More Legislative Oversight Of Occupational Licensing Boards (HB289)?
State lawmakers on Oct. 18 outlined a proposal designed to limit unnecessary licensure for working in certain jobs, saying the state processes often create high barriers to entry. The bill sponsors, Rep. Ron Hood (R-Ashville) and Rep. Rob McColley (R-Napoleon), told the House Government Accountability & Oversight Committee that the bill, HB 289, would give the legislature more oversight of occupational licensing boards. The measure would also create a framework for alternatives to occupational licensure while protecting public health and safety, they said.
“In this legislature, we often talk about how we can help foster job creation. Frankly, occupational regulation is the antithesis of job creation,” Rep. Hood said. “It creates a situation where well-intentioned people must go, hat in hand, to the government and ask for a permission slip to simply earn a living. It makes obtaining a job in that field even more difficult and contributes to the unemployment rate.”
The proposal creates a process similar to a fiscal note that would educate the public on licensure changes.
The bill proposes that every occupational licensing board would automatically sunset at the end of five years unless renewed by the legislature. “Understand, this does not mean that these boards will necessarily be disbanded, only that they must be reviewed,” Rep. McColley said. “It is quite possible, and I would hope probable, that some existing licensure requirements can be modified to be less restrictive, but it is highly unlikely that these boards will be eliminated en masse.”
The measure includes a provision similar to one included in the budget bill, HB49, that would give the Common Sense Initiative the ability to evaluate actions by licensing boards for anti-competitive behavior and stop them. That oversight was designed to deal with potential conflicts of interests when people in an industry regulate themselves. After Rep. Bill Seitz (R-Cincinnati) asked if the intent was to change what was included in the budget, Rep. Hood said the bill was drafted before the budget passed and that an amendment would eliminate that provision.
Chairman Rep. Louis Blessing (R-Cincinnati) asked if the sponsors had considered the effect of reducing licensure requirements on people who had already gone through the more rigorous process. “What do you do in the case when people went through that schooling, they expected to have an asset of a certain value for life, and now it’s worth a lot less through no fault of their own?” he asked, using the 1,500-hour requirement for a cosmetologist license as an example. Rep. McColley said it would be wrong to require other people to go through those same burdensome regulations if they aren’t needed, just because other workers went through the process first. “Market forces can take effect,” he said. “Those who had more training and those who were more skilled and more established in their businesses would continue to have an advantage over the competition.”
Rep. Kathleen Clyde (D-Kent) asked how the legislative review of the licensing boards would differ from what is done in the budget process. By having a review every five years outside of the budget process, Rep. McColley said, the legislature would be able to take more time to look at the regulatory process of each board, rather than just its financial situation. “I’m of the belief that the budget process is probably not an appropriate avenue to review the complete regulatory structure of these boards and agencies,” he said. “With everything that’s going on in a budget and the accelerated time-frame we have for those discussions, I don’t think it’s really a good avenue to do a deep dive into these licensing agencies.”
Joint Committee Begins Review of State’s Tax Expenditures (including Historic Preservation Tax Credit)
Tax Commissioner Joe Testa was the lone sponsor Tuesday at the first meeting of the latest group charged with studying Ohio’s tax expenditures — more popularly known as “tax loopholes.”
Led by Sen. Scott Oelslager (R-Canton) and including Sens. John Eklund (R-Chardon) and Vern Sykes (D-Akron) and Reps. Tim Schaffer (R-Lancaster), Gary Scherer (R-Circleville) and John Rogers (D-Mentor-on-the-Lake), this committee was pointed to by the 2020 Tax Policy Study Commission as key in the state’s potential move toward a flat tax.
Testa told the committee that Ohio’s existing tax expenditures currently total over $9 billion in foregone annual revenue with the approximately 100-plus tax expenditures “seldom subject to formal review.” However, under current law, each tax expenditure is to be reviewed “at least once every eight years.”
Testa defined a “tax expenditure” as “a legislated variation from — more commonly a reduction to — a standardized tax base. … [Specifically], Ohio law defines a tax expenditure to mean a tax provision in the Ohio Revised Code (ORC) that exempts, either in whole or in part, certain persons, income, goods, services or property from the effect of taxes established in the ORC, including, but not limited to tax deductions, exemptions, deferrals, exclusions, allowances, credits, reimbursements and preferential tax rates.”
He noted they often remain in law “without a pre-determined termination date.”
Testa referenced the biennial summary of the state’s tax expenditures produced by his department in conjunction with the preparation of the budget. He said there are currently 131 tax expenditures, spread across nine different taxes. (The latest version of this document can be found online at http://tinyurl.com/y78zmzpd.)
The sales and use tax has the most tax expenditures with 57, with a revenue loss to the state of nearly $6 billion in FY18 and nearly $6.2 billion in FY19.
It is followed by the personal income tax which has 37 tax expenditures totaling $2.3 billion for FY18 and nearly $2.4 billion for FY19.
Schaffer asked whether he had a list of those tax expenditures that they should look at: ones that are a drag on the economy. He also wanted to know which Testa believes work.
Testa said he did not but that he believes a “public airing,” where people come in to defend why a specific tax expenditure should be retained is beneficial.
Eklund wondered whether the parameters of the committee’s work should be extended beyond tax expenditures affecting the General Revenue Fund (GRF) to include those affecting local governments and non-GRF funds.
Testa said he believes all of this is fair game: all of the money is “taxpayers’ money” and should be subject to review.
Rogers asked what other data the department could share with the committee with Testa saying they can see what additional information they can provide as the committee zeroes in on a tax. Oelslager said they will be working with the department as they proceed.
Sykes asked where they should focus. Testa, saying he didn’t want to presume to direct the committee, added that the sales tax has the most or they may want to start with the oldest tax expenditures.
