By Tom Blumer | Special to Ohio Watchdog

Tom Blumer

The Ohio Liberty Coalition officially announced Wednesday its opposition to Gov. John Kasich’s proposed tax increases on the Ohio oil and gas industry.

Coalition President Tom Zawitowski made three key points:

• Increased severance tax collections already are occurring — “It is unnecessary to raise taxes when this industry is already on track to dramatically increase tax revenue.”
• Tax collections overall will increase if the severance tax is left alone — “Ohio should keep its current severance tax structure in place and, as a result of increased drilling, get more tax revenue from taxes generated by ‘downstream’ industrial and business activity.”
• The governor can cut the income tax without increasing the severance tax — “If he wants to cut taxes, he should cut state spending so he can cut taxes.”

As to the point on spending, the final Monthly Financial Report for the fiscal year, which ended in June, from Kasich’s Office of Budget and Management tells us that while General Revenue Fund disbursements, at $26.4 billion, came in more than $800 million below budget, they were still $147 million above the previous year. The year-over-year detail shows us that the state was very successful in reining in costs, with two glaring exceptions — public assistance and Medicaid.

This gets to a key point in the debate everyone seems to be missing, even the admirable spending hawks at OLC. That is the potential for dramatic reductions in state and even federal spending, if the current tax structure for the oil and gas industry is left alone.

An energy industry study published by Kleinhenz & Associates in September estimated that by 2015, “Ohio’s natural gas and crude oil industry could help create and support more than 200,000 Ohio-based jobs from the leasing, royalties, exploration, drilling, production and pipeline construction activities for the Utica shale reserve.”

Even if the study is only half right, a six-figure increase in direct and spin-off employment resulting from one industry’s activity is exciting in a state, which is still a long way from recovery. There has been a great deal of emphasis on how much this extra employment would generate in sales, income and other taxes.

But here’s the question no one seems to be asking: How many of these new well-paying jobs, many of which are in the blue-collar category, would be taken by people who otherwise would be on Medicaid?

Total statewide Medicaid enrollment in 2011 was 2.37 million, or about 20 percent, of the state’s population, according to the self-described “nonpartisan, independent” Health Policy Institute of Ohio.

The group says total Medicaid spending in the state last year across all agencies was $15.4 billion — not all of which is included in the graphic above. Spending per recipient worked out to $6,500 per enrollee.

Some quick numbers, using conservative estimates, illustrate how substantial the cost savings to the state might be if the hoped-for jobs materialize:

• Assume that 20,000 Ohio workers move from Medicaid to private insurance as a result of oil and gas industry job growth; that’s only 10 percent of the potential new jobs created. This could occur either because they are no longer unemployed, or because they have moved from a job with no employer-provided insurance to one that has it.
• If those workers enroll an average of just one additional person in their employer’s health plan, such as a spouse or dependent, Medicaid enrollment would drop by 40,000.
• If Medicaid spending goes down by just $5,000 per person as a result as opposed to the overall $6,500 average, the state would save a gross amount of $200 million, and a net amount of roughly $56 million, assuming that the 72 percent level of federal reimbursement HPIO noted was experienced in 2011 stays the same.

Those aren’t small numbers. To that potential, add possible savings resulting from fewer Ohioans enrolled in the food stamp and Temporary Assistance for Needy Families programs.

Of all people, Kasich, who was heavily involved in welfare reform legislation as a U.S. representative in 1996, should know that more people working instead of relying on government entitlement programs not only means more in tax collections, but less government spending on those programs.

It would be nice to see him act like it.