Ohio's Long-Term Trend: Economics Up, Environment and Social Indicators Down

This morning, Scioto Analysis released a new report on Ohio’s Genuine Progress Indicator (GPI), a comprehensive economic measure that fills the environmental and social gaps neglected by Gross Domestic Product (GDP) measures.

This year’s study covers ten years of data on Ohio’s GPI, addressing the time period from 2009 to 2018, where the best primary data is available. Ohio’s GPI grew over this time period by about 19%, mostly driven by economic factors. Below are some positive trends from 2009 to 2018 that drove GPI growth:

• Personal spending was up $4,400 per capita, net saving was up $2,600 per capita, and Ohio’s unemployment and underemployment rate was cut in half over that period.

• Higher education is on the rise: 420,000 more people had bachelor’s degrees in Ohio in 2018 than in 2009.

• Air pollution is on the decline: four out of five major pollutants saw emissions declines, with nitrogen oxide emissions cut in half over the period and 2018 sulfur dioxide emissions at one-sixth the level of 2009 emissions.

• Inequality growth has slowed: after increases in inequality levels from 2009 to 2013, the trend of Ohio’s Gini coefficient flattened from 2013 to 2018.

Despite the positive overall trend, GPI growth was stymied by environmental and social factors, leading to a growth rate in GPI that was about half the GDP growth rate over that time period. Below are the main factors that decreased GPI over this time period.

• A boom in natural gas drilling and substitution away from coal led to a decline in CO2 emissions, but relied on extraction of limited nonrenewable resources that chipped away at Ohio’s stock of nonrenewables.

• The average worker spent 31 more hours at work and 8 more hours commuting and the average adult spent 18 fewer hours on housework and caring for children or other family members in 2018 than in 2009.

• Trends in farmland pricing and economic hangover from the Great Recession in the consumer durables market also took a bite out of GPI growth.

“While we’re in the midst of a short-term economic crisis, it’s easy to lose the forest for the trees when it comes to the long-term trajectory of our economy,” said Rob Moore, Scioto Analysis Principal and study co-author. “When we measure what matters, we see that Ohio’s long-term economic vitality is being stymied by increased family time constraints and rapid depletion of state natural resources, side effects that can be addressed by public policy decisions.”

This study was a partnership between Rob Moore of Scioto Analysis and Isabel Clayter, Masashi Hamano, Ashwin MB, and Cruz Eduardo Flores Vera, a group of graduate students at the University of California, Berkeley’s Goldman School of Public Policy. This is the first of a series of briefs on Ohio’s economic trajectory and options for policymakers interested in improving it.

What do school shutdowns do to kids?

By Noah Stein and Rob Moore

As states are reopening for recreation, office work, and even dining across the country, states are keeping schools shut down. On its face, this decisions seems like a no-brainer: buildings with hundreds of young children are breeding grounds for germs and our influenza shutdown protocol prominently features school closings as a strategy to limit the spread of disease. 

As students switch from in-school instruction to at-home instructions, though, they switch from an in-person learning experience to a virtual learning experience. This has the potential to erode the human capital development of children if virtual learning is not a good substitute for in-person learning, which could mean lower wages down the road and cascading harm to the economy.

For years, researchers have been working to understand variations in a student’s long-term earnings in the context of access to education. Now that the nation’s students have been pushed into a new virtual learning environment, understanding the impact of education on different learning outcomes has taken on a new urgency. According to a recent article published by Brookings, access to steady education is directly related to one’s lifetime earnings. Brooking’s valuation of education and Ohio’s current K-12 enrollment data suggest children in Ohio alone could see a loss of over $58 billion dollars in foregone lifetime labor market earnings due to lost educational time from school shutdowns associated with COVID.

A study looking at Ohio students who voluntarily participated in “E-schools” found them to be at higher risk for failing on their graduation tests relative to traditional public school students.  This study drew its conclusions from virtual classrooms of students who knew what they signed up for. Now, Ohio students across the board are dealing with the abrupt transition to a virtual learning environment they have no experience navigating. This means the existing risk of lowered test scores and increased achievement gap could be even more significant than past data shows. 

That being said, some studies have found online classes to be more cost-effective, accessible, and environmentally friendly than in-person instruction. Theoretically, anyone with access to the internet can access classes from home. This ability to have more agency on how the student digests the material has been shown to increase retention rates by up to 60%. And due to reduced community times, The Open University in Britain has concluded that switching to virtual learning reduces CO2 emissions by 85% per student.