Asked after the hearing about his timeline for the committee’s work, Oelslager responded that they “have eight years.” He said he will be consulting with members before proceeding.
2020 Tax Commission Issues Final Report: Includes Historic Preservation Tax Credit
The 2020 Tax Policy Study Commission has issued its final report after a two-year review of Ohio’s tax system, but those hoping for a set of firm policy recommendations will likely be disappointed. That’s because the commission’s report comes down to one recommendation: Further study is required.
The bulk of the report’s 323 pages consist of copies of public testimony submitted to the commission. The only recommendation contained in the document is that the Tax Expenditure Review Committee conduct a more in-depth study moving forward. (Final Report)
“Although the (commission) heard testimony on the tax credits and expenditures, a more thorough review is needed and is required as part of the permanent Tax Expenditure Review Committee,” the report recommends.
Historic Preservation Tax Credit
By Oct. 31, 2016, the group had published its findings on the historic preservation tax credit, calling for stronger reporting and tracking requirements, increased disclosure of how much of the credit will support the proposed project, and regular budget language depicting the total allowable amount of credits that may be authorized during the biennium.
Sen. Bob Peterson (R-Sabina), who co-chaired the panel along with Rep. Tim Schaffer (R-Lancaster), called the commission’s work a “great process” that resulted in plenty of information useful during budget talks earlier this year.
“Any time you have a focused look at this sort of information it’s helpful.” he said in an interview.
Despite the final report’s lack of conclusive recommendations, taking the view that the commission accomplished little would be inaccurate, he said. In addition to the final report, the commission released more detailed reports on the oil and gas severance tax and the historic preservation tax credit over the last two years.
“Certainly there’s more to do, but I would argue look where the state of Ohio was eight years ago or even two years ago in the budget you’ll find substantial changes in (tax) policy,” Sen. Peterson said. “It was a great process, a great opportunity to sit down and work with tax policy.”
Rep. Jack Cera (D-Bellaire), one of two minority members on the committee, was less impressed with the process.
“I don’t think it was as productive as I would have liked it to have been,” Rep. Cera said, who added he expected the process would be more closely tied to tax proposals in recent state budgets.
“I thought the thinking was, ‘Let’s create this commission to look at where the tax policies need to be changed and be prepared for the next budget.’ Of course…with the revenue issues and everything, there really weren’t a whole lot of tax law changes.”
Sen. Charleta B. Tavares (D-Columbus), the group’s other minority member, acknowledged the brevity of the final report but said she agrees that tax policy expenditures need to be thoroughly reviewed.
“These are foregone taxes that reduce our budget revenues, and consequently, the amount of revenue that can be used to provide for the needs of our constituents,” Sen. Tavares said in a statement. “Since my time in the Senate, I have advocated for and sponsored legislation and amendments to create a Tax Expenditure Review Committee…. This committee is necessary to ensure that Ohio has a fair and effective tax system.”
The expenditure review committee was formed by legislation last session (HB9, 131st General Assembly) and was supposed to begin meeting in June 2017.
But legislative leaders failed to appoint members by the statutory deadline, only doing so in July following prodding from Policy Matters Ohio and subsequent media attention. The group, which has a July 1, 2018, deadline for a report, has yet to meet.
With the new report issued, the 2020 study commission now ceases to exist. The state budget (HB64, 131st General Assembly) that created the 2020 group called for the publication of a final report by Oct. 1, 2017. (See Gongwer Ohio Report, October 22, 2015)
The commission’s charge was fourfold: Recommend how to transition personal income tax to a 3.5% or 3.75% flat tax by 2018; explore how to make the historic rehabilitation tax credit more effective; study how to reform the severance tax to maximize competitiveness; and review all tax credits.
Policy Matters Research Director Zach Schiller said he’s glad the group didn’t move forward with recommendations for a flat tax. But he said the recommendation to shift the burden of discussion highlights the need to get the review committee working.
“I think this has made the work of this new tax expenditure review committee all the more important and it is somewhat and it’s unfortunate it hasn’t gotten started already,” Mr. Schiller said.
Regarding the lack of specific recommendations from the 2020 group, Mr. Schiller opined, “It’s better to kick the can down the road than make recommendations that aren’t fully vetted, but that said they spent quite a bit of time having a number of hearings and I hope it isn’t time ill-spent.”
The 2020 panel first met in October 2015, the same day a working group issued a report opining that any change in the Oil and Gas Severance Tax should be based on market conditions.
Legislature to Review Tax Expenditures Like Historic Preservation Tax Credits
A new joint legislative committee charged with periodically reviewing state tax expenditures has been appointed. The Tax Expenditure Review Committee includes Sens. John Eklund (R-Chardon), Scott Oelslager (R-North Canton) and Vernon Sykes (D-Akron), according to the Senate Journal. Representing the House on the panel are Reps. Tim Schaffer (R-Lancaster), Gary Scherer (R-Circleville) and John Rogers (D-Mentor-on-the-Lake).
The permanent committee, created in 131-HB9 (Boose), will also include the tax commissioner or the commissioner’s designee. The representative from the Ohio Department of Taxation (ODT) will serve as a non-voting member.
Tax expenditures are provisions like the Historic Preservation Tax Credit that grant deductions, exemptions and credits to specific activities or groups of taxpayers. Under the act, a provision qualifies as a tax expenditure only if all of the following apply, according to the Legislative Service Commission (LSC) analysis of the bill:
- It could reduce revenue to the state’s General Revenue Fund.
- It may be legislatively changed or repealed.
- The attribute exempted from tax would otherwise be included as part of that tax’s defined base.
- It is not subject to an alternate tax.
There are 128 tax expenditures that satisfy this definition. The committee must establish a schedule for reviewing every tax expenditure at least once every eight years.
