State Budget Update: Governor’s Vetoes

Governor Kasich used his powers of line-item veto to strike 47 items from the Legislature’s budget before signing the bill late Friday June 30. One of the most controversial provisions struck was one that which would have ended new enrollment in Medicaid starting July 1, 2018, for people who gained coverage under Obamacare. At that point, those who dropped off the rolls, perhaps because they received higher wages during a given month, would be unable to re-enroll. Many Medicaid members drop off and re-enroll each year, so the freeze would end the health care program for them. It will take a three-fifths majority in both the House and the Senate to overturn Governor Kasich’s vetoes.

The House is scheduled to reconvene this Thursday July 6 to consider a veto override vote. The Senate will likely meet next week. Override votes are allowed any time before the start of a new legislative session in January 2019, so this process could continue into the Fall. Apparently, any changes to Medicaid as the result of an override would need approval from the federal government.

The vetoed items as well as excerpts from the Governor’s veto message are listed below. Provisions that relate to budget items being tracked previously by OEDA are in bold and italicized:

Item 1 – Funding for Voting Machine Upgrades Deletes $1 million targeted to reimburse counties for the purchase of new voting machines, saying it jeopardizes the tax exempt status of the bonds used for the appropriation.

Item 2 – Purchase of Energy and Automatic Data Processing, Computer and Electronic Devices Deletes Controlling Board oversight for energy or information technology-related purchases, noting the issues were addressed by “improvements to procurement practices and new transparency measures approved by the Controlling Board on June 12.”

Item 3 – Controlling Board Authority Deletes limits on the Controlling Board’s ability to adjust appropriations and create new funds.

Item 4 – Thomas Alva Edison Grant Program Deletes the restoration of the Edison Center Program, calling it an “outdated,” “institution centered” policy for economic development efforts.

Item 5 – Reimbursement Payments for Fixed-Rate TPP Tax Losses Eliminates a further slow-down of the phase-out schedule for reimbursement payments to school districts for tangible personal property (TPP) and utility property tax revenue losses. The administration recognizes challenges “to a small subset of districts … facing special challenges” and said it would work with them and the General Assembly to address their issues.

Item 6 – Exemption from State Test and Graduation Requirements for Selected Schools Eliminates the exemption from state assessment and graduation requirements for all students at chartered nonpublic schools in which at least 75 percent of the students are children with disabilities who receive special education. “This provision would create lower expectations for all students at these schools ….”

Item 7 – Progress Weighting for Community School Sponsor Evaluations Eliminates the provision raising the weight giving to the “Progress” category score from 20 percent to 60 percent for charter schools because it would “hold those schools to lower standards than tradition public schools.”

Item 8 – Education Service Center Community School Sponsor Requirements Eliminates the provision allowing educational service centers rated “Effective” to sponsor a charter school anywhere in the state.

Item 9 – Community School Sponsor Authority Revocation Exception Eliminates the ability for a charter school sponsor who had its sponsorship authority revoked to be reinstated under certain circumstances. “The focus on holding sponsors accountable for their performance as sponsors is key to improvement in community schools ….”

Item 10 – Elimination of Ohio Resident Educator Program Restores the Ohio Resident Education Program because “[h]aving a program that provides feedback and support to teachers in their first years of teaching is critical for student success and for retaining teachers.”

Item 11 – Paper and Online Tests Eliminates the ability for public and private schools to administer state achievement assessments in either paper or online formats, noting waivers to do so can still be issued by the Department of Education.

Item 12 – College Credit Plus Minimum Grade Requirement “… other provisions in the budget bill require the Ohio Department of Higher Education and the Ohio Department of Education to develop policies that address the issue of students who do not achieve appropriate standards in College Credit Plus classes, a requirement that renders this provision unneeded.”

Item 13 – Local Government Fund Penalty for Municipal Water and Sewer Actions “Not only does this provision break with established statewide and nationwide policies for funding infrastructure projects, it would impose unrealistic and unsustainable costs on localities and impose unique burdens on the city of Columbus and its water and sewer customers that others in Ohio would not experience ….”

