Transportation Budget Passes Ohio Senate, Conference Committee Hearings

Scheduled Next Week

The Ohio Senate concluded hearings on the Governor's $7.6 billion Transportation
Budget proposal (HB 2) this week. Am Sub HB 2 passed 22-9 in the Ohio Senate, and is
now scheduled for a Conference Committee to work through the differences. The Senate
version was dramatically different than the Governor's proposal and the House-passed
version, and is a preview of what is likely to occur with the main Operating Budget (HB
1) in the coming weeks and months.

On Tuesday evening, the Senate Highways and Transportation Committee passed an

omnibus amendment, which among other issues, removes the Department of Public
Safety (DPS) from the Transportation Budget. The Senate determined the Transportation
Budget source of funding is derived from the state gas tax. DPS no longer receives
funding from this revenue and should therefore be included in the main operating budget
with the other state and executive agencies. Senators were also concerned that not
enough time would be allowed to properly study the impact of the numerous fee
increases before the March 31st deadline. Of those fees, approximately $106 million were
earmarked to deal with a fiscal shortfall in the Ohio State Highway Patrol. Public Safety
is concerned there will be a shortfall of $25.6 million due to the delay in collection of the
proposed fee increases if their budget is included in the operating budget, which does not
go into effect until July 1, 2009.

The Senate also removed Governor Strickland's proposal for primary seat belt law
enforcement, use of speed cameras in highway construction zones, creation of local
Transportation Authorities (TIA), new toll roads, and elimination of $54 million in
payments to gasoline wholesalers and retailers. The Senate version did keep the
Governor's proposal to allow the Ohio Department of Transportation and Ohio Rail
Development Commission to apply for the $8 billion in federal grants available for rail
passenger service. However, the Senate version requires approval by the General
Assembly to spend the money. In the House version, the Controlling Board would have
the authority to release any federal funds the agencies receive. This proposal allows the
state to compete for federal stimulus dollars to invest in passenger rail service connecting
the state's three largest cities.

The bill is now scheduled for Conference Committee next week for Tuesday, March 24th,
Wednesday, March 25th and Thursday, March 26th to consider the differences between the
House and Senate versions of the bill. By law, the bill must be enacted by April 1, 2009.

Medicaid Budget

The Ohio House Subcommittee on Health and Human Services heard testimony this
week regarding Medicaid related issues in the operating budget HB 1. State Medicaid
Director John Corlett offered testimony regarding the Governor's proposed franchise fee
increases on nursing homes, hospitals and intermediate care facilities for the mentally
retarded. The current proposal would collect $892 million in fees, and would generate an
additional $2.155 billion in federal medical assistant payments (FMAP). Mr. Corlett told
the committee that the Administration opted for franchise fee increases as a way to draw
down matching FMAP to benefit the entire entitlement program and avoid rate increases
and other less desirable actions. He also testified that without the fee increases, the state
could lose as much as $3 billion in federal Medicaid assistance funds over the next
biennium. Without these fees, the Administration believes it would have only two
options: 1.) eliminate some number of optional services for adults for the Medicaid
program currently covers; and 2.) reduce reimbursement rates for all Medicaid providers.

After several weeks of testimony from only the Administration, the Committee members
were able to hear testimony from representatives of the organizations impacted by the fee
increases. Each group provided testimony to educate legislators regarding the negative
fiscal impact the fee increases will have on their operations, their patients, and their
access to care.

In addition to its concerns regarding the fee increases, the Ohio Hospital Association
(OHA) provided witnesses to testify on the "non-contracting" provision in the Governor's
proposal. Under this provision, the state sets an artificial payment rate ceiling for
managed care contracts, that eliminates the need for managed care plans to negotiate with
hospitals. It mandates that every Medicaid hospital provide services to every managed
care enrollee, regardless of whether the hospital has a contract with their plan. Currently,
Medicaid fee for service, reimburses hospitals at 86% of the total cost of care. Hospitals
are concerned that by establishing a less-than cost payment rate as the Medicaid
managed care standard will only benefit the plans.

The Ohio Association of Health Plans (OAHP) responded that the provision is a positive
development and will increase Medicaid access and participation. On a separate issue,
Medicaid managed care plans proposed a sales and use tax as a replacement for the
Medicaid managed care fee set to expire October 1, 2009. They also testified regarding
their concerns of a pharmacy benefits carve out from the Medicaid Managed Care
program. They believe the pharmacy benefits should be left to the managed care plans in
order to provide a comprehensive program in order to deliver the most cost-effective
service. The state proposes a $200 million savings if the pharmacy benefits are managed
directly by the state.

The Republican Committee members asked questions regarding their concerns that a fee
increase is a tax, and believe the Administration is balancing the budget on the backs of
the providers. The Democrat members, who now hold the majority, are supportive of the
Democrat Governor's proposals, however they did convey concerns regarding the harm
the increases could do to the access of care. Overall, they believe during the current
economic crisis, everyone must do their part to help balance the budget.

Primary and Secondary Education Budget

The House Finance & Appropriations Subcommittee on Primary and Secondary
Education wrapped up its hearings this week, having heard from over 300 witnesses over
the last few weeks. This Subcommittee took a slightly different approach from the rest of
the subcommittees by holding Monday hearings in different parts of the state including
Akron, Marietta, and Dayton in addition to its regular Statehouse hearings. The
subcommittee felt this allowed it to gain greater input from the residents of the state and
gain a better understanding of what needs to be done to fix the school funding problem in
Ohio.

This week the panel heard testimony from charter schools, e-schools, gifted child
programs, and wellness coordinators. One surprising development was that the
Democrats on the committee seemed more open to the idea of charter schools than in the
past, especially those that operate as non-profit entities. The committee was attracted to
the flexibility these schools have in creating a curriculum that meets individual student
needs.

The committee also heard testimony from the Ohio Association of School Nurses, who
claimed the Governor's proposal to allow licensed practical nurses to serve in the school
nurse position runs contrary to national standards and recommendations.

Next Steps for the House Budget Process

Each of the five Subcommittees of the House Finance & Appropriations Committee must
prepare a report for the full committee this week. These reports, along with general
testimony, will be debated in the full committee beginning next week, and continuing into
mid-April. The full committee plans to vote on a final version of the bill on April 21st.

For more information, please visit our new website and VLOG at
www.publicpolicyadvocates.com