BY MICHAEL HAWTHORNE
Enquirer Columbus Bureau
COLUMBUS -- It took state lawmakers less than two weeks in May to undo a sweeping Ohio Supreme Court decision that was four years in the making.
As a result, the city of Cincinnati and other municipalities could be prohibited from taxing utilities, a right upheld by the 6-1 court decision. Cities also could find it more difficult to impose new business taxes.
The way legislation overturning the court decision was rushed through the General Assembly provides a glimpse into how the Statehouse works when lobbyists and lawmakers agree on an issue.
"I've never seen anything develop as quickly as that, but the utilities are a fairly powerful interest group," said Susan Cave, executive director of the Ohio Municipal League. "If it didn't involve our own people, it would have been humorous."
By contrast, it took lawmakers nearly a year to address another landmark court decision that ordered them to overhaul public school financing.
In this case, lawmakers responded to a court decision that upheld a $400,000-a-year tax on the net profits of Cincinnati Bell Telephone assessed by Cincinnati, Blue Ash and Fairfax.
While the decision focused on an obscure lawsuit filed by a single telephone company against three municipalities, business interests felt it posed a much broader threat.
Writing for the majority, Chief Justice Thomas Moyer said municipalities have the authority to impose taxes "in the absence of an express statutory prohibition of the exercise of such power by the General Assembly."
"This was a very broad, far-reaching decision," said Senate President Richard Finan, R-Evendale. "This doesn't just apply to utility taxes, it applies to any tax."
Business leaders saw the decision as a financial time bomb. They feared the court's decision could open the door to a slew of city taxes.
In response, the Republican-controlled General Assembly passed legislation outlawing city taxes unless lawmakers approved first.
'Bought a law'
Critics said the measure was an example of the "pay-to-play" influence of business leaders and utility companies. Business and utility interests gave a combined $6.2 million in state campaign contributions during the 1995-96 election cycle, according to an analysis by the Cleveland-based Citizens Policy Center.
"There is no question that the utility industry bought a law here," said Assistant Cincinnati City Solicitor Richard Ganulin, who won the case before the Ohio Supreme Court. "It's not an impressive way for government to operate."
GOP lawmakers said they were merely protecting their rate-paying constituents. But documents obtained by the Enquirer reveal some legislators also had their eye on the November elections.
"Anyone who doesn't vote to totally abolish this horrid practice will have hell to pay at the polls," Sen. Lou Blessing, R-Colerain Township, wrote in a memo distributed to Republican lawmakers and staff. "Think about campaign ads targeted to our base: everyone but big-city voters."
Mr. Blessing predicted utilities would finance ads accusing lawmakers of allowing cities to impose taxes that would be passed on to ratepayers who lived outside the city limits.
Mr. Blessing, chairman of the Senate Judiciary Committee, said lawmakers wanted to make sure they weren't blamed for failing to shut off potential new taxes after voters rejected a proposed sales tax increase on May 5 by a 4-1 margin.
To ensure legislation overturning the court decision made it through the General Assembly before lawmakers adjourned for the summer, GOP leaders rolled it into a 379-page bill correcting mistakes in the two-year state budget.
"We felt this was an appropriate way to address the court decision," said House Speaker Jo Ann Davidson, R-Reynoldsburg.
Lawmakers often use budget bills to move controversial ideas as amendments rather than introducing them in stand-alone measures that can be more vulnerable to opposition. This measure was no exception. On votes of 23-9 in the Senate and 82-15 in the House, lawmakers sent the proposal to Gov. George Voinovich on May 28.
The Ohio Constitution requires that every bill be considered by both the House and Senate on three different days to provide time for public hearings.
Although hearings were held on the tax changes, they were part of a review of the overall budget bill. The measure moved so rapidly that even Mr. Finan was not sure about the specifics at one point. In their haste, lawmakers made mistakes. As the bill zipped through the House, city officials complained it also would outlaw taxes on admissions to for-profit events such as Reds and Bengals games -- a change that would have cost Cincinnati another $2.6 million a year.
An amendment was drawn up to correct the oversight and renew the authority of cities to charge admissions taxes.
Staying competitive
Cincinnati Bell enlisted lobbyists from the Ohio Chamber of Commerce and the Ohio Telecommunications Industry Association to grant what it could not win from the court.
Company executives said campaign contributions had nothing to do with the push to overturn the court decision. If it was not addressed, they argued, Ohio-based telephone companies would be at a competitive disadvantage with out-of-state firms attempting to attract customers in the wake of deregulation of the telecommunications industry. "It's one further layer of costs for our customers that affects us competitively," said Chris Colwell, Cincinnati Bell's vice president for government relations and public affairs. "Our state legislators saw this as an immense problem for Ohio's tax structure that needed to be addressed immediately."
When lawmakers returned to Columbus on May 19, six days after the court decision was handed down, GOP leaders tucked an amendment into the budget corrections bill specifically prohibiting cities from taxing utilities subject to the gross receipts tax.
No need for Aronoff
In response to concerns expressed by other business groups, the amendment also banned cities from imposing taxes on other services and products unless the General Assembly granted them the authority to do so.
The measure moved so quickly that some top lobbyists did not need to get involved.
"I was ready to offer my assistance," said former Senate President Stanley Aronoff, a Cincinnati Republican whose lobbying clients include Ameritech and Cinergy Corp. "But I wasn't needed."
Three days after the measure was introduced, the House sent it to the Senate for consideration. Lawmakers left for the weekend, but when they returned May 26, Cincinnati Bell and other utilities let it be known that it was not enough to ban cities from imposing taxes in the future.
If Mr. Voinovich signed the measure into law as expected, they warned, some cities might try to pass a utility tax during the 90 days before it took effect -- then fight the companies in court to keep the tax.
Enter Mr. Blessing, who suggested a way lawmakers could penalize cities without violating a constitutional prohibition against retroactive laws.
With little debate, the Senate Finance Committee approved an amendment drafted by Mr. Blessing that would reduce a municipality's share of state tax revenues by the same amount that city or village collected in taxes from a utility.
Sen. Roy Ray, an Akron Republican who chairs the committee, said the idea for the penalty came from Cincinnati Bell. Company officials said they merely got behind Mr. Blessing's proposal. Mr. Blessing outlined the proposed change in a May 23 memo he sent to utility lobbyists.
"You're welcome very much," he wrote.
Five days later, the measure was on its way to Mr. Voinovich for his approval.