Item 14 – School Facilities Assistance Segmenting Eliminates a provision that would allow certain school districts to reduce the amount of matching funds they are required to produce in order to receive state funds, reducing “the funds that are available to support other districts not identified by this provision for this kind of favorable consideration.”

Item 15 – Joint Vocational School District Projects Eliminates a provision that would redirect funding from the K-12 Classroom Facilities Assistance Program (CFAP) to the JVS Vocational Facilities Assistance Program (VFAP).

Item 16 – Health Care Compact Eliminates the requirement Ohio join a multi-state health care compact which would result in Ohio’s federal health care funding “being block-granted at 2010 spending levels. … [and] potentially cause an estimated 700,000 Ohioans to lose their existing health care coverage ….”

Item 17 – Ohio Department of Health and Local Health District to Approve, License, and Inspect Amusement Rides Eliminates the requirement that the Ohio Department of Health inspect aquatic amusement rides. “Because this provision fails to abolish ODAg’s [Ohio Department of Agriculture] authority it would result in aquatic rides being inspected by both the departments of agriculture and health.”

Item 18 – Undergraduate Tuition Guarantee Program Eliminates the ability for Ohio’s public universities choosing to initiate a tuition guarantee program to increase tuition by 8 percent rather than the 6 percent currently allowed.

Item 19 – Community Colleges Tuition Increase Eliminates the provision allowing an increase of up to $10 per credit hour for undergraduate instructional and general fees for community, state community, and technical colleges, while also exempting non-instructional program fees from the legislation’s two year freeze on undergraduate instructional, general, and all other fees for state universities or colleges because it would mean an increase in annual education costs for these schools’ students of up to 7.5 percent. “The administration and General Assembly have gone to great lengths to help Ohio’s public colleges and universities implement innovative strategies to control their costs, and continuing these efforts is essential to maintaining access to college.”

Item 20 – Adult Protective Services Eliminates the ability for law enforcement and county prosecutors to receive reimbursement for activities related to adult protective services.

Item 21 – Joint Education Oversight Committee (JEOC) Authority over Ohio Department of Education Audit Standards Eliminates a “functional” veto power by JEOC over Ohio Department of Education’s administration of full-time-equivalent student population audits and reviews.

Item 22 – Prohibition on the Use of Credit Cards to Purchase Lottery Products Eliminates the prohibition on using credits to purchase lottery games.

Item 23 – Medicaid Coverage of Optional Eligibility Groups Eliminates the prohibition on the Department of Medicaid from covering any new, optional groups “unless expressly permitted by statute” because this would violate federal law requiring there be a single state agency in charge of administering the Medicaid program.

Item 24 – Recovery of Medicaid Overpayments Eliminates the reduction from five to three years for the Department of Medicaid to issue overpayment notices to nursing facilities and ICF/DD providers — significantly affecting “the department’s ability to recover overpayments.”

Item 25 – Legislative Oversight of Rules Increasing Medicaid Rates Eliminates the requirement that any Medicaid payment rate increase must go to the Joint Medicaid Oversight Committee and the ability for the General Assembly to, by concurrent resolution, stopping a rate increase.

Item 26 – Medicaid Rates for Neonatal and Newborn Services Eliminates the provision that would require that the Department of Medicaid set rates for certain neonatal and newborn services at levels equal to 75 percent of the Medicare rates for those services, and forces the Medicaid director to reduce the rates for other services to avoid an increase in Medicaid expenditures. The veto said it threatens access to services for vulnerable Ohioans and limits the ability of the Medicaid director to effectively and efficiently manage the Medicaid program.

Item 27 – Medicaid Rates for Nursing Facilities. Eliminates the provision that makes numerous changes in the formula used to determine Medicaid payment rates for nursing facility services, including eliminating portions of the reimbursement formula that are focused on quality and accountability measures. The veto said it restricts the Medicaid director’s ability to establish rates that best ensure the quality and efficiency of Medicaid nursing facility programs.

