Ohio’s beleaguered public transit is on the edge of real financial crisis with sales tax changes

By Ginger Christ, The Plain Dealer

CLEVELAND, Ohio – Ohio’s public transit is on the edge of a financial disaster as a statewide tax nears its end.

In response to a federal mandate, the sales and use tax on Medicaid managed care organizations (MCOs) will no longer be collected by the state starting in July.  Without that funding, transit agencies are expecting steep budget cuts, and are relying on state legislators for a solution.

Every public transit agency in Ohio – especially the eight like RTA that receive direct funding from the Medicaid MCO sales tax – stands to take a big hit.

That’s because Medicaid MCO sales tax not only funds public transit, but also flows into the general funds of the state’s 88 counties. And county general funds support transit agencies throughout the state.

The transit agencies that receive funding directly from the Medicaid MCO sales tax alone are facing an annual $34 million loss in funding starting in 2018.

Mike Daugherty, manager of budgets for the Greater Cleveland Regional Transit Authority, has characterized the change as “a catastrophic loss for every county and every transit agency in the state.”

RTA expects to lose $18 million in revenue in 2018 – and $4.5 million in 2017. Such a loss would mean service cuts of 7-10 percent and layoffs of about 170 people, RTA CEO Joe Calabrese estimated.

“It would look pretty ugly,” Calabrese said. “The 3 percent service cuts we’re implementing this month were without a doubt the least utilized services. Now, we’d be getting into service that is much better utilized and much more important to people. And that last round was not easy.”

Tip of the iceberg

The potential MCO sales tax loss comes at a time when public transit in Ohio already is struggling.

“We’re talking about just the tip of the iceberg,” said Ray Jurkowski, general manager of Laketran in Lake County. “This is a continuous slide downhill.”

Across the state, authorities are making due with less. Many haven’t rebounded from the recession and are operating at reduced service levels.

Add to that, between 2002 and 2015, the state contribution to public transit has been slashed from $43 million to $7.3 million. Ohio only spends 63 cents per capita, among the lowest in the nation, on public transit.

Most systems haven’t had the funds to adequately replace aging infrastructure. Few have the ability to respond to growing needs in their communities.

“This is really making a bad situation worse,” said Kirt Conrad, executive director of the Stark Area Regional Transit Authority (SARTA).

The state needs to look at the fundamental way in which transit is funded in Ohio and at what the needs are, independent of the sales tax issue, Conrad said.

“Ohio is really backward compared to neighboring states,” Laketran’s Jurkowski said. “All transit systems in Ohio have been holding things together with Band-Aids.”

In fact, Ohio spends less per person – 63 cents – on transit than all but one of its neighboring states: Kentucky, which invests only 34 cents per capita. Pennsylvania spends $85.55 per capita; Michigan fronts $24.33 per capita; Indiana gives $8.57 per capita; and West Virginia spends $1.50 per capita.

At the same time as funding is shrinking, Ohio’s public transit infrastructure is falling into disrepair, which only will lead to an even greater financial hardship down the road.

Of the 3,250 transit vehicles in use in the state, 1,050, or 32 percent, need to be replaced, according to an Ohio Department of Transportation transit needs study. But that would cost just shy of $300 million, money transit agencies don’t have.

“The longer you wait to maintain things, the more expensive it is to maintain them,” Calabrese said.

RTA has a $500 million shortfall on capital improvement projects, which includes things like replacing the system’s aging rail cars.

Meanwhile, ODOT reports that 35 million more trips are needed in urban systems to meet the existing need and another 1 million trips are needed in rural systems statewide. And those numbers are expected to grow significantly in the next decade as Ohio’s population continues to age and grow poorer, according to the ODOT study.

Who this hurts

This growing inability to serve riders – often people who rely on public transit to get to work, to school, to the grocery store – weakens communities.

“At the same time as we have less resources to meet the needs of our community, our needs are just going through the roof,” Conrad said.

At SARTA, ridership has increased 33 percent since 2009 but its service level is down 25 percent from 2008. The authority hasn’t been able to fully recover from the recession and state funding cuts, and still isn’t able to offer Sunday service.

