Federal change will cost Clark County $3 million

Federal changes will result in Clark County losing $3 million — more than 12 percent of its $23.5 million in annual sales tax revenue — when the state stops collecting sales taxes from certain health care organizations.

The federal government is ending the state’s collection of sale taxes on services from Medicaid managed-care organizations — such as Dayton-based CareSource — as of June 30, 2017.

Clark County collected $3.2 million in Medicaid Health Insuring Corp. sales taxes last year, up from $2.2 million in 2014, according to state data.

The Board of Clark County Commissioners is already preparing to cut about three percent of its budget for next year and possibly another four percent in 2018, Commissioner Rick Lohnes said.

“It’s manageable, but not everybody is going to get as much money as they have in the past,” Lohnes said. “I hope our representatives and our governor are trying to do something about it, but I don’t know if they can.”

The financial ramifications are significant, wrote State Sen. Keith Faber in a letter to county commissioners on Aug. 8. It could also affect other municipalities and political subdivisions that receive local government funds, which are connected to sales tax receipts, he wrote.

“At this point, most seem open to finding a workable solution to mitigate the financial impact on local communities,” Faber wrote.

Eight regional transit agencies in Ohio would also be among the hardest-hit when the tax goes away, but the Springfield City Area Transit service is not funded through sales tax revenue.

The Medicaid tax began in 2005 and was expanded in both 2009 and 2013. But in 2014, the federal Centers for Medicare & Medicaid Services ruled that applying a sales tax only to managed-care organizations dealing with Medicaid patients was not allowed. Ohio has until the end of this two-year budget cycle to deal with the issue.

The state stands to lose $558 million in fiscal year 2018 and FY 2019 — a total of more than $1 billion over two years — and county governments are looking at losing $195 million, according to the Ohio Office of Budget and Management (OBM).

The revenue makes up 7.5 percent of all county and transit sales tax collections, Managing Director of Research for the County Commissioners Association of Ohio Brad Cole.

“It’s a significant portion of the sales tax,” Cole said. “The other issue here is that counties have become more reliant on sales tax as a source of revenue over the past six or seven years.”

The sales tax has grown during that time period, while other types of revenue — such as interest income and local government funds, among others — have declined or become stagnant, Cole said.

About $550 to $600 million of the sales tax was going to the state’s general fund, while another $300 million was used as matching funds for federal Medicaid dollars, Cole said.

The state must also figure out how to help counties deal with a loss of about $200 million in sales taxes to counties and local transit authorities, Cole said.

“Without question, they’ll have to come up with a solution that at a minimum addresses the state’s problem, which is a two-fold problem,” Cole said. “We hope to partner with the state in terms of some type of a solution that would address the loss of revenue for counties and transit authorities. All three elements have to be addressed in some form.”

The issue is being forced on Ohio and its counties, State Rep. Kyle Koehler (R-Springfield) said.

“Once again, the federal government is telling us what we have to do and it’s going to hurt us,” Koehler said. ” We have to figure out a solution, and they don’t have to worry about anything.”

The issue may have to be resolved during the upcoming lame duck session in November, he said.

“Whatever we do, we have to think it out,” Koehler said. “I don’t want to hurry it and make things worse.”

Staff writer Thomas Gnau contributed to this report.

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