By Debra Jasper
Enquirer Columbus Bureau

Gov. Bob Taft speaks about next year and what Ohio will face during a challenging economic period in the coming months. (Craig Ruttle photo) | ZOOM |

COLUMBUS - Saying officials could face the toughest budget in Ohio history next year, Gov. Bob Taft on Thursday said the state must raise taxes and cut back spending on the mentally ill, health care for the poor and disabled and other critical areas.

"It's going to be very painful," Mr. Taft said in an interview at his home. "It will be painful to raise additional revenues, but we have no choice."

Mr. Taft, who was re-elected to a second term in November, had maintained throughout the governor's race that it was too early to tell if the state would face a budget crisis next year. He now says problems are imminent.

The state will start the next budget "in the hole $500 million" and could find itself much deeper in debt, he said. Other officials have predicted deficits as high as $4 billion over the next two years.

Mr. Taft blamed the state's dire fiscal crisis on the bad economy, Ohio Supreme Court-ordered increases in spending on education, an antiquated tax structure and skyrocketing Medicaid costs.

On Medicaid alone, the health care program for the poor and disabled, the state and federal government spent $8.5 billion in 2002 in Ohio. That cost is expected to jump 10 percent next year; the state's share is about 40 percent.

The governor said Ohio must control Medicaid costs, possibly by tightening eligibility requirements and reducing the kinds of services covered. "Medicaid could bankrupt state government if current trends continue," Mr. Taft said. "The current growth is unsustainable."

Mr. Taft said November tax revenues fell $80 million short of projections and officials might be forced to find more money even before this budget year ends in June.

He said he doesn't favor raising income taxes to solve the budget crisis, but didn't rule out a sales tax increase or other broad tax increase - if it is first placed on a ballot for voter approval. "One option might be to broaden the sales tax to make it more fair," the governor said.

Mr. Taft also said he will consider pushing for new taxes on certain businesses and services, although he declined to say which ones. "It's a tough year for everything," he said.

Despite the fiscal crisis, the governor said he remains committed to keeping his campaign promise to spend more on secondary and higher education. That means most other departments are looking at either no budget increases or some cuts, he said.

In addition, he said the state has already reduced its workforce by 3,000 through attrition but more cutbacks through attrition or layoffs will likely be necessary.

The governor also said he will push legislators to re-examine how much Ohio spends on nursing homes. In the last budget, Mr. Taft and other agency leaders had pointed to nursing homes, which get $2.5 billion a year from Medicaid, as one area ripe for cuts. They noted that more seniors are getting at-home care instead of using nursing home beds. In 2000, more than one out of every 10 beds the state tracked in Ohio's 980 nursing homes were unused on any given day.

But the powerful nursing home lobby stopped proposed cutbacks in the legislature. Instead, lawmakers voted to give nursing homes a one-time boost of $16.2 million.

This time around, Mr. Taft said lawmakers might have a different response. "They may be more sensitized to the stark realities" of the budget, he said.

The governor added that state officials must also take a look at the prison budget, although he said Ohio has no plans to follow Kentucky's lead and release hundreds of nonviolent prisoners.

Kentucky officials made that move because they said the state is in such dire financial straits it could no longer afford to keep them in jail.

Mr. Taft said he wants prison officials to reassess how many nonviolent inmates could be diverted to treatment instead of prison.

He said he will work to block any attempts to allow slot machines at racetracks, a plan some Republican legislators say could bring $500 million a year for state coffers.

And he plans to move forward with his Third Frontier initiative, a 10-year, $1.6 billion plan to create more high-tech jobs by investing in research, business startups and support for technology.

"We must bring more high-paying jobs to Ohio," he said. "You don't change the economy overnight. We can't afford not to make the commitment to Ohio's economic future."

E-mail djasper@enquirer.com