The unexpected switch to online learning will likely result in lower test scores, an increased achievement gap, and severe economic consequences if students respond to virtual learning the way they have in the past. On the other hand, there is some silver lining in the potential for increased retention rate and reduced environmental impact. Ultimately, it will be years before we know the eventual impact of months of school closures. In the meantime, it is up to us to delicately balance the potential public health benefits of school closures against their severe human capital costs.

Why are state policymakers saving funds for the recovery?

Over the past couple of months, the state of Ohio has seen a $200 million budget surplus evaporate into a nearly $800 million budget deficit. Faced with what look like a 30% annualized drop in GDP in the second quarter of 2020, the governor of Ohio has issued a budget plan for the end of the fiscal year that calls for $780 million in Fiscal Year 2020 budget cuts, with four out of five dollars in budget cuts coming out of K-12, Medicaid, and higher education spending. 

Data from Cleveland.com

To state budget watchers, this move should be surprising. Ohio has saved about $2.7 billion since the Great Recession to use during a budget crisis such as the one Ohio is experiencing now. The Kasich administration had resisted Democratic calls to spend the funds when the economy was strong and the budget was stable, and now the DeWine administration has stated it does not intend to use these funds, quite literally called “budget stabilization funds,” to stabilize the budget in what may end up being the most dramatic quarterly shortfall in Ohio fiscal history.

This implies that the state could continue to cover historic shortfalls for the rest of the year, which itself is an extremely unlikely worst-case scenario even using the state’s own reported forecasts, without cutting its budget at all. 

Governor DeWine has said "The 'rain' is not a passing spring shower - it could be a long, cold, lingering storm, and we should not use the fund until it is necessary." The implication of the governor’s statement has been that budget shortfalls will worsen in the coming quarters, though sources cited by the governor’s budget office suggest the economy is expected to improve over the last half of 2020 and early 2021.

Hundreds of millions of dollars in cuts to education and health care coverage means that people will not build human capital and get access to health care in the middle of a national pandemic. It also means dollars will sit in state coffers while people who want to work sit at home unemployed. Maybe the state’s decision to hold back funds in the midst of a fiscal crisis is informed by bad information. Maybe it’s informed by bad politics. Whatever it is, it doesn’t seem to be informed by the fiscal reality and economic forecasts its budget office reports.

Prognosis Ohio debuts "A Few Minutes Moore"

This week, WCBE Podcast Prognosis Ohio debuted a new segment called A Few Minutes Moore, where Scioto Analysis Principal Rob Moore provides commentary on interviews for the show. The full transcript of the first segment, responding to an interview with John Barker of the Ohio Restaurant Association on reopening restaurants, is available below.

Over the past two months, we have been firsthand witnesses to one of the most unique economic events in Ohio’s history: the intentional closing of large sectors of the economy to curb the spread of a deadly virus.

On the latest episode of Prognosis Ohio, Dan talked to John Barker, the President of the Ohio Restaurant Association, the trade association for the industry most widely and deeply impacted by social distancing measures. 

Restaurants have been caught in the crosshairs of the COVID crisis. Last week, MIT researchers published a study on the transmission risk and social benefits of types of locations impacted by social distancing measures to stop the transmission of COVID-19. In this study, they married smartphone visitation data assessing the volume and density of location crowding with employment and sales data and a survey they conducted on public opinion of location importance to assess transmission risk along with social importance of types of locations.

On the one hand, sit down and fast food restaurants were the first- and second- highest locations for risk of transmission of the twenty-six types of locations in the study. These locations are densely packed with many unique visitors moving in and out and staying for a relatively long period of time. Popular restaurants are pretty much the closest thing we get to a continually-operating mass gathering.

On the other hand, sit down and fast food restaurants are centers of commerce and employment and heavily valued by the public. The study found fast food restaurants to be among the top five most socially important types of locations along with banks, groceries, general merchandise stores, and auto and mechanic stores. Sit down restaurants were not far behind in the top ten. 

Thus the restaurant dilemma. We care about and value restaurants, but they are the most dangerous places we have when trying to stop the spread of an airborne illness.

As we reopen Ohio, the governor has treated the restaurant issue gingerly. As Dan brought up, we currently have no timeline for the opening of restaurants and bars in the state, though some conversation has transpired around appropriate standards for cleanliness, personal protection equipment, and social distancing measures on premise.