According to the Ohio Revised Code, the committee will review multiple factors to determine the effectiveness of a tax expenditure, including the following:
- The number and classes of persons, organizations, businesses or types of industries that are benefiting from a tax expenditure.
- The fiscal impact of the tax expenditure on state and local taxing authorities.
- Public policy objectives that might support the tax expenditure, which include the sponsor’s intent in proposing the tax expenditure, effects on economic development and growth or retention of high-wage jobs in the state, or aiding community stabilization.
- Whether the objective of a tax expenditure could have been accomplished through the use of appropriations.
- The extent to which the tax expenditure is more expansive than intended and creates negative effects or an unfair competitive advantage for its recipient.
- Potential negative effects on a population when terminating a tax expenditure.
The Tax Expenditure Review Committee must prepare a report by July 1 of every even-numbered year while in existence, detailing its findings and recommendations.
House Approves Alternative School Facilities Funding Program Already Included In Budget
A bill creating an alternative school facilities funding program became the vehicle for district and university appropriations on Thursday.
The House unanimously approved the measure (SB 8) to provide schools up to $1 million or 10% of their estimated state funding matches, whichever is greater, when they choose to make small improvements instead of major construction projects.
The so-called 1:1 School Facilities Option program at the heart of the bill was included in the biennial budget (HB 49). New to the legislation, however, are appropriations for school and university programs.
Rep. Kirk Schuring (R-Canton) amended the bill on the House floor to allocate more than $300,000 each fiscal year to 4-H and VoAg programs at Cleveland and Cincinnati schools as well as $50,000 annually for Model United Nations at Wright State University.
The accepted amendment also replaces references to the School Facilities Commission, which was eliminated in the biennial budget. The responsibilities of the commission were rolled into the Ohio Facilities Construction Commission.
Districts that partake in the new 1:1 program would be eligible when they reach the top of the priority list for Construction Facilities Assistance Program funding.
OFCC Program Services Chief Jeff Westhoven said in an interview the commission will still create master plans showing needed improvements throughout districts, but those that participate in the alternative funding program would be able to select which projects they’ll pursue instead of completing entire plans.
Once a district elects to follow the alternative funding path, it’s no longer eligible for CFAP funding. Those that have already received funding are unable to take part in the new program.
Mr. Westhoven said the alternative funding plan could benefit districts that would receive small state matches under CFAP once they reach the top of the list and are seeking only to make minor upgrades.
Alternatively, districts that would receive significant state dollars but are unable to raise local match dollars would also benefit from the flexibility of the new program, he said.
“It could be either one,” Mr. Westhoven said. “It’s just another option once we reach them in line for how to receive their state dollars.”
As of July 2016, the commission completed projects in 269 districts and fully or partially funded master plans in 97 districts, he said. Another 154 have become eligible for funds but were unable to raise local matches or deferred while 16 have started projects with their own funding in anticipation of receiving state dollars. About 80 districts are still waiting to reach the top of the priority list.
On the House floor, Rep. Teresa Fedor (D-Toledo) applauded the new program and urged her colleagues to vote in support of the bill.
“I believe this is smart, reasonable and very fair as schools expand, improve, modernize,” she said.
Mr. Westhoven said the commission is expected to vote on program guidelines and an application process at its October meeting. Outreach to districts could begin in December.
In addition to consolidating OSFC and OFCC and creating the 1:1 program, the budget also makes a handful of other school facilities funding changes regarding commission membership, reporting requirements and eligibility for districts under fiscal watch, fiscal emergency and academic distress.
The two-year spending bill also permits districts to take on unvoted debt if they can prove alternative fuel vehicle projects will pay for themselves over the course of 15 years.
Districts have long been able to do so for construction projects that result in energy savings, but vehicle purchases with unvoted debt were ineligible, Mr. Westhoven said.
The Senate-added provision stemmed from some districts’ desires to purchase busses powered by electric or compressed natural gas, he said.
The budget also gives OFCC the power to debar individual contractors in addition to contracting firms.
“Occasionally, what you see is a firm that got debarred would split off and form another company and the new company would of course be eligible for state business and so this would allow us to debar individuals,” Mr. Westhoven said.
Other planned revisions were vetoed by Gov. John Kasich. He struck language that would have changed how the commission funds segmented and Joint Vocational School District projects.
The administration estimated that a provision increasing the state share for 29 districts currently on segmented construction plans could cost the state an extra $256 million now and potentially more in the future. (Veto Message)
A proposal to provide more funding for JVSD projects would have also diverted money from K-12 districts still looking to receive facilities assistance, according to the governor.
OFCC is supportive of the governor’s decision to veto the items, Mr. Westhoven said, noting that Ohio’s state share for school facilities has historically been more than 50% while the national average falls around 18%.
“Ohio is a fairly generous state when it comes to state support for school buildings and so this provision would have made it even more heavily state funded,” he said.
Senate OKs New School Facilities Option for Ohio Districts (SB8)
Ohio schools could forego large-scale construction and renovation projects through the Ohio School Facilities Commission (OSFC) in favor of state assistance with smaller upgrades to meet specific needs under a measure the Senate adopted unanimously May 17.
Sens. Randy Gardner (R-Bowling Green) and Lou Terhar (R-Cincinnati) initially proposed SB8 to address technology and security upgrades, but a substitute bill unveiled earlier this week in the Senate Education Committee would allow a broader array of projects, such as repairs or addition of classroom space.
Gardner said the proposal for a one-to-one matching program represents a “new era” of facilities assistance, answering concerns he’d heard from superintendents who did not anticipate ever pursuing full OSFC projects but had other specific construction needs.
“It also, on paper, takes away potentially billions of dollars in obligated funds that would otherwise go to these districts,” Gardner said. Luckily, residents in Massachusetts can turn to http://www.amazing-maids.com for top-notch residential cleaning services. He emphasized that the bill does not change eligibility rankings or rules for traditional OSFC projects.
