Legislative News

Supreme Court Overturns Local Hiring Preferences

September 24, 2019

In a landmark decision, today the Ohio Supreme Court held that R.C. 9.75 is a lawful enactment of the Ohio General Assembly, in prohibiting local hiring preferences in construction projects.
That section provides that “No public authority shall require a contractor, as part of a prequalification process or for the construction of a specific public improvement or the provision of professional design services for that public improvement, to employ as laborers a certain number or percentage of individuals who reside within the defined geographic area or service area of the public authority.”
The City of Cleveland Ordinance Chapter 188 nevertheless remained on the books, requiring that a minimum of 20 percent of the total construction work hours be performed by Cleveland residents, and that no fewer than 4 percent of those resident work hours be performed by low-income persons.
Cleveland sued the State of Ohio claiming that its Ordinance prevailed over the state prohibition under Constitutional “home rule” authority.
The Eighth District Court of Appeals (Cuyahoga County) found the state statute unconstitutional, ruling that, “It is readily apparent that R.C. 9.75 is no more than an attempt to preempt powers of local self-government and to restrict the contract terms between public authorities and contractors who choose to bid on local public improvement contracts.”
The State of Ohio appealed. On June 29, 2018, AIA Ohio filed an amicus curiae (“friend of the court”) brief with the Ohio Supreme Court in support of the State of Ohio, to prevent local residency quota requirements in public works construction. 
The decision and briefing of the other parties are available on the Supreme Court’s website at: https://www.supremecourt.ohio.gov/Clerk/ecms/#/caseinfo/2018/0097

Opponents of Occupational Licensing Bill Testify (SB 255)

The Senate Oversight and Reform Committee took testimony April 11 on SB255 which would require standing committees of the General Assembly to periodically review occupational licensing boards regarding their sunset, and to require the Legislative Service Commission to perform assessments of occupational licensing bills and state regulation of occupations.

AIA Ohio is working with interested parties on an amendment to the bill that would emphasize the level of national licensure and the substantial equivalency of the license.  Sen. McColley has indicated he might accept such an amendment to section 101.63(c)(6).

During the Committee hearing, Joseph Warino, representing the Ohio Society of Professional Engineers (OSPE), testified as an opponent to the bill. He said the bill would “threaten licensing of engineers in the state.

“Adopting a policy of ‘least restrictive regulation’ guidelines for registration could only serve to reduce the knowledge and experience necessary, resulting in substandard qualified engineers to preserve the health and safety of Ohio’s residents.”

Warino added, “The practice of professional licensure has worked well over many years and it should remain in place.”

Also testifying on the bill as an interested party was David Pritchard of the American Society of Civil Engineers, who said the current system of licensure within Ohio is working well and has since 1933.

The committee also received written testimony from Wade Baer of the Ohio Auctioneers Association and Keith Kerns of the Ohio Optometric Association.

Tax Expenditure Review Committee Commences Hearings

The Tax Expenditure Review Committee that eventually will concern itself with Ohio’s Historic Preservation Tax Credit held its first meeting April 11 with an examination of $4.03 billion in forfeited tax revenues, the lion’s share consumed by the sales and use tax exemption on tangible personal property whose buyers manufacture other tangible personal property for sale.

Sen. Scott Oelslager (R-Canton), chairman of the committee, checked off the first three items on the agenda with no testimony: sales to churches and certain other nonprofit organizations, with state revenue losses estimated at $600.1 million and county and transit authority losses at $147 million in FY18; sales by churches and certain types of nonprofit organizations, with state losses of $45.7 million and county and transit authority losses of $11.2 million in the current fiscal year; and sales to the state, any of its political subdivisions and to certain other states, with state losses of $122.9 million and county and transit authority losses of $30.1 million in FY18.

The tangible personal property (TPP) item — with estimated state losses of $2.21 billion and county and transit authority losses of $541.6 million in FY18 — drew testimony from five witnesses.