The problem with a lot of these proposals is that, as Barker said in his interview, restaurants run on exceedingly thin margins. I was talking to a restaurant owner in my neighborhood, the Brewery District, last week, who told me that opening at half capacity with scarce, expensive personal protection equipment is not viable for his business, and that they will wait until they can open to full capacity to resume dine-in business, citing the coalition of 50 Georgia restaurant chains that organized recently to make a similar announcement. And as Barker said in the interview, even all these measures in place will not necessarily make people feel safe enough to go back to restaurants on their own.

In an ideal world, we have perfect information about who has been infected and we ask those individuals to self-quarantine with violation of that request subject to penalties in proportion to the risk they expose others to. In absence of a robust testing infrastructure, we have to rely on blunt-force interventions such as closing entire sectors of the economy.

How we decide to navigate into a new normal will have significant impact on the lives and livelihoods at risk and reliant on this and other industries. I think I am not alone in hoping that the easing of social distancing restrictions matches the compassion and prudence that led to their implementation in the first place.

A “new normal” for commuting?

People are driving a lot less in Ohio these days. A report from the Ohio Department of Transportation suggested there have been a little more than half as many cars on the road as usual statewide since implementation of strict social distancing measures in March.

This is good for many Ohioans, and not just because of the benefits of reduction in risk of transmission of COVID-19 afforded by social distancing. For instance, despite the inconvenience of reduction of driving, reducing time spent on the road means less emission of pollutants.

According to the U.S. Energy Information Administration, the state of Ohio’s petroleum use led to emission of 75 million metric tons of carbon dioxide into the air. Less driving means less carbon emissions and slower contribution to global climate change, not to mention the benefits from reduction of harmful local emissions.

Another benefit of reductions in miles traveled is reduction of use of nonrenewable resources. Less cars on the road means less use of petroleum and less depletion of nonrenewable resources, which will help stabilize the price of transportation and energy use in the long run.

Most concretely for Ohio families, however, less time on the road means more time doing other things they care about, whether that is working, spending time with their family, or even something as simple as sleeping. The average person in Ohio spends 46 hours a year commuting — more than an entire work week each year spent on the road. Less cars on the road means less time spent in traffic and more time doing things families would rather do with their time.

Over the next few months, we will see traffic numbers climb back. At the same time, state policymakers will be scrambling for options to close a historically large budget gap. Easing of social distance restrictions will lead to a new normal for drivers, and policymakers have some tools they could use to make that new normal a healthier one for Ohioans while at the same time raise revenues for essential state programs.

A straightforward tool is more road pricing. High occupancy toll lanes or express lanes could be easier to implement in this moment of lower traffic than they would otherwise. These types of strategies would reduce traffic while generating revenue that could be spent on public transportation or other state programs.

A more ambitious approach would be to assess a pollution fee on fuel usage. This could be collected at the retail level for gasoline and would be tied to the social cost of pollution as determined by the cost of emissions to public health and environmental degradation. In an ideal world, this fee would apply to more than just transportation, but transportation could be a first step in curbing the cost of emissions.

An old tool that could also be helpful here is the gas tax. While Ohio increased its gas tax at the beginning of the DeWine administration, it is still below the level of Indiana and Pennsylvania’s. With gas prices at a nadir due to a mixture of a demand shock due to social distancing and a supply shock due to international oil production, the gas tax could be a strong tool for raising revenue, pricing driving, and not particularly hurting consumers.

Tools such as these will increase telecommuting, busing, biking, and walking while reducing driving and raising revenues for the public sector. Ohio has been wise throughout this crisis and intentionally shaping our transportation system in a post-shutdown world will take further wisdom from both policymakers and the public. 

This commentary first appeared in the Ohio Capital Journal.

The risk/reward tightrope of opening Ohio

Today, non-emergency medical procedures become allowable under Ohio’s adjusted stay-at-home order. This will be the first of many steps to lift social distancing restrictions and create a new normal for life in the state of Ohio. 

On Monday, construction, manufacturing, and distribution operations will resume. On May 12, retailers and service companies will be allowed to reopen. Dine-in restaurant service, bar service, and mass gatherings are still banned indefinitely.

While some people want to do away with all social distancing restrictions today and some people want to wait for years until a vaccine has been developed, the vast majority of people are looking to ease restrictions on social contact slowly in a manner that balances the benefits of social interaction with the cost of increased risk of disease transmission. But how can we determine which types of locations to open first and which to leave closed a little bit longer?