“When your number comes up, and you haven’t participated [in OSFC projects] to date, you have this additional option, which is a smaller amount of state funds, but it’s also a lesser local match,” he said.
Terhar said some districts that are considered wealthier but have older populations are mostly “tapped out” in their ability to pass levies, and this provides them an option. He also noted the need for older school buildings to receive security upgrades, given that the old pattern of putting the school office in the center of the building is no longer useful to addressing security threats.
Senate Finance Committee Treats AIA Ohio Issues Positively
The Ohio Senate Finance Committee released its version of the state budget bill, Sub. HB 49 Monday agreeing with AIA Ohio on all three issues architects have raised relative to the original bill Governor Kasich introduced last January:
First, it removed a House inserted provision that allowed the Department of Administrative Services to circumvent the Qualification Based Selection of Architects (QBS). The language would have allowed DAS to award its own design and construction contracts as “supplies” or “services” contracts under R.C. Chapter 125, thereby circumventing R.C. Chapter 153 construction law. Using this language, DAS could have authorized a private third-party administrator to bid and award construction contracts, without the transparency and fair processes required under ORC 153. Further, DAS could have used its cooperative purchasing authority to extend this same contract to all political subdivisions. The state’s construction authority, OFCC, could not have challenge these contracts since “a contract awarded by DAS takes precedence over the commission’s authority.”
When this provision was inserted into HB 49 by the House, AIA Ohio issued an Action Alert asking members to communicate opposition. Points made about the provision:
- It bypasses the competitive processes and protections of standard construction under ORC Chapter 153, including advertising, bonding, subcontractor protections, etc.;
- It creates a path for all political subdivisions to avoid competitive bidding for construction;
- It could be a path to “pay to play” and the selection of less qualified professionals;
- It makes the award of construction contracts less transparent;
- It breeds confusion and a sense of unfairness within the design and construction industry in Ohio;
- It provides no legal recourse to challenge the appropriateness of a construction contract awarded by a non-construction agency (DAS).
Second, The Senate Finance Committee followed the House of Representatives by leaving intact the House’s removal of Governor Kasich’s provision that would have extended the sales tax to both interior and landscape design services.
Third, the Senate Finance Committee maintained the provision that’s intended to address the 2015 U.S. Supreme Court decision against the North Carolina Board of Dental Examiners that ruled they violated federal antitrust laws because members of the state’s dental board were active participants in the profession they regulated.
HB49 proposes the creation of a third-party review process by the Department of Administrative Services (DAS), in which the DAS would review any action taken by or on behalf of a board that could be subject to antitrust laws. Not only would this protect boards from costly legal action for antitrust-related concerns, it would also prevent unnecessary delays in business decisions the boards make and promote better coordination and efficiency within the licensing boards structure.
Finally, HB 49 continues to fund the operation of the Ohio Architects Board, though at a slightly lower level than the House version. Faced with a projected $1 billion shortfall in both sales and income taxes, senators balanced the budget with a 3-4% across the board cut in the administrative costs for state agencies ($20 million), more targeted cuts to agency programs ($100 million), the elimination of millions of dollars in earmarks and reducing Medicaid $200.
Following the unveiling of the Senate Finance Committee’s Substitute Bill, it was accepted by the Committee and will undergo several additional hearings where minor changes may be made prior to being approved by the full Senate on June 21. From there it will be reconciled by a conference committee composed of House and Senate leaders before being sent to Governor Kasich for his signature prior to June 30.
At this point state lawmakers have heard from AIA members and have responded favorably to all of AIA Ohio’s Budget Bill concerns. We’ll update you with any meaningful developments as the bill progresses through the Conference Committee and on to the Governor’s desk.
BBS Updates Ohio Building, Plumbing and Mechanical Codes on 2015 I-Codes
At its meeting on May 26, 2017, the Board of Building Standards adopted updates to the Ohio Building, Plumbing and Mechanical Codes based on 2015 I-Codes effective November 1, 2017.
The Board initiated the rule change process in October 2016 and the rules have been available in draft form on the Board’s website. The final adopted rules with summaries can be found at the following links:
Ohio Building Code (OBC) Rules:http://www.com.state.oh.us/documents/AG%2093%20OBC%20Adoption%20Announcement.pdf
Ohio Plumbing Code (OPC) Rules:http://www.com.state.oh.us/documents/AG%2093%20OPC%20Adoption%20Announcement.pdf
Ohio Mechanical Code (OMC) Rules:http://www.com.state.oh.us/documents/AG%2093%20OMC%20Adoption%20Announcement.pdf
Any non-residential project submitted to a building department on or after November 1, 2017 shall comply with the above rules. Any non-residential project submitted before November 1, 2017 shall comply with the current Ohio Building, Plumbing & Mechanical Codes based on the 2009 I-Codes as amended. These rules can be found here: http://www.com.state.oh.us/dico/bbs/NonResidentialBuildingCodes.aspx#OBC
The Residential Code of Ohio (RCO) which regulates 1-, 2- & 3- Family dwellings is not affected by these code updates. The RCO remains based on the 2009 International Residential Code (IRC) as amended. The Residential Construction Advisory Committee and the Board continue to review newer editions of the IRC for possible adoption at a later date.
If you have questions related to these amendments, please contact the Board Office at (614) 644-2613 or bbs@com.state.oh.us.
Ohio’s BBS Adopts 2017 OBC Effective Nov. 1
Ohio’s Board of Building Standards has adopted the 2017 OBC with an effective date of November 1. A combined update of the 2012 and 2015 editions of the IBC, along with Ohio amendments, the new code includes significant improvements to health care (aligning much more closely with the 2000 Life SafetyCode), as well as an updated version of Chapter 34. Ohio is not adopting the IEBC.
