Two years ago, the Ohio Department of Transportation estimated in an important study that public transportation agencies across the state will need nearly $570 million per year in additional funding to meet identifiable needs. That amount of state support would put Ohio, the nation’s seventh-most populous state, among its peers – the other top-10 states in population, all of which spend at least $50 per capita for public transportation. Ohio spends just 63 cents, ranking it instead among the bottom 10 in transit funding.
Well, the estimate of identifiable funding needs for transit just went up. A lot….
All of us who care about trains and transit as effective transportation choices are facing a crisis because of how transit is funded (or not funded) in our state. The Ohio Public Transit Association, All Aboard Ohio and other allies are educating their members, stakeholders and friends in preparation for taking action.
Ohio lawmakers will start work on the state’s next biennial budget early next year. One issue they’ll have to face is the expected end of the Medicaid Managed Care Organization (MCO) sales tax in its current form. It’s a revenue source projected to be worth more than $550 million a year to the state in fiscal years 2018 and 2019.
While the state faces the loss of more than a billion dollars in revenue over the next biennium, counties and regional transit authorities also stand to lose about $200 million a year.
From 2005-2009, the state collected a 5.5 percent tax on Medicaid managed care organizations, using the funding to leverage more federal Medicaid dollars that then reimbursed the MCOs for the tax. Federal law in 2009 forced the state to change it to a sales tax on MCOs that participate in Medicaid, according to a fact sheet from the Kasich administration.
In 2014, the federal Centers for Medicare and Medicaid Services told states they could no longer levy a sales tax on a subset of providers – MCOs participating in Medicaid – at a different rate than the rest of the providers. CMS gave Ohio until June 30, 2017, to comply.
Brad Cole, managing director of research for the County Commissioners Association of Ohio, said the money from the tax that goes to counties – more than $148 million in calendar year 2015 – is an essential part of counties’ tax revenue. In 2015, it made up 7.5 percent of total sales taxes distributed to counties.
“It has a significant revenue impact on counties,” he said.
The sales tax is distributed to counties based on where the Medicaid enrollees using the services live, Mr. Cole said in an interview, meaning it affects poorer, rural counties heavily. In Vinton County, it made up nearly 25 percent of the county’s sales tax revenue in 2015.
Counties have also become more dependent on sales taxes in general and the MCO tax in particular, he said.
Though it’s still early, with the state months away from the introduction of the next biennial budget, Mr. Cole said the CCAO plans to work with the state to ensure counties don’t lose a large percentage of revenue.
“We’re going to be hoping to partner with the state in terms of some type of solution,” he said. “We don’t know what that solution’s going to be.”
John Charlton, spokesman for the Office of Budget and Management, said the change will have a significant impact for the state and local governments, and options are being considered.
“The important thing is that it’s being communicated to the legislators, to these county commissioners, to the transit authorities that they need to, number one, be aware that this is coming,” he said in an interview. “They should have known for at least two years now. And we’re going to try to address this as well. We’re concerned about it and we’d like to see a way we might address it at the state level.”
The threat of losing the MCO sales tax has loomed for years, with the Center for Community Solutions warning about the issue in 2011 and the Buckeye Institute citing it in 2013 as a reason it did not support expanding Medicaid.
Ohio could follow in the steps of other states that have had to contend with the issue, said Wendy Patton, senior project director at Policy Matters Ohio.
Other states, including California, Michigan and Pennsylvania, have considered, if not fully implemented, ways to rebalance the tax base. Ohio could make the MCO tax apply to all MCOs, not just those participating in Medicaid, she said, and offset that with cuts in other health care-related taxes.
“Ohio’s got a number of taxes amongst which it could work to come up with an equitable solution,” she said.
Mrs. Patton said the state should make sure any replacement tax is within the sales tax base, which would allow the counties and transit authorities to continue to draw revenue from it.
“We are very concerned that the state will say we’re just going to take this out of the sales tax base and fix it, and that would leave the counties with a hole that’s very difficult to fix in poor counties, particularly Appalachian counties” she added.
Another possibility, suggested by Greg Lawson, statehouse liaison and policy analyst with the Buckeye Institute, is to not replace the revenue stream at all.