Senior Project Director Wendy Patton of Policy Matters Ohio presented testimony on tax expenditures as a whole, urging members to take a harder look at the exemptions they review. “HB9 outlined specific criteria for the committee to consider in deciding whether each expenditure should be continued, repealed, modified or scheduled for further review.”

“In conducting your review, the committee should look into more detailed questions ,” said Patton. “For instance, in examining whether a tax break ‘promotes or would promote growth or retention of high-wage jobs in the state,’ one of the factors permitted under the law, the committee should request data on wage levels for employees at recipient companies, and whether they are paid enough that they and the family members do not need public benefits such as Medicaid and food aid. In considering possible modifications, the committee should consider whether guard rails should be added to ensure that recipients are paying taxes, complying with state laws and providing information that allows for appropriate review of the tax break.”

Patton broadened her focus to address the larger impact of tax expenditures relative to tax reductions.

“The state has cut funding for libraries and local governments and underfunded early childhood education, public transit and other services relative to need. Yet tax expenditures — which have every bit as much impact on the state budget — have continued to grow and proliferate. Beyond a review of specific tax expenditures, the Tax Expenditure Review Committee should look to cut back on tax breaks,” she said. “As the tax counsel to the Ohio Manufacturers’ Association told the 2020 Tax Policy Commission two years ago, ‘To preserve the integrity of the broad tax base and ensure fairness, credits and exemptions should be reduced and discouraged.'”

Responding to Patton the LSC economist was asked for examples of expenditures created with related metrics. LSC staff responded that the commission would have to research the question for “specific goals” linked to certain expenditures that might be subject to some form of measurement.

Public Design Contract Indemnity Bill Heard (HB554)

The House Civil Service Committee took testimony April 12 regarding HB554 that would regulate the use of indemnity provisions in professional design contracts related to public improvements.

Rep. Seitz provided sponsor testimony on the bill, which he said would clarify the indemnity provisions in contracts entered into by professional design firms.

“The fundamental purpose of this bill is fairness. Right now, design professionals are being asked to defend public entities against third party claims before there is a determination that the design professional has committed error. The costs of such defense can be staggering and are beyond the control of the design professional. Just like the presumption of innocence, a design professional should not be presumed responsible for a cost without a determination of wrong-doing,” Seitz said.

“Moreover, this bill is entirely necessary in order to prevent the use of overbroad indemnity clauses to end-run our hard-won tort reform statutes that created a statute of repose,” he continued. “Under today’s law, an architect or engineer is not liable in tort for negligence for more than 10 years after completion of the public improvement. We made this decision — and it has been upheld by the Ohio Supreme Court — to make clear that injuries occurring later than that are due to defective maintenance, not defective design. However, when local governments use overbroad indemnity clauses, they resurrect the architect-engineer’s liability beyond the 10-year statute of repose as a matter of contract law, thus frustrating the public policy of our state.”

Kasich Signs Capital Budget

Gov. John Kasich signed the $2.63 billion bricks-and-mortar measure (HB 529) during a ceremony at Twin Valley Behavioral Health Hospital in Columbus.

The governor pointed to efforts to stabilize the state’s budget situation over the past several years, which he said allowed for the continued investments in Ohio-owned facilities and local projects. The legislation covering Fiscal Years 2019-20 building improvements includes mostly debt-backed investments in education, mental health facilities and community projects across the state.

“We still restrain our spending enough and our debt levels are low enough that we can afford this,” he said. “If our debt level got up too high, we wouldn’t be able to do these things.”

Gov. Kasich signed the capital budget a little over a month after it was introduced. The legislation, traditionally agreed upon before its introduction, cleared both chambers quickly with overwhelming bipartisan support. This budget covers capital appropriations and reappropriations through June 30, 2020.

In education and higher education, the budget includes $625 for repairs, renovations and new K-12 education facilities and $400 million for projects at Ohio’s colleges and universities. The administration’s emphasis in education funding was on forward-looking infrastructure, including technology, not new building construction, Gov. Kasich said.