More Legislative Oversight Of Occupational Licensing Boards (HB289)?
State lawmakers on Oct. 18 outlined a proposal designed to limit unnecessary licensure for working in certain jobs, saying the state processes often create high barriers to entry. The bill sponsors, Rep. Ron Hood (R-Ashville) and Rep. Rob McColley (R-Napoleon), told the House Government Accountability & Oversight Committee that the bill, HB 289, would give the legislature more oversight of occupational licensing boards. The measure would also create a framework for alternatives to occupational licensure while protecting public health and safety, they said.
“In this legislature, we often talk about how we can help foster job creation. Frankly, occupational regulation is the antithesis of job creation,” Rep. Hood said. “It creates a situation where well-intentioned people must go, hat in hand, to the government and ask for a permission slip to simply earn a living. It makes obtaining a job in that field even more difficult and contributes to the unemployment rate.”
The proposal creates a process similar to a fiscal note that would educate the public on licensure changes.
The bill proposes that every occupational licensing board would automatically sunset at the end of five years unless renewed by the legislature. “Understand, this does not mean that these boards will necessarily be disbanded, only that they must be reviewed,” Rep. McColley said. “It is quite possible, and I would hope probable, that some existing licensure requirements can be modified to be less restrictive, but it is highly unlikely that these boards will be eliminated en masse.”
The measure includes a provision similar to one included in the budget bill, HB49, that would give the Common Sense Initiative the ability to evaluate actions by licensing boards for anti-competitive behavior and stop them. That oversight was designed to deal with potential conflicts of interests when people in an industry regulate themselves. After Rep. Bill Seitz (R-Cincinnati) asked if the intent was to change what was included in the budget, Rep. Hood said the bill was drafted before the budget passed and that an amendment would eliminate that provision.
Chairman Rep. Louis Blessing (R-Cincinnati) asked if the sponsors had considered the effect of reducing licensure requirements on people who had already gone through the more rigorous process. “What do you do in the case when people went through that schooling, they expected to have an asset of a certain value for life, and now it’s worth a lot less through no fault of their own?” he asked, using the 1,500-hour requirement for a cosmetologist license as an example. Rep. McColley said it would be wrong to require other people to go through those same burdensome regulations if they aren’t needed, just because other workers went through the process first. “Market forces can take effect,” he said. “Those who had more training and those who were more skilled and more established in their businesses would continue to have an advantage over the competition.”
Rep. Kathleen Clyde (D-Kent) asked how the legislative review of the licensing boards would differ from what is done in the budget process. By having a review every five years outside of the budget process, Rep. McColley said, the legislature would be able to take more time to look at the regulatory process of each board, rather than just its financial situation. “I’m of the belief that the budget process is probably not an appropriate avenue to review the complete regulatory structure of these boards and agencies,” he said. “With everything that’s going on in a budget and the accelerated time-frame we have for those discussions, I don’t think it’s really a good avenue to do a deep dive into these licensing agencies.”
Joint Committee Begins Review of State’s Tax Expenditures (including Historic Preservation Tax Credit)
Tax Commissioner Joe Testa was the lone sponsor Tuesday at the first meeting of the latest group charged with studying Ohio’s tax expenditures — more popularly known as “tax loopholes.”
Led by Sen. Scott Oelslager (R-Canton) and including Sens. John Eklund (R-Chardon) and Vern Sykes (D-Akron) and Reps. Tim Schaffer (R-Lancaster), Gary Scherer (R-Circleville) and John Rogers (D-Mentor-on-the-Lake), this committee was pointed to by the 2020 Tax Policy Study Commission as key in the state’s potential move toward a flat tax.
Testa told the committee that Ohio’s existing tax expenditures currently total over $9 billion in foregone annual revenue with the approximately 100-plus tax expenditures “seldom subject to formal review.” However, under current law, each tax expenditure is to be reviewed “at least once every eight years.”
Testa defined a “tax expenditure” as “a legislated variation from — more commonly a reduction to — a standardized tax base. … [Specifically], Ohio law defines a tax expenditure to mean a tax provision in the Ohio Revised Code (ORC) that exempts, either in whole or in part, certain persons, income, goods, services or property from the effect of taxes established in the ORC, including, but not limited to tax deductions, exemptions, deferrals, exclusions, allowances, credits, reimbursements and preferential tax rates.”
He noted they often remain in law “without a pre-determined termination date.”
Testa referenced the biennial summary of the state’s tax expenditures produced by his department in conjunction with the preparation of the budget. He said there are currently 131 tax expenditures, spread across nine different taxes. (The latest version of this document can be found online at http://tinyurl.com/y78zmzpd.)
The sales and use tax has the most tax expenditures with 57, with a revenue loss to the state of nearly $6 billion in FY18 and nearly $6.2 billion in FY19.
It is followed by the personal income tax which has 37 tax expenditures totaling $2.3 billion for FY18 and nearly $2.4 billion for FY19.
Schaffer asked whether he had a list of those tax expenditures that they should look at: ones that are a drag on the economy. He also wanted to know which Testa believes work.
Testa said he did not but that he believes a “public airing,” where people come in to defend why a specific tax expenditure should be retained is beneficial.
Eklund wondered whether the parameters of the committee’s work should be extended beyond tax expenditures affecting the General Revenue Fund (GRF) to include those affecting local governments and non-GRF funds.
Testa said he believes all of this is fair game: all of the money is “taxpayers’ money” and should be subject to review.
Rogers asked what other data the department could share with the committee with Testa saying they can see what additional information they can provide as the committee zeroes in on a tax. Oelslager said they will be working with the department as they proceed.
Sykes asked where they should focus. Testa, saying he didn’t want to presume to direct the committee, added that the sales tax has the most or they may want to start with the oldest tax expenditures.