A recent study by MIT researchers tried to get at this question. The researchers used visitation data to estimate what types of locations had the most unique visitors crowding into a small space to assess risk of transmission and used employment and sales data combined with a nationally-representative survey on the relative importance people place on different types of locations to assess the value of different types of locations.

Even though more dangerous types of places tended to have more economic and social importance for people, there were still some locations that had higher economic and social importance relative to their danger and some locations that were less important relative to their danger.

For instance, both banks and general merchandise stores were found to be among the most important public places and both were in the medium- to low-risk category when it came to risk of transmission. While banks have seen some retail restriction, those should be lifted by the 12th, which should provide people with a quite safe and valuable service that had been restricted.

Higher risk but also of high importance are grocery stores and auto dealers. Both of these have had lighter regulation up to this point and provide a lot of value, but likely need to be subject to serious safety precautions to reduce transmission on location.

Another tier of low- to medium-risk locations that people place substantial value on are dentists, department, clothing, and shoe stores, and universities. Dental procedures resume tomorrow and clothing stores will be allowed to reopen May 12, which should be good for consumers. Universities, however, have been closed for the semester and will not reopen until fall. This study does not even take into account the human capital impacts of a lost semester, which likely has larger social impact than the short-term revenue impacts.

On the negative side, gyms and cafes represent locations with high risk of infection but middling to low social importance. This suggests a delay in opening gyms and cafes until after some of the locations listed above and even after sit-down restaurants and fast food would save lives at relatively lower cost. 

Another negative category are liquor and tobacco and sporting goods stores, each of which have medium transmission risk but low social importance. The governor has been kind to liquor stores so far, but the relative low importance but higher transmission rates at sporting goods stores suggests delaying their opening could be a lower-cost way to save lives.

On the low end of the spectrum, book stores, amusement parks, and museums are low-risk and low-importance, but they are of such low importance that keeping them closed longer could pay off in reduced transmission risk as well.

This study seems to suggest that Ohio’s state policy is lining up with economic, social, and public health reality, with the potential exceptions of the heavy measures on relatively high-importance lower-risk universities and the light treatment of low-importance higher-risk liquor and sporting good stores.

Testing and tracing and appropriate on-premise practices need to be a part of the reopening process, but at the same time we need to balance social importance with risk of transmission of a deadly disease as we decide which locations should open first.

This commentary first appeared in the Ohio Capital Journal.

How is Ohio Metropolitan Area Employment Faring Under COVID?

By Noah Stein and Rob Moore

Unless you’ve been living under a rock for the past month, you know that both governments and households have been implementing social distancing measures in order to combat the rapid spread of COVID-19. By slowing infection rates and flattening the curve, they hope to see vast reductions in both deaths and economic turmoil.

Economic analyses suggest successful social distancing has the potential to provide reductions in risk of death of a value of $5 trillion to $8 trillion, that’s up to $60,000 per US household. Despite the long term benefits, social distancing measures will likely impair industries that are unable to adapt and will hurt metro areas that are not suited for a noncontact economy. 

Communications and information technology innovation is providing opportunities for remote work that wasn’t previously possible, but not all industries can adjust. Gyms, movie theatres, airlines, etc. are closing with no option to continue operations online. This could potentially result in Great Depression levels of unemployment. 

A recent study done by the Becker Friedman Institute at the University of Chicago suggests that 34% of jobs nationwide can be conducted remotely. Most of Ohio won’t be this lucky, though. Looking at Ohio’s metropolitan areas, we can identify which cities in Ohio are most prepared for remote work.

Data from the Becker Friedman Institute.

From this chart we can see that larger metro areas (Columbus, Akron) have more potential to switch to telework than smaller metros (Mansfield, Lima). 

As the share of jobs that can be done remotely decreases, so does average pay. The metro areas that have less jobs that can be done remotely will likely experience both higher unemployment numbers and lower average wages. These will be the areas in Ohio that feel the negative impact of social distancing the most. 

The following chart gives more insight into how many jobs are at risk due to strict social distancing measures. This is drawn from a Brookings Institution study that examined how much leisure & hospitality, employment services, transportation, mining, and travel arrangement services comprise metro employment, industries that are especially at risk under social distancing measures.

Data from The Brookings Institution.

Nearly all Ohio metro areas have a significant amount of jobs in high-risk industries. Using a metro area’s potential for remote work as well as job loss, we can make predictions about which metro areas will be hit the hardest.