Item 28 – Medicaid Eligibility Requirements for Expansion Group Deletes the provision that would require the director of the Department of Medicaid to seek a federal waiver to allow the department to prohibit virtually every Ohioan age 19 through 64 with an income at or below 138 percent of the federal poverty level who is not already enrolled in Medicaid, from enrolling in the program after July 1, 2018. The veto noted the benefits to Ohioans in this population since becoming eligible for coverage under the expansion in 2014, and said the provision could also violate federal law.

Item 29 – Medicaid Waiver to Provide Services and Institutions for Mental Diseases Eliminates the provision that requires the director of the Department of Medicaid to apply for an 1115 waiver from the federal Centers for Medicare and Medicaid Services to allow the department to provide certain types of services at facilities that deliver mental health services, referred to as Institutions for Mental Disease (IMD). The veto said the provision is duplicative of current efforts to serve the population beginning July 1, 2017, and requires the department to take actions not required by the federal government.

Item 30 – Long-Term Services Added to Medicaid Managed Care Eliminates the provision that prohibits nursing facilities, as well as home- and community-based waiver services, with limited exceptions, from being added to Medicaid managed care at any time prior to the General Assembly’s enacting legislation authorizing the addition. This provision also creates a temporary study committee to examine the merits of including these services in the managed care system. The veto said the provision would unreasonably delay or even deny the benefits of care coordination to Medicaid recipients with the most complex needs.

Item 31 – Behavioral Health Redesign Eliminates the provision requiring the Ohio Department of Medicaid delay the addition of behavioral health services into managed care until July 1, 2018. The administration said in the veto it supports a delay in coding changes to Jan. 1, 2018, but the care coordination delays mandated by the provision will impose new costs on taxpayers and private sector providers who have prepared for the anticipated effective date. “More significantly, the delay will be detrimental to individuals who would benefit the most from receiving coordinated behavioral health services.”

Item 32 – Managed Care Premium Payment Withholdings Eliminates the provision to limit to 1 percent the maximum amount that the Department of Medicaid can withhold from a managed care organization’s premium payments based on how well a managed care organization meets performance criteria. The veto said decreasing the maximum allowable withholding “undermines the pursuit of better value and quality and takes Ohio backward” in efforts “to drive better value for taxpayers.”

Item 33 – Health Insuring Corporation Franchise Fee Deletes the provision that would require the Department of Medicaid to ask the federal Centers for Medicare and Medicaid services whether the franchise fee may be increased through the health insuring corporation (HIC) franchise fee and, if the fee may be so increased, to request approval for the increase. The veto noted Medicaid has already been approved for a HIC waiver and requesting a change puts that waiver in jeopardy and risks the loss of the $615 million net benefit permitted by the waiver.

Item 34 – Controlling Board Authorization Regarding Medicaid Expenditures Deletes the provision requiring the director of budget and management to transfer money from the General Revenue Fund to the Health and Human Services Fund and requiring the Medicaid director to request the Controlling Board to authorize expenditures from the Health and Human Services Fund for purposes of paying for the Medicaid program. The veto said the administration does not oppose the requirement, but the provision also restricts the Controlling Board from releasing funds if Congress amends federal law governing the federal medical assistance percentage in a manner that reduces the percentage, even if that reduction has no impact in the current biennium.

Item 35 – Medicaid Payment for Hospital Service Eliminates the provision that would set the Medicaid payment rate for a hospital service provided from July 1, 2017 through June 30, 2019, at a level equal to that paid for the same service on July 1, 2017, except for any change resulting from a rebasing or recalibration of rates on Jan. 1, 2017. The provision also requires the Ohio Department of Medicaid to reduce payment rates for hospital services if the total amount paid would exceed FY17 funding levels. The veto said the provision would limit the ability of the Medicaid director to effectively and efficiently manage the Medicaid program and obstructs the administration’s authority to maintain the fiscal stability and programmatic integrity it has established for the Medicaid program.

Item 36 – Waiver Regarding Healthy Ohio Program Eliminates the mandate that the Department of Medicaid request the same waiver to implement the Healthy Ohio program which was previously denied by the Centers for Medicare and Medicaid Services. The veto said the provision would be duplicative and an ill-advised use of Medicaid resources.