Asked after the hearing about his timeline for the committee’s work, Oelslager responded that they “have eight years.” He said he will be consulting with members before proceeding.
2020 Tax Commission Issues Final Report: Includes Historic Preservation Tax Credit
The 2020 Tax Policy Study Commission has issued its final report after a two-year review of Ohio’s tax system, but those hoping for a set of firm policy recommendations will likely be disappointed. That’s because the commission’s report comes down to one recommendation: Further study is required.
The bulk of the report’s 323 pages consist of copies of public testimony submitted to the commission. The only recommendation contained in the document is that the Tax Expenditure Review Committee conduct a more in-depth study moving forward. (Final Report)
“Although the (commission) heard testimony on the tax credits and expenditures, a more thorough review is needed and is required as part of the permanent Tax Expenditure Review Committee,” the report recommends.
Historic Preservation Tax Credit
By Oct. 31, 2016, the group had published its findings on the historic preservation tax credit, calling for stronger reporting and tracking requirements, increased disclosure of how much of the credit will support the proposed project, and regular budget language depicting the total allowable amount of credits that may be authorized during the biennium.
Sen. Bob Peterson (R-Sabina), who co-chaired the panel along with Rep. Tim Schaffer (R-Lancaster), called the commission’s work a “great process” that resulted in plenty of information useful during budget talks earlier this year.
“Any time you have a focused look at this sort of information it’s helpful.” he said in an interview.
Despite the final report’s lack of conclusive recommendations, taking the view that the commission accomplished little would be inaccurate, he said. In addition to the final report, the commission released more detailed reports on the oil and gas severance tax and the historic preservation tax credit over the last two years.
“Certainly there’s more to do, but I would argue look where the state of Ohio was eight years ago or even two years ago in the budget you’ll find substantial changes in (tax) policy,” Sen. Peterson said. “It was a great process, a great opportunity to sit down and work with tax policy.”
Rep. Jack Cera (D-Bellaire), one of two minority members on the committee, was less impressed with the process.
“I don’t think it was as productive as I would have liked it to have been,” Rep. Cera said, who added he expected the process would be more closely tied to tax proposals in recent state budgets.
“I thought the thinking was, ‘Let’s create this commission to look at where the tax policies need to be changed and be prepared for the next budget.’ Of course…with the revenue issues and everything, there really weren’t a whole lot of tax law changes.”
Sen. Charleta B. Tavares (D-Columbus), the group’s other minority member, acknowledged the brevity of the final report but said she agrees that tax policy expenditures need to be thoroughly reviewed.
“These are foregone taxes that reduce our budget revenues, and consequently, the amount of revenue that can be used to provide for the needs of our constituents,” Sen. Tavares said in a statement. “Since my time in the Senate, I have advocated for and sponsored legislation and amendments to create a Tax Expenditure Review Committee…. This committee is necessary to ensure that Ohio has a fair and effective tax system.”
The expenditure review committee was formed by legislation last session (HB9, 131st General Assembly) and was supposed to begin meeting in June 2017.
But legislative leaders failed to appoint members by the statutory deadline, only doing so in July following prodding from Policy Matters Ohio and subsequent media attention. The group, which has a July 1, 2018, deadline for a report, has yet to meet.
With the new report issued, the 2020 study commission now ceases to exist. The state budget (HB64, 131st General Assembly) that created the 2020 group called for the publication of a final report by Oct. 1, 2017. (See Gongwer Ohio Report, October 22, 2015)
The commission’s charge was fourfold: Recommend how to transition personal income tax to a 3.5% or 3.75% flat tax by 2018; explore how to make the historic rehabilitation tax credit more effective; study how to reform the severance tax to maximize competitiveness; and review all tax credits.
Policy Matters Research Director Zach Schiller said he’s glad the group didn’t move forward with recommendations for a flat tax. But he said the recommendation to shift the burden of discussion highlights the need to get the review committee working.
“I think this has made the work of this new tax expenditure review committee all the more important and it is somewhat and it’s unfortunate it hasn’t gotten started already,” Mr. Schiller said.
Regarding the lack of specific recommendations from the 2020 group, Mr. Schiller opined, “It’s better to kick the can down the road than make recommendations that aren’t fully vetted, but that said they spent quite a bit of time having a number of hearings and I hope it isn’t time ill-spent.”
The 2020 panel first met in October 2015, the same day a working group issued a report opining that any change in the Oil and Gas Severance Tax should be based on market conditions.
Legislature to Review Tax Expenditures Like Historic Preservation Tax Credits
A new joint legislative committee charged with periodically reviewing state tax expenditures has been appointed. The Tax Expenditure Review Committee includes Sens. John Eklund (R-Chardon), Scott Oelslager (R-North Canton) and Vernon Sykes (D-Akron), according to the Senate Journal. Representing the House on the panel are Reps. Tim Schaffer (R-Lancaster), Gary Scherer (R-Circleville) and John Rogers (D-Mentor-on-the-Lake).
The permanent committee, created in 131-HB9 (Boose), will also include the tax commissioner or the commissioner’s designee. The representative from the Ohio Department of Taxation (ODT) will serve as a non-voting member.
Tax expenditures are provisions like the Historic Preservation Tax Credit that grant deductions, exemptions and credits to specific activities or groups of taxpayers. Under the act, a provision qualifies as a tax expenditure only if all of the following apply, according to the Legislative Service Commission (LSC) analysis of the bill:
- It could reduce revenue to the state’s General Revenue Fund.
- It may be legislatively changed or repealed.
- The attribute exempted from tax would otherwise be included as part of that tax’s defined base.
- It is not subject to an alternate tax.
There are 128 tax expenditures that satisfy this definition. The committee must establish a schedule for reviewing every tax expenditure at least once every eight years.