Low-Risk Metro Areas

Akron, Cleveland, and Dayton all have above average potential for remote work as well as lower shares of jobs put at risk. Metro areas like these will likely be the least impacted by the economic downturn with less jobs lost and more jobs done from home.

High-Risk Metro Areas

Springfield, Toledo, Youngstown,  and Wheeling are less fortunate. These metro areas have the lowest rates of potential remote work as well as above average numbers of jobs in high risk industries.

Wildcards

The remaining Ohio metro areas are less predictable. This is because they have either high potential for remote work as well as high numbers of at-risk jobs (Cincinnati and Columbus),  or low potential for remote work and less at-risk jobs (Canton, Huntington-Ashland, Lima, Mansfield, and Wierton-Stuebenville). The former may have more jobs at risk but they also have more potential to adapt, the latter will have more difficulty adapting but less jobs that will be affected. Predicting the outcome of these areas is less straightforward.

With a few weeks of strict social distancing under our belts, we are already seeing the results of social distancing policies in unemployment rolls. The following chart shows the spike in initial unemployment claims in Ohio’s metro areas as reported by the Ohio Department of Job and Family Services.

Data from the Ohio Department of Job and Family Services.

This chart tracks all metro areas’ initial jobless claims from February 29th to April 4th. Each area has seen significant increases in claims, some more than others. By looking at the rate of the increasing claims we can compare how each metropolitan area is being affected. This information can be used to show which areas are receiving the most claims relative to their baseline averages. For example, Springfield saw a 4233% increase in average initial jobs claims while Canton only saw a 1932% increase. Given the data we have on share of at-risk jobs and rate of potential telework this seems plausible: Springfield is considered high risk while Canton is a wildcard. 

Data from the Ohio Department of Job and Family Services.

Ideally, this information can be utilized to better understand why certain areas struggle more than others. Using the data at our disposal we can do our best to predict and mitigate job loss while better understanding how certain areas manage to adapt.

Crane Center for Early Childhood Research and Policy Releases Provider Cost of Quality Calculator

Lost in the shuffle of all the news on COVID-19 was some work Scioto Analysis did this winter in conjunction with the Crane Center for Early Childhood Research and Policy at the Ohio State University on new quality standards for child care providers in the state of Ohio.

In February, the Crane Center released a calculator based on this analysis for providers, policymakers, and academics interested in modeling the costs and benefits of Step Up to Quality regulations and subsidies for Ohio child care providers.

“The calculator models the costs of education, training, and paperwork costs for providers as well as the return on investment providers receive from increased subsidies associated with quality,” said Scioto Analysis Principal Rob Moore. “These models will help policymakers get a handle on the impacts of Step Up to Quality standards and subsidies at the provider level.”

The calculator provides users the ability to model both center and family child care providers in Canton, Cincinnati, Columbus, and Defiance, Ohio.

What Counts During COVID-19?

If there is one point of agreement among prognosticators in 2020, it’s that the second quarter of the year does not look good for the economy. A range of different forecasters including investors, former Federal Reserve Chair Janet Yellen, and the Congressional Budget Office have all projected that the national GDP will contract by over 7% (or 30% annualized) in the second quarter of 2020, over three times larger a drop than the worst quarter of the Great Recession. 

The advantage of GDP is that it provides a standardized methodology for economic activity that allows a range of forecasters such as those above to come to similar results. A disadvantage of GDP is that many activities of economic value such as housework, environmental damage, and the ongoing value of consumer goods are not captured in GDP. This is why a group of environmental economists have developed an alternate methodology called the Genuine Progress Indicator (GPI) that tries to better capture the range of economic activity in the economy.

States like Maryland, Washington, and Vermont have passed legislation to require calculation of state GPI. In other states, GPI is calculated by independent organizations (like Ohio, where my firm calculates it), or it is not calculated at all. The federal government has no agency that calculates GPI. 

A GPI framework can be valuable during a time like this because the serious social distancing measures taken by states to slow the spread of COVID-19 have suppressed regular market activity which has both encouraged nonmarket activity that is not captured by GDP and has reduced market activity with negative spillovers not captured by GDP. Below are some examples.

The Value of Housework and Parenting. While GDP falls when someone spends more time caring for their child at home or cleaning their house rather than hiring housekeepers or child care services, GPI estimates the value of nonmarket home care by marrying time use data with local average wages to estimate this local value. The extra time that people are spending at home on housekeeping and caring for children or other family members (not to mention cooking at home and hobbies, which are not measured in many GPI calculations) have an economic value that would cushion the blow of a recession that puts a lot of people in their homes for a long period of time.

