Some States Sitting on Piles of Cash, and Cities Want a Cut

Broken streetlights are saved for spare parts in Lorain, Ohio. Many of the working lights are so old there are no longer parts available to repair them.

LORAIN, Ohio — Welcome to Lorain, where the mayor, Chase Ritenauer, would like to show you around.

The police car over there? It broke down during a pursuit not long ago, leaving the officer to continue the chase on foot. The new high school? It is part of a school system so badly underfunded that it is now overseen by the state. Traffic signals are kept operating with parts recycled from discarded traffic lights.

This city of 63,000 is in such dire financial straits that it has ceded part of an administrative building to raccoons; repeatedly calling the exterminator was too costly.

But even as Lorain and many other Ohio cities are barely scraping by, the state government is flush with money.

Ohio announced a budget surplus of $657 million in July. State officials have made it clear, however, that none of the windfall will go to Lorain or any other city or town, many of which are struggling because of heavy cuts made by the state over the years.

Instead, Ohio is putting it all away in a rainy-day fund that now totals nearly $2.7 billion.

What’s happening in this political swing state offers a snapshot of what is playing out across the country. As states reap the benefits of an expanding national economy, at least 39 have reported budget surpluses — leaving joyous but somewhat perplexed state officials to figure out what to do with the unexpected cash. Last year, 17 states had surpluses, according to the National Association of State Budget Officers.

Rainy-day funds are pots of money governments can turn to if things go bad. But the funds have a mixed record. In the past, state lawmakers often used them for political expediency — paying for employee raises, for example, rather than making cuts or raising taxes.

But state finances have changed so precipitously since the Great Recession more than a decade ago that there is a general wariness about what might come next. Many state officials have been reluctant to increase spending. Still, the combination of a surplus and fresh revenue means that states that had endured years of involuntary frugality are virtually swimming in cash.


Notably, West Virginia concluded a budget cycle with a surplus — without having to resort to midyear budget cuts — for the first time in six years. California, with a $9 billion surplus, sent about $6 billion to its rainy-day fund. Virginia, which had a $551 million surplus, placed all of it in reserve. And more than three-quarters of Maine’s $101 million surplus was set aside.

In Ohio, the decision about whether to spend money on pressing needs or stash it away has largely fallen along ideological lines. Republicans have tended to favor building Ohio’s reserves, while Democrats have supported using the money to address more immediate needs, including a devastating opioid crisis, a decaying infrastructure and overwhelmed police departments.

Supporters of spending the money say Ohio’s cities have sacrificed mightily in the last decade, and it is time for payback.

“You point to this account and say we are successful, but we are not successful if people are suffering,” said Nickie J. Antonio, a member of the state’s House of Representatives. “You are not successful if you are balancing that bank account on the backs of people.”

In Lorain, Mr. Ritenauer agrees. He said things are plenty bad, right now. “It’s raining in a lot of communities,” he said. “We’re trying to tread water.”

Ohio has been on a financial roller coaster in the last decade. There have been deep budget cuts since the recession, and only last year, budget officials were predicting a $1 billion deficit before a surge of tax revenue changed everything.

The governor, John Kasich, said state officials like himself were simply being prudent — the consequence of bitter lessons learned from the recession, when state governments amassed $117 billion in deficits in 2009 alone.

Saving money in good times, he said, “gives you an opportunity not to be in a panic” if things go sour.

Ohio had a projected shortfall of $7.7 billion in 2011 when Mr. Kasich took office, with just 89 cents in its rainy-day fund. “We were way in the hole,” Mr. Kasich said. “And I look at the breadth and the depth and the scale of the change, and it’s stunning to me.”

Unlike Ohio, some states have used portions of their surpluses to make up for past cuts. California, for example, spent large amounts on needs that it deemed pressing and on people and projects that suffered during the recession. Programs for homeless people, schools, universities, road and bridge repairs, reducing carbon pollution, and even pothole filling all received significant funding.

Budget watchdogs say that as a rule, despite the nation being in the midst of its second-longest period of economic expansion, state governments are wise to save.

“We’ve learned our lessons over the last two or three recessions,” said John Hicks, executive director of the National Association of State Budget Officers. “The economy goes up, it goes down. There has been a lot of pressure on governors to put money away.”

Uncertainties remain about whether the budget bonanzas are a single-year phenomena and about the ill effects of potential trade wars and lagging wages.

In Ohio, where the poverty rate of 14.6 percent is higher than the national average, complaints about the governor’s miserly spending have been especially loud.

“Reasonable people can disagree on the best use of Ohio’s rainy day fund,” the Ohio Mayors Alliance wrote. “However, as a bipartisan coalition of mayors, we find it unfortunate that Gov. Kasich doesn’t see the value of Ohio’s cities and small towns.”

A study by the Ohio Municipal League found that more than 90 percent of cities and towns have delayed significant road repairs and that nearly three-quarters of the state’s municipalities have replaced full-time employees with part-time workers and increased fees to maintain basic services.

Ohio’s disbursements from one crucial funding mechanism, the Local Government Fund —money the state sends to municipalities each year based on population and property tax values — have been cut to $349 million in 2017 from $674 million in 2007.

Cities say significantly less revenue from property taxes and the state’s repeal of the estate tax have also hurt their ability to balance budgets.

In Middletown, a city of 48,000 in southwestern Ohio, Mayor Larry Mulligan Jr. said the city had lost 10 percent of its revenue because the state reduced or eliminated taxes and imposed funding cuts.


Middletown has laid off firefighters, canceled Fourth of July fireworks, and sharply reduced services, Mr. Mulligan said.

Potholes abound. “We’ve tried to keep up the major thoroughfares, but there are sections that are pretty bad,” he said.

He said he had proposed a quarter percent income tax increase this year to generate $3 million a year to repair roads.

But the City Council balked, and he said he did not press the issue because Middletown has already established a tax to help fund public safety and increased a number of its municipal fees to maintain services.

The city is under a federal court decree to repair its sewer system, which overflows during storms, sending raw sewage into the Great Miami River. The cost is $269 million.

“Looking at the large surplus,” he said, “it’s time to talk about the critical needs of the cities.”

Mr. Kasich however, disputes that his tax and funding cuts have caused widespread pain.

“We have a constant whining from local governments,” he said. “They want handouts. They want it to be easy.”

Mr. Ritenauer of Lorain, an industrial city along Lake Erie, said his goal was simply to carry out basic responsibilities — like providing adequate police protection.

The police force, he said, is far below its authorized strength, and there are sometimes too few patrol cars in decent repair to cover the city. A few years ago, the police car leading the Memorial Day parade stalled and had to be towed.

Signs of breakdown are everywhere: The heavy steel door that secures the indoor garage where many city vehicles are parked is broken and can only be pulled open or closed with a heavy rope.

It hardly matters, a city employee said, gesturing to a hole in the side of the building that was large enough to drive a car through.

Even the roof of the city’s aging road salt depot has caved in. For now, it has been patched with plywood boards. But the company that delivers the salt will no longer place it inside the depot out of fear that the roof will collapse entirely.

“It’s a very frustrating job,” Mr. Ritenauer said. “Especially when you don’t have the resources to do it.”

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