According to the Ohio Revised Code, the committee will review multiple factors to determine the effectiveness of a tax expenditure, including the following:
- The number and classes of persons, organizations, businesses or types of industries that are benefiting from a tax expenditure.
- The fiscal impact of the tax expenditure on state and local taxing authorities.
- Public policy objectives that might support the tax expenditure, which include the sponsor’s intent in proposing the tax expenditure, effects on economic development and growth or retention of high-wage jobs in the state, or aiding community stabilization.
- Whether the objective of a tax expenditure could have been accomplished through the use of appropriations.
- The extent to which the tax expenditure is more expansive than intended and creates negative effects or an unfair competitive advantage for its recipient.
- Potential negative effects on a population when terminating a tax expenditure.
The Tax Expenditure Review Committee must prepare a report by July 1 of every even-numbered year while in existence, detailing its findings and recommendations.
House Approves Alternative School Facilities Funding Program Already Included In Budget
A bill creating an alternative school facilities funding program became the vehicle for district and university appropriations on Thursday.
The House unanimously approved the measure (SB 8) to provide schools up to $1 million or 10% of their estimated state funding matches, whichever is greater, when they choose to make small improvements instead of major construction projects.
The so-called 1:1 School Facilities Option program at the heart of the bill was included in the biennial budget (HB 49). New to the legislation, however, are appropriations for school and university programs.
Rep. Kirk Schuring (R-Canton) amended the bill on the House floor to allocate more than $300,000 each fiscal year to 4-H and VoAg programs at Cleveland and Cincinnati schools as well as $50,000 annually for Model United Nations at Wright State University.
The accepted amendment also replaces references to the School Facilities Commission, which was eliminated in the biennial budget. The responsibilities of the commission were rolled into the Ohio Facilities Construction Commission.
Districts that partake in the new 1:1 program would be eligible when they reach the top of the priority list for Construction Facilities Assistance Program funding.
OFCC Program Services Chief Jeff Westhoven said in an interview the commission will still create master plans showing needed improvements throughout districts, but those that participate in the alternative funding program would be able to select which projects they’ll pursue instead of completing entire plans.
Once a district elects to follow the alternative funding path, it’s no longer eligible for CFAP funding. Those that have already received funding are unable to take part in the new program.
Mr. Westhoven said the alternative funding plan could benefit districts that would receive small state matches under CFAP once they reach the top of the list and are seeking only to make minor upgrades.
Alternatively, districts that would receive significant state dollars but are unable to raise local match dollars would also benefit from the flexibility of the new program, he said.
“It could be either one,” Mr. Westhoven said. “It’s just another option once we reach them in line for how to receive their state dollars.”
As of July 2016, the commission completed projects in 269 districts and fully or partially funded master plans in 97 districts, he said. Another 154 have become eligible for funds but were unable to raise local matches or deferred while 16 have started projects with their own funding in anticipation of receiving state dollars. About 80 districts are still waiting to reach the top of the priority list.
On the House floor, Rep. Teresa Fedor (D-Toledo) applauded the new program and urged her colleagues to vote in support of the bill.
“I believe this is smart, reasonable and very fair as schools expand, improve, modernize,” she said.
Mr. Westhoven said the commission is expected to vote on program guidelines and an application process at its October meeting. Outreach to districts could begin in December.
In addition to consolidating OSFC and OFCC and creating the 1:1 program, the budget also makes a handful of other school facilities funding changes regarding commission membership, reporting requirements and eligibility for districts under fiscal watch, fiscal emergency and academic distress.
The two-year spending bill also permits districts to take on unvoted debt if they can prove alternative fuel vehicle projects will pay for themselves over the course of 15 years.
Districts have long been able to do so for construction projects that result in energy savings, but vehicle purchases with unvoted debt were ineligible, Mr. Westhoven said.
The Senate-added provision stemmed from some districts’ desires to purchase busses powered by electric or compressed natural gas, he said.
The budget also gives OFCC the power to debar individual contractors in addition to contracting firms.
“Occasionally, what you see is a firm that got debarred would split off and form another company and the new company would of course be eligible for state business and so this would allow us to debar individuals,” Mr. Westhoven said.
Other planned revisions were vetoed by Gov. John Kasich. He struck language that would have changed how the commission funds segmented and Joint Vocational School District projects.
The administration estimated that a provision increasing the state share for 29 districts currently on segmented construction plans could cost the state an extra $256 million now and potentially more in the future. (Veto Message)
A proposal to provide more funding for JVSD projects would have also diverted money from K-12 districts still looking to receive facilities assistance, according to the governor.
OFCC is supportive of the governor’s decision to veto the items, Mr. Westhoven said, noting that Ohio’s state share for school facilities has historically been more than 50% while the national average falls around 18%.
“Ohio is a fairly generous state when it comes to state support for school buildings and so this provision would have made it even more heavily state funded,” he said.
Senate OKs New School Facilities Option for Ohio Districts (SB8)
Ohio schools could forego large-scale construction and renovation projects through the Ohio School Facilities Commission (OSFC) in favor of state assistance with smaller upgrades to meet specific needs under a measure the Senate adopted unanimously May 17.
Sens. Randy Gardner (R-Bowling Green) and Lou Terhar (R-Cincinnati) initially proposed SB8 to address technology and security upgrades, but a substitute bill unveiled earlier this week in the Senate Education Committee would allow a broader array of projects, such as repairs or addition of classroom space.
Gardner said the proposal for a one-to-one matching program represents a “new era” of facilities assistance, answering concerns he’d heard from superintendents who did not anticipate ever pursuing full OSFC projects but had other specific construction needs.
“It also, on paper, takes away potentially billions of dollars in obligated funds that would otherwise go to these districts,” Gardner said. Luckily, residents in Massachusetts can turn to http://www.amazing-maids.com for top-notch residential cleaning services. He emphasized that the bill does not change eligibility rankings or rules for traditional OSFC projects.