“We’re not keen on the universities building new buildings,” he said. “Buildings are 20th Century.”
The budget includes $100 million for the Clean Ohio Fund, which will help promote green space, farmland and trails across the state, the governor said. The state will provide $439 million for local infrastructure projects administered by the Ohio Public Works Commission, through both bond-backed appropriations and revolving loan funding.

The governor also touted $20 million included in the budget for community resiliency projects, intended to improve and expand infrastructure in community centers and other facilities as part of an effort to help high-risk youth and others in underserved areas.

Indemnity Provisions in Professional Design Contracts (HB554)

HB554 was introduced March 15.  It would enact section 153.81 of the Revised Code to provide limitations of indemnification on public contracts with professional design firms.  An architect or engineer only would have to indemnify the public agency “for the proportionate share of the tortious conduct.”  Historically, design professionals face exposure of unlimited indemnification for design claims, which require defense even if found ultimately not liable. In addition, insurance is available only for the limited design work, when claims often go beyond.

Complicating the issue, once a design professional retires, the “claims-made” insurance is not available, exposing the retiree to unlimited, uninsured liability.

The legislation is assigned to the House Civil Justice Committee and is pending its first sponsor hearing.

Groups Push Bill To Periodically Examine Occupational Licensing Requirements

Ohio’s occupational licensing requirements are burdensome and cost state residents hundreds of dollars each year, members of a Senate panel were told Wednesday.

Proponents testified in favor of a measure, SB 255, to establish sunset provisions for occupational licenses and provide alternatives to licensing.

Micah Derry, state director of the Ohio chapter of Americans for Prosperity, told members of the Senate Government Oversight & Reform Committee that Ohio licenses 40 lower-income occupations and has the 20th most burdensome licensing laws in the country.

On average, according to Mr. Derry, the licensing process entails 350 days of training and $188 in fees.

“Often times these requirements do not come about due to consumers complaining to lawmakers about poor or unsafe service. Rather they are lobbied for by the very industry that wants to be licensed,” he said. “This is so those practicing in the occupation can restrict competition by restricting new entrants into the occupation and as a result, raise prices on consumers. Additionally, trade schools and the associations representing the industries advocate for these licenses because the legislation mandates training and continuing education which guarantees a revenue stream.”

Mr. Derry said licensing requirements cost Ohio households an additional $775 per year.

Under the measure, all licensing boards would be sunset every five years unless reauthorized by lawmakers. Mr. Derry said that provision will create more transparency and accountability.

“The time for opaque and unaccountable license boards has gone on for too long. It is time for this legislature to reassert its authority over occupational licensing in this state and work to grant workers more opportunity while also protecting consumers,” he said, adding the bill will be scored as a key vote.

Greg Lawson, research fellow at The Buckeye Institute, said Ohioans should not have to ask the state for permission to earn a living.

“No one denies that state licensing requirements are needed in some cases and industries to ensure public safety,” he said. “Requiring appropriate education and training for physicians, healthcare providers, pilots, and truck drivers, for example, helps safeguard the general public in our hospitals and on our roads and runways. But these concerns fade quickly when applied to auctioneers, travel guides, and hairdressers – all of whom are subject to Ohio’s byzantine licensing requirements.”

To emphasize his point, Mr. Lawson pointed to the case of Jennifer McClellan, a licensed massage therapist who tried to move back to Ohio to be closer to her family but was denied a license to practice because she was 10 days short of the state’s training requirements.

“Every licensing requirement raises a new red-taped obstacle for workers to clear before earning a living or starting a new career,” he said. “Every hour of unpaid training needed to satisfy bureaucratic requirements is an hour not spent earning tips, impressing a boss, serving a customer, or opening a business. Those are hours of lost productivity, hours of opportunity that young, low-income workers sorely need, but that the state continues to take for itself.”

Sen. Matt Huffman, (R-Lima) requested that Mr. Lawson develop a list of occupational licenses that are not necessary. Chairman Sen. Bill Coley (R-Liberty Twp.) said that effort is already underway.