Item 37 – Oil and Gas Leasing Commission Appointments Deletes the transfer of appointment authority for members of the Ohio Oil and Gas Leasing Commission from the governor to the General Assembly. The veto said the provision would create potential for conflicts in how public lands under the jurisdiction of executive branch agencies are utilized.

Item 38 – Property Tax Valuation of Oil and Gas Reserves Eliminates the provision that would specify the only method that county auditors can use for determining the value of sales and leases when assessing the value for tax purposes of sub-surface minerals prior to their production. The veto said other assessment models exist, “and it is inappropriate to limit the flexibility of county auditors.”

Item 39 – Modification of Lifeline Telephone Services Eliminates the provision the administration said would allow incumbent local exchange carriers to abandon the Lifeline program that allows low-income customers to gain access to basic telephone service. “It is important that these populations not be put at risk of losing service, especially in regions of the state where few, if any, alternative phone providers exist.”

Item 40 – General Assembly Review of Cabinet Departments Eliminates the provision that the veto said would create a second, duplicative process, to review agencies beyond the current budget process and require half of executive branch agencies to appear before the General Assembly every two years “to conduct essentially the same review that was conducted during the budget process.”

Item 41 – Sales Tax Remittance by Motor Vehicle Dealers Eliminates the provision that would allow Ohio motor vehicle dealers to remit sales and use taxes on vehicle sales directly to the state on a monthly basis rather than to a clerk of court when a vehicle is titled. The veto noted the provision would cause the state to lose an estimated $18.8 million in revenue in FY19 and would also require the state to pay clerks of courts the administrative fee they would have received for collecting the sales tax on a vehicle despite the fact that they did not actually collect the tax for the state.

Item 42 – Sales Tax on Electronic Services Eliminates a new sales tax exemption that specifies sales of automatic data processing, computer services, electronic information services and electronic publishing are not considered the true object of a sales transaction and therefore not subject to the sales tax when they are provided primarily for the delivery, receipt or use of another non-taxable service. The veto said the concept of a mixed transaction is not unique to electronic services and a taxpayer may currently separate at the point of purchase these transactions and apply the sales tax appropriately.

Item 43 – Sales Tax Exemption for Prescription Optical Aids Eliminates the provision exempting optical aids such as eyeglasses and contact lenses and their components up to $650 in value from the sales and use tax. The veto said the language is not compliant with the Streamline Sales Tax and Use Tax Agreement and could jeopardize sales tax revenue.

Item 44 – Rural and High-Growth Industry Jobs Program Eliminates the provision authorizing a nonrefundable tax credit for insurance companies that invest in special purpose “rural and high growth industry funds.” The governor’s veto said the administration agrees with the intent of the provision and will work with the Ohio Senate on separate legislation to address the issue, noting issues in the budget provision including that it would permit half to go to suburban and urban areas.

Item 45 – Ohio Maritime Assistance Program Deletes the provision requiring the Ohio Department of Transportation (ODOT) to create a special program to support the state’s maritime assets and earmarks $4 million for the program. The veto said ODOT is conducting a study of the state’s maritime assets, and therefore it is premature to fund maritime projects without the study’s data.

Item 46 – Veterans Job Placement Eliminates the requirement that the Ohio Department of Veteran Services create a new website for delineating job placement, tracking and reporting for veterans seeking employment. The governor said federal law requires the state to perform these functions, which it does through the Ohio Department of Job and Family Services (ODJFS). The veto said the Department of Veterans Services and ODJFS will work with veterans advocacy organizations and House Speaker Cliff Rosenberger (R-Clarksville) to strengthen the existing effort.

Item 47 – Local Workforce Development Board Meetings by Teleconference The governor said he vetoed the provision because it does not set a minimum number of members that are required to meet and conduct business in a public location, allowing that number to be set locally. This could lead to situations where all members are participating remotely. “This issue is too important to the economic success of Ohio to not ask board members to commute a short distance and participate in board meetings in person. Additionally, creating this ability for one entity, while maintaining a prohibition on teleconferencing for others, furthers undesirable inconsistencies in policy.”