“The people who use transit a lot of times have no others options, and we are their independence and their way to participate in the larger economy,” said Conrad, who also serves as president of the Ohio Public Transit Association. “When you take transit away from somebody, you’re really taking away their independence.”

Potential cuts RTA might have to consider are reducing its overnight service and its Sunday service, Calabrese said.

“That could be devastating because many people work on Sundays, go to church on Sundays and need Sundays to go shopping,” Calabrese said.

In Lake County, Laketran already can’t adequately serve one of its major industrial centers – Tyler Boulevard.

“Jobs are here and people just don’t have access to them,” Jurkowski said. “It’s heartbreaking you’re not a solution for your community.”

Lake County also has been forced to reduce its service to primary educational and medical centers.

“These are not frivolous things. These are basic quality-of-life things,” Jurkowski said.

Even Summit County’s Metro Regional Transit Authority (METRO), which has a budget surplus thanks to an additional local sales tax passed in 2008, isn’t expanding its service, instead focusing on a backlog of capital improvements, said Dean Harris, director of finance for METRO.

Can the tax crisis be fixed?

In 2014 Ohio was notified that its tax on Medicaid MCOs like Caresource and Buckeye Health Plan doesn’t comply with federal regulations and was given until June 30, 2017 – the end of its next regular legislative session – to make a change.

The Center for Medicare and Medicaid Services said it’s illegal to tax only the managed care organizations that provide Medicaid services. So the tax was discontinued.

Because of the way the tax is distributed, the change won’t be felt until September 2017.

“Solutions are being considered and will continue to be considered,” said Tim Keen, director of the Office of Budget and Management.

Keen wouldn’t get into specifics about what those solutions might be, but said the state will take into account the impact on transit.

“We will have some sort of proposal for the counties and the transit authorities to help them adjust to the loss of this revenue,” said Keen, who noted that a lot of work has yet to be done before a final decision is made.

At the state level, Ohio stands to lose $558 million in fiscal year 2018 from the end of the Medicaid MCO sales tax.

“It’s a big deal, and we have to figure out how to manage that,” Keen said.

Governor John Kasich’s office declined to comment, deferring to Keen.

Senator Kenny Yuko (D-Richmond Heights), who is a member of the Transportation, Commerce and Labor committee of the Ohio Senate, acknowledged that the loss of the Medicaid MCO sales tax will further burden Ohio’s counties and transit authorities.

“Many of our communities are already struggling because of the reductions in local government funding we’ve seen under the Kasich administration. Transit funding is currently an embarrassing 63 cents per person,” Yuko said in a statement. “These entities are stretched so thin, soon they won’t be able to do their jobs at all. That will hurt both employees and employers.”

He suggested increasing taxes on the wealthiest in the state and pulling down more federal funds to reduce the strain on local transit authorities.

But it isn’t just transit that would be affected. Ohio’s 88 counties will lose $148 million in Medicaid MCO sales tax revenue. Cuyahoga County will lose $21 million in addition to the losses in RTA funding – the highest in the state – in part because of the large number of people in the county using Medicaid.

“A loss would impact every county differently, but there are some common threads. For example, on average, over 60 percent of a county’s budget is justice and public safety – functions such as running courts, jails and emergency response. A loss of this magnitude would have a serious impact on those functions,” said Kate Neithammer, a policy analyst for the County Commissioners Association of Ohio.

Neithammer said counties should be “very worried” about the impact of the loss because sales tax revenue is the largest source of revenue for county general funds. The state and counties will need to work together to figure out a solution, she said.

California, Michigan and Pennsylvania, all of which also only taxed Medicaid MCOs, have broadened – or are in the process of broadening – their tax to include all MCOs, not just those that provide Medicaid, according to a report by Policy Matters Ohio.

“That may seem to be the simplest solution, but I think it’s up to the Governor and the Legislature whether that’s their preferred solution. That’s the one that sounds like a no brainer, but it may be politically difficult,” Calabrese said.