain persons, income, goods, services, or property from the effect of taxes levied by the state, including, but not limited to, tax deductions, exemptions, deferrals, exclusions, allowances, credits, reimbursements, and preferential rates.”
- Limitations on what constitutes a “tax provision,” such that only those provisions that reduce, or have the potential to reduce, general revenue funds fall into HB 9’s purview.
- Several state agencies, such as the Department of Taxation, Development Services Agency, and Office of Budget and Management, would be required to provide information requested by the Review Committee.
- The seven member Review Committee, made up of three members of the House, three members of the Senate, and the tax commissioner, would make recommendations to the General Assembly concerning the continuation, modification, or repeal of existing tax expenditures. It would also require any bill proposing a new or modified tax expenditure to include a statement of the expenditure’s objectives and intent.
- Existing tax expenditures would have to be reviewed at least once every eight years in accordance with ten factors, including the following:
- The number and class of the recipients of the direct benefits or consequences;
- The fiscal impact on local taxing authorities;
- Public policy objectives that support the tax expenditure and whether or to what extent they are achieved;
- Whether the policy objectives could have been accomplished absent the tax expenditure, or through an appropriation instead;
- The extent to which the tax expenditure provides unintended benefits to or harms to taxpayers;
- The effect of terminating the expenditure;
- The feasibility of modifying the expenditure if it is not satisfying its objectives.
In reporting on the “hiccup,” the Columbus Dispatch noted that Rep. Boose opined that the Senate’s amendment was a “redundant layer of bureaucracy.” Similarly, Gov. John Kasich opposed the amendment.
Reviewing tax expenditures should not be an especially controversial role for lawmakers, nor is this legislation inconsistent with others that are being floated. For example, we recently addressed proposed tax disclosure rules put forth by the Governmental Accounting Standards Board (GASB), that would, for the first time, require state and local governments to disclose information about their tax incentive agreements.
Policy Matters, a think tank, favors the legislation. Even so, the group suggested that HB9 could be strengthened by adding sunset provisions to tax break laws that force ongoing scrutiny and evaluation.
Despite the hiccup, the Dispatch reported that the bill was likely to pass in the near term.