COLUMBUS — As smokers get ready to pay an average 40 cents more for a pack of cigarettes today and lawmakers prepare their fall election campaigns, Ohio's long-term fiscal future still looks bleak.

        More than $2 billion tapped from the state's rainy day and tobacco settlement funds will be long gone when the General Assembly starts work on a new two-year spending plan this January. Yet, while money is scarce, government's costs are skyrocketing.

        Medicaid, the state's health safety net for the poor, will require $2 billion more over the next two fiscal years. Ohio's school lawsuit is far from settled, but the current funding plan requires at least $300 million.

ONE-TIME SPENDING

The following is a list of more than $2 billion in one-time spending GOP lawmakers and Gov. Bob Taft approved to balance Ohio's $44 billion budget. This money won't be available when lawmakers craft a two-year spending plan starting in January.   • State's rainy day fund: $1 billion   • Tobacco settlement funds: $605 million   • Up-front auto lease taxes: $256 million   • Eliminate Human Services Stabilization Fund: $100 million   • Reduction in Ending Fund Balance: $50 million   • Tobacco Floor Tax: $32 million   • Tax Amnesty: $22 million   Source: Federation for Community Planning, House Bill 94, House Bill 405, Senate Bill 261

        An expected fight over pay and health benefits for more than 40,000 state employees could push the budgetary price tag even higher.

        What does this mean for taxpayers? Expect more cutbacks on services and, possibly, a major tax hike next year when lawmakers try to make ends meet.

        “We do have a daunting task ahead of us,” said House Speaker Larry Householder, R-Glenford. “How we meet the challenges of this next budget cycle will say volumes about what we are as a state for decades to come.”

        The budget dilemma springs from a recession that's cost Ohio thousands of manufacturing jobs and billions in lost income and business taxes.

        That's forced lawmakers to revisit the state's spending plan twice in the past 12 months. Last month they raised taxes on cigarettes and raided the state's rainy day and tobacco lawsuit settlement accounts to erase a $1.9 billion deficit.

        Though Ohio's $44 billion budget is balanced for now, analysts fret over the next two years. Donald Berno, former director of the bipartisan Ohio Public Expenditure Council, says state bean counters have their work cut out for them.

        “They say they are going to get out of this without raising taxes,” Mr. Berno said. “I have yet to see that proposal.”

The money's gone

        When the current Ohio budget expires June 30, 2003, the state's $1 billion rainy day fund will be empty. Another $600 million in tobacco lawsuit settlement funds also will be gone.

        A change in the way the state collects its taxes on car leases produced a big one-time $256 million surge in revenues.

        These changes and others total more than $2 billion in funds that came from one-time sources. That means lawmakers could find themselves up to $2 billion short for the next two fiscal years.

        Medicaid will be the biggest budget monster.

        Medicaid covers one in every four seniors age 85 and older and one of every four children in Ohio, according to Tom Hayes, director of the Department of Job and Family Services. Medicaid also funds 70 percent of all nursing home care.

        Ohio's recession swelled Medicaid's ranks by 90,000 people. Nursing homes and hospitals also expect to get automatic funding increases. The cost of prescription drugs rose 18 percent last year.

        If nothing changes, Medicaid will require another $2 billion over the next two fiscal years, said Mr. Hayes. About $800 million of that amount would come from Ohio taxes.

        “Unless we act now to slow the growth of Medicaid health care costs, Medicaid will continue to consume a larger portion of the state of Ohio's revenue well into the future,” Mr. Hayes told the Senate Finance Committee in May.

School funding

        Also waiting in the wings is the state's school funding lawsuit.

        The high court in September outlined a plan intended to end the decade-old case, but withdrew it after the justices acknowledged it would cost three times more than the $400 million they'd estimated.

        A new ruling is expected and could cost the state hundreds of millions. No one knows when that order could come.

        “I've given up predicting on (the school funding suit),” said Ohio Attorney General Betty Montgomery, whose office defended the state's new funding plan earlier this year.

        While lawmakers wait, they will struggle to find the money their current plan requires. Another $300 million is needed to fund so-called parity aid for school districts to offer services richer districts pay for with local property taxes.

        Upcoming labor negotiations with unions representing more than 40,000 state workers are another big problem.

        Union employees account for $1.7 billion of the state's payroll costs. Health benefits for all state employees cost another $800 million.

        Most of the state's union contracts will expire on or before June 30, 2003. That means millions will be at stake in talks set to begin this November.

        Scott Johnson, director of the Department of Administrative Services, said union leaders know full well that money will be tight.

        “When we sit down to negotiate, neither of us will be living in a dream world,” Mr. Johnson said in a statement.

        Officials at the state's largest union, the Ohio Civil Service Employees Association, don't sound sympathetic.

        Spokesman Peter Wray said his union's 37,000 members are angry over the millions Taft administration officials award private companies to do public work. Mr. Wray contends state employees could do that just as well and for less.

        “It's a total boondoggle,” Mr. Wray said.

        All this spells big trouble for government officials in charge of state finances.

        Tom Johnson, director of the governor's Office of Budget and Management, will help design Mr. Taft's new two-year spending proposal this January. He is optimistic a budget plan can be crafted that avoids a major tax increase.

        Mr. Johnson said the state has not exhausted all its one-time reserves. Other tactics, such as delaying state tax credits and payments to vendors, freezing local government funds and diverting welfare funds for other uses could be tried again.

        Mr. Johnson also is optimistic that the state's economy will turn around, inflating sales, business and income tax revenues.

        “We anticipate that there will be some modest growth,” he said. “That will help us.”

        Other government analysts don't share Mr. Johnson's optimism.

        “I think the dream they have is that they will grow their way out. That the economy will come back,” said John Corlett, director of public policy for the Federation for Community Planning, a Cleveland based group focused on state social services issues.

        Mr. Berno said everything hinges on the economy.

        “You get out of this (budget crisis) by getting down on your knees every night and praying the economy recovers,” Mr. Berno said. “Will it? Who knows?.”

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