“This is going to affect the whole budget,” Mr. Lawson said in an interview. “What do you do with further reforms for Medicaid? What do you do for local funding?”
At the local level, he said eliminating this revenue stream would force counties and transit authorities to be less dependent on the state for raising revenue, and would provide an incentive for them to either shave costs, possibly through more shared services, or raise new revenue locally.
“Honestly, this opens the door to broader conversations about how do you contain your costs at the local level all the way down to labor reform,” he said.
All Aboard Ohio Executive Director Ken Prendergast responded that transit agencies are getting only 1 percent of ODOT’s budget now. Instead, they should be getting at least 9 percent – commensurate with the share of households statewide without cars.
Worse, Ohio’s most populous counties are sending to Columbus more transportation tax dollars than they get back. Instead, their tax dollars are going to more rural counties which exacerbates urban sprawl and weakens existing transit tax bases. If we keep raising taxes in urban counties to compensate for losses in state funding, it will push out more jobs and people, especially those with the means to move, into newer communities and duplicating Ohio’s infrastructure needs.
“That leaves the poor behind, isolated in older, decaying neighborhoods where there are fewer available jobs,” Mr. Prendergast said. “In each Ohio metro area, only one in four jobs is accessible by public transportation now – a statistic that will worsen if local funding is increasingly the dominant funding mechanism for transit. Thus, increased state funding for public transportation must be part of any solution.”
For example, nearly all of Greater Cleveland was once contained wholly inside Cuyahoga County. It had a county population of 1.8 million when the Greater Cleveland Regional Transit Authority (GCRTA) was formed in 1974 and funded with a 1-cent, permanent, countywide sales tax. Since then, as Greater Cleveland’s population stayed stuck at 2.2 million yet sprawled into adjoining counties, Cuyahoga County’s population fell by 500,000.
With fewer people living in and buying things in the county, GCRTA’s sales tax revenues dropped by $68 million per year, according to Ken Sislak, vice president of the transportation consulting firm AECOM. No major city in the USA has cut more service-hours of transit since 2005 than GCRTA which is also facing a $600 million state-of-good-repair backlog. That includes a $280 million replacement of GCRTA’s 35-year-old rail fleet that keeps shrinking in size as more rail cars are cannibalized to keep the rest of the trains running.
This year, GCRTA addressed a $7 million shortfall with $3.5 million in savings from painful cuts to rail and bus services and another $3.5 million generated by raising fares. Those actions usually create a death spiral for transit agencies. The MCO sales tax hit to GCRTA is projected to be $18 million in 2017 and rising above $20 million thereafter, all of which may have to be addressed by route and service cuts, not fare hikes. If so, it would represent a hit to services six times worse than this year’s cuts and will deny access to jobs, education and health care for thousands of Greater Clevelanders.
Other Ohio transit agencies that depend on sales taxes like the Central Ohio Transit Authority (COTA) will face hard times, too. COTA is looking at a budget cut of $7 million in next year and rising each year thereafter. That represents a loss of about 5 percent of COTA’s budget which had seen funding increases and supporting expanded services in the past year with hopefully more to come. But that may be put on the back burner.
In Cincinnati, the situation with the Southwest Ohio Regional Transit Authority (SORTA) is nearly as desperate as Cleveland RTA’s, although it doesn’t depend on sales taxes. Instead SORTA, which provides service throughout Hamilton County, depends on an earnings tax paid by people who live and work in the City of Cincinnati. It’s a geographically limiting funding source established four decades ago before Cincinnati sprawled outward. SORTA is facing annual shortfalls of $20 million or more starting in 2018. SORTA would like to expand to connect job-seekers to more jobs but can’t afford to do so. A county-wide sales tax levy for transit might be sought but the SORTA postponed that decision, probably until 2017.
Lorain County, the most populous in Ohio without any dedicated funding for transit, is also considering a sales tax levy to fund Lorain County Transit. But with the uncertainties about the MCO sales taxes, county officials want to keep more of the new sales tax, if passed by voters this fall, to shore up their own sagging budget. Ohio counties that levy sales taxes for transit are Cuyahoga, Franklin, Lake, Mahoning, Montgomery, Portage, Stark and Summit.
The Ohio Public Transportation Association contributed to this article.