Environmental Damage. One ongoing criticism of GDP is that the measure counts the value of economic activity that causes environmental damage, then counts the value of cleaning up that damage, leading to what is called “double counting.” GPI corrects for this by subtracting out the cost of environmental damages ranging from the cost of pollution to the loss of natural resources caused by other economic activity. Thus, while GDP would fall when a streams fails to be polluted and thus no one needs to clean that stream, and through reduction of broader pollution activity which is happening with reduced travel and economic activity right now, GPI removes that double counting and cushions that blow.

Value of Consumer Durables. People are likely deferring purchases of new cars, televisions, washing machines, and other household appliances right now but are still using many of these goods they had purchased before, especially those around the house. While GDP only counts the value of a good upon purchase, GPI estimates the value consumers receive during use, more accurately capturing the value of the good to a household if they are deferring purchases to another time.

The Cost of Motor Vehicle Crashes and Commuting. Crashes exact a large cost in terms of human life and commuting exacts a large cost in terms of people’s time. An increase in telecommuting during this time has led to plunges in car crashes and has freed up a lot of time for people. This time cannot be spent doing the range of activities someone may want to do with that time because of social distancing measures, but the time freed up by not having a commute is substantial and can still be used by households on a range of activities.

Overall, alternative frameworks such as GPI show us that many of the things that matter to families trying to budget their resources but not counted by GDP are faring well under social distancing measures. The massive drop in consumption brought on by closing of retail operations likely still has led to a net decrease in GPI, but it is plausible and dare I say likely that if GPI were measured as consistently and widely as GDP, the economic damage wrought by COVID-19 and our response to it would not be quite as dramatic as the story told by GDP. And even GPI does not measure what most economists consider the overriding economic concern of social distancing measures: the reduction in risk of death across the population that can be achieved by slowing the spread of the novel coronavirus.

This commentary first appeared in Serious About Happiness, the Gross National Happiness USA blog.

Impending recession puts Ohio in budget squeeze

Social distancing has its benefits. Most economists who have analyzed these policies seem to think the benefits gained in lives saved outweigh the costs they exact in economic damage using standard valuation techniques. Nonetheless, the costs are substantial.

Last week, the Congressional Budget Office released projections that the United State gross domestic product will fall by 7% during the second quarter of 2020 — an annualized rate of 28%. The same report projected second quarter unemployment to top 10%. However you cut it, we’re in for a massive nationwide economic slowdown.

Economic slowdowns can be exacerbated by slowing public sector activity. According to the Legislative Service Commission, about 70% of the state operating budget is state sales, income, and other taxes and receipts. A fall in economic activity means less revenue available to support building human capital through education and ensuring economic security through state health and human service programs.

State policymakers are already feeling the effects of this impending recession. Weeks ago, Ohio Gov. Mike DeWine ordered agency officials to cut their budgets by as much as 20% in anticipation of a revenue shortfall. If this level of state budget cuts happened across the government, it would represent the largest contraction of state government in recorded history, double the contraction the state suffered in the depths of the Great Recession.

Revenues are already showing a shortfall in March. General revenue tax receipts are 10.5% below projections, weighed down by sales tax revenues 8.3% below projections and income tax revenues 5.1% below projections. We can only expect this to get worse in April since social distancing measures were only implemented partway through the month of March.

On top of this, Ohio’s shift towards reliance on sales tax over income tax, which would bring stability during a cyclical recession, has only hurt its budget more in this bizarre recession triggered by mass mandated limitations on retail operations.

Ohio was not quite prepared for a severe recession, either. According to a report published by Moody’s Analytics in October 2019, the state has only saved enough money since the last recession to cover 8.1% of operating costs. In their severe recession simulation, which seems like the most comparable scenario at this point, this would still leave the state with a $2.4 billion budget gap, 7.2% of 2019 revenues, even after draining its savings.

Compare this to Indiana, which will only have to cut 3% of state revenues, and West Virginia, which had saved enough to not need cuts under the simulation, and you see why healthy savings are so important.

So policymakers will be faced with choices. Will they go with 20% budget cuts, the equivalent of cutting everything after the first semester of sophomore year in the education budget across every department? Will they tap into revenue sources that also grow the economy like fuel taxes, pollution fees, and targeted congestion fees? Or will the $4.5 billion in federal relief bail them out? Policymakers will have to make these decisions sooner than you might think.

This commentary first appeared in the Ohio Capital Journal.