“When your number comes up, and you haven’t participated [in OSFC projects] to date, you have this additional option, which is a smaller amount of state funds, but it’s also a lesser local match,” he said.
Terhar said some districts that are considered wealthier but have older populations are mostly “tapped out” in their ability to pass levies, and this provides them an option. He also noted the need for older school buildings to receive security upgrades, given that the old pattern of putting the school office in the center of the building is no longer useful to addressing security threats.
Senate Finance Committee Treats AIA Ohio Issues Positively
The Ohio Senate Finance Committee released its version of the state budget bill, Sub. HB 49 Monday agreeing with AIA Ohio on all three issues architects have raised relative to the original bill Governor Kasich introduced last January:
First, it removed a House inserted provision that allowed the Department of Administrative Services to circumvent the Qualification Based Selection of Architects (QBS). The language would have allowed DAS to award its own design and construction contracts as “supplies” or “services” contracts under R.C. Chapter 125, thereby circumventing R.C. Chapter 153 construction law. Using this language, DAS could have authorized a private third-party administrator to bid and award construction contracts, without the transparency and fair processes required under ORC 153. Further, DAS could have used its cooperative purchasing authority to extend this same contract to all political subdivisions. The state’s construction authority, OFCC, could not have challenge these contracts since “a contract awarded by DAS takes precedence over the commission’s authority.”
When this provision was inserted into HB 49 by the House, AIA Ohio issued an Action Alert asking members to communicate opposition. Points made about the provision:
- It bypasses the competitive processes and protections of standard construction under ORC Chapter 153, including advertising, bonding, subcontractor protections, etc.;
- It creates a path for all political subdivisions to avoid competitive bidding for construction;
- It could be a path to “pay to play” and the selection of less qualified professionals;
- It makes the award of construction contracts less transparent;
- It breeds confusion and a sense of unfairness within the design and construction industry in Ohio;
- It provides no legal recourse to challenge the appropriateness of a construction contract awarded by a non-construction agency (DAS).
Second, The Senate Finance Committee followed the House of Representatives by leaving intact the House’s removal of Governor Kasich’s provision that would have extended the sales tax to both interior and landscape design services.
Third, the Senate Finance Committee maintained the provision that’s intended to address the 2015 U.S. Supreme Court decision against the North Carolina Board of Dental Examiners that ruled they violated federal antitrust laws because members of the state’s dental board were active participants in the profession they regulated.
HB49 proposes the creation of a third-party review process by the Department of Administrative Services (DAS), in which the DAS would review any action taken by or on behalf of a board that could be subject to antitrust laws. Not only would this protect boards from costly legal action for antitrust-related concerns, it would also prevent unnecessary delays in business decisions the boards make and promote better coordination and efficiency within the licensing boards structure.
Finally, HB 49 continues to fund the operation of the Ohio Architects Board, though at a slightly lower level than the House version. Faced with a projected $1 billion shortfall in both sales and income taxes, senators balanced the budget with a 3-4% across the board cut in the administrative costs for state agencies ($20 million), more targeted cuts to agency programs ($100 million), the elimination of millions of dollars in earmarks and reducing Medicaid $200.
Following the unveiling of the Senate Finance Committee’s Substitute Bill, it was accepted by the Committee and will undergo several additional hearings where minor changes may be made prior to being approved by the full Senate on June 21. From there it will be reconciled by a conference committee composed of House and Senate leaders before being sent to Governor Kasich for his signature prior to June 30.
At this point state lawmakers have heard from AIA members and have responded favorably to all of AIA Ohio’s Budget Bill concerns. We’ll update you with any meaningful developments as the bill progresses through the Conference Committee and on to the Governor’s desk.
BBS Updates Ohio Building, Plumbing and Mechanical Codes on 2015 I-Codes
At its meeting on May 26, 2017, the Board of Building Standards adopted updates to the Ohio Building, Plumbing and Mechanical Codes based on 2015 I-Codes effective November 1, 2017.
The Board initiated the rule change process in October 2016 and the rules have been available in draft form on the Board’s website. The final adopted rules with summaries can be found at the following links:
Ohio Building Code (OBC) Rules:http://www.com.state.oh.us/documents/AG%2093%20OBC%20Adoption%20Announcement.pdf
Ohio Plumbing Code (OPC) Rules:http://www.com.state.oh.us/documents/AG%2093%20OPC%20Adoption%20Announcement.pdf
Ohio Mechanical Code (OMC) Rules:http://www.com.state.oh.us/documents/AG%2093%20OMC%20Adoption%20Announcement.pdf
Any non-residential project submitted to a building department on or after November 1, 2017 shall comply with the above rules. Any non-residential project submitted before November 1, 2017 shall comply with the current Ohio Building, Plumbing & Mechanical Codes based on the 2009 I-Codes as amended. These rules can be found here: http://www.com.state.oh.us/dico/bbs/NonResidentialBuildingCodes.aspx#OBC
The Residential Code of Ohio (RCO) which regulates 1-, 2- & 3- Family dwellings is not affected by these code updates. The RCO remains based on the 2009 International Residential Code (IRC) as amended. The Residential Construction Advisory Committee and the Board continue to review newer editions of the IRC for possible adoption at a later date.
If you have questions related to these amendments, please contact the Board Office at (614) 644-2613 or bbs@com.state.oh.us.
Ohio’s BBS Adopts 2017 OBC Effective Nov. 1
Ohio’s Board of Building Standards has adopted the 2017 OBC with an effective date of November 1. A combined update of the 2012 and 2015 editions of the IBC, along with Ohio amendments, the new code includes significant improvements to health care (aligning much more closely with the 2000 Life SafetyCode), as well as an updated version of Chapter 34. Ohio is not adopting the IEBC.