In written proponent testimony, Brandon Ogden of Small Business Consultants of Ohio said licensing laws disproportionately impact small businesses.

“Given that small businesses are the most fragile and vulnerable employers in the state, it is important that their regulators be assessed and evaluated periodically,” he wrote.

Senate Passes Capital Budget

Senators on Wednesday signed off on the capital appropriations bill, sending it to Gov. John Kasich for his signature.

The $2.63 billion spending measure HB 529 received no changes since its introduction last month. It doubles past financial commitments for behavioral and mental health infrastructure and prioritizes projects addressing the opioid epidemic, according to sponsors.

It also includes $600 million for school facilities, $514 million for local infrastructure projects, $483 million for public colleges and universities and $150 million in community projects.

An additional $222 million is allocated for health and human services, developmental disabilities, mental health, addiction treatment and women’s health initiative facilities over the next two years.

Sen. Scott Oelslager (R-N. Canton) said the measure “provides a strong major investment in our schools, our community and our economy.”

He highlighted that $2.22 billion of the funding is supported by General Revenue Fund-backed debt obligations, with the remainder supported by non-GRF-backed bonds and cash funds. The bill also includes reappropriations for unfinished, previously authorized projects.

“Consistent with the legislature’s focus on strategic spending and pro-economic growth, HB529 represents a manageable and affordable legislation that remains within our current and future budget capacity,” he added. “More importantly, this bill keeps Ohio well under the constitutional 5% limitation on debt service as a percent of revenue.”

The budget passed 32-1 with Sen. Kris Jordan (R-Ostrander) objecting. It passed the House earlier this month in a similar near-unanimous (90-2) vote.

Tax Expenditure Review Panel to Asses Historic Preservation Tax Credits et. al.

The new Tax Expenditure Review Committee, created to give ongoing scrutiny to foregone state revenue in the form of exemptions, deductions and other special exceptions in the tax code, has announced its first meeting and the first set of tax expenditures to go under the microscope. Historic preservation tax credits are included among many “tax expenditures.”

After years of discussion among legislators and advocacy from outside groups across the political spectrum about the need for such reviews, lawmakers finally created the committee at the close of the previous General Assembly.

Under the law, the committee consists of six legislators and the tax commissioner, and it must review every tax expenditure listed in the Ohio Department of Taxation’s (ODT) biennial tax expenditure report at least once every eight years.

Sen. Scott Oelslager (R-North Canton), chair of the new committee and of the Senate Finance Committee, set an initial meeting for 10 a.m. Wednesday, April 11 in the Senate Finance Hearing Room, with the following five tax expenditures on the agenda:

  • Sales to churches and certain other nonprofit organizations, ORC 5739.02(B)(12), Department of Tax Code 1.01
  • Sales to the state, any of its political subdivisions and certain other states, ORC 5739.02(B)(1), Department of Tax Code 1.02
  • Sales by churches and certain types of nonprofit organizations, ORC 5739.02(B)(9), Department of Tax Code 1.03
  • Tangible personal property used primarily in manufacturing tangible personal property, ORC 5739.02(B)(42)(g), Department of Tax Code 1.04
  • Packaging and packaging equipment, ORC 5739.02(B)(15), Department of Tax Code 1.05

Other members of the committee include Sens. John Eklund (R-Chardon) and Vernon Sykes (D-Akron) and Reps. Tim Schaffer (R-Lancaster), Gary Scherer (R-Circleville) and John Rogers (D-Mentor-on-the-Lake.)

Additional meetings will take place at 10 a.m. on Wednesday, April 25 and Wednesday, May 9, according to Oelslager’s office, which said it will announce the tax expenditures to be reviewed ahead of those meetings.

The law calls for the committee to consider several criteria in reviewing tax expenditures, such as the number and types of people who benefit, the public policy objectives and how successfully it meets them, and whether it has turned out to be more expansive than intended, among others.

The committee is required to issue a report by July 1 of every even-numbered year.