Ohio Senate Finance Committee - 6-2-2026 11:00AM

Director, welcome to committee.

Good morning. Good morning, Chairman Serino, Vice Chair Chavez, Ranking Member Hicks-Husen, and members of the Senate Finance Committee. I am pleased to be with you today on this lovely Ohio morning to present Governor DeWine's capital improvements budget for fiscal years 27 and 28, Senate Bill 450. The capital budget will make appropriations for the renovation, reconstruction, construction of capital assets for state agencies, colleges, and universities, and school districts. It funds a program of grants and loans to local governments for infrastructure projects throughout the state also. And in addition, approximately $200 million in the capital budget will provide funds to support targeted community projects of local and regional importance. The capital budget proposal from Governor DeWine presented to you today includes $3.43 billion in general revenue fund bond-backed funding and another $263 million from non-GRF-backed bonds, cash, and other sources such as federal funds for a total of $3.696 billion in total appropriations. And the table at the end of my testimony provides a summary of capital appropriations by agency. Most of the projects in each capital budget are supported by long-term debt issued through state of Ohio bonds. And because the bill is largely bond funded, each capital appropriation must link to an authorization in the Ohio Constitution. And each project must have a nexus or a direct link to one of those constitutional provisions. And then the principal and the interest payments which support the bond-backed funded capital projects are then paid using the general fund in each operating budget. Mr. Chairman, I am proud to report that Ohio's prudent fiscal stewardship has reduced the debt burden to the lowest in modern history. Since 1980, the state has achieved its lowest inflation-adjusted GRF debt burden on record with a per capita debt of just $623 by fiscal 2025, which was half of the mid-2000s peak, and our outstanding GRF debt reached a historic low of less than 1% of personal income. Under Governor DeWine's administration, Ohio further strengthened its position by reducing GRF debt obligations by 25% between fiscal year 21 and this fiscal year, driving down the debt burden to $439 by $439 per person. And so, Mr. Chairman, that means that by fiscal year 26, Ohioans paid less per person to service the state's GRF-backed debt than ever before. And with nearly three-quarters of GRF-backed principal retiring within the next decade, and all GRF debt service currently expected to end this fiscal year at roughly 2.3 percent, less than half of our constitutional cap, Ohio enters fiscal 27 with exceptional balance sheet strength and a debt burden at historic lows. These strengths are reflected in the state's exceptional credit rating, which is AAA top tier from all of the major credit rating agencies. Ohio's low debt levels are a powerful asset for policymakers and future generations, freeing up more of the state's budget for essential services, long-term investments, and strategic priorities. Our state is positioned with increased fiscal flexibility to respond to economic shifts, to invest in infrastructure, and to protect our core services without compromising our fiscal sustainability. Ohio's fiscal position has never been stronger. And we achieved these historic milestones together through a deliberate strategy of paying down debt with cash and aggressively retiring obligations ahead of schedule. By using more than $2.2 billion in cash to fund a recent capital budget obligations, instead of using new debt, the state avoided decades of interest costs, savings that are estimated at about $1.3 billion. And in addition, the administration has executed targeted early payoffs, such as retiring callable GRF-supported debt. And together, these financing efficiencies and other debt management strategies have generated an additional $160 million in GRF savings over the past 18 months. Our disciplined approach to borrowing strengthens Ohio's credit profile today and ensures that future generations inherit a state with manageable obligations, ample borrowing capacity, and financial resilience to support growth, opportunity, and continued prosperity. The recommended capital appropriations before the committee are manageable and sustainable within our current and future budget capacity, keeping the state well below the constitutional 5% limitation on debt service as a percent of revenue. The plan presented to you today is a culmination of years of planning by our state agencies to determine the most pressing needs. Each of the projects recommended in this proposal will renovate, improve, or maintain capital facilities to better support Ohioans and to provide the best return on investment. A priority of this bill is to provide a positive impact on jobs and to continue growing our economy. Investing in Ohio's infrastructure is investing in Ohioans and our families. At any given point in time, the Ohio Facilities Construction Commission, which works with agencies to manage most of the state capital projects has nearly 300 projects in design or under construction and the value of these projects exceeds billion creating more than 18 jobs statewide And with that in mind, Mr. Chairman, I would like to take a few moments to highlight some specific capital appropriations and state agency projects for the committee's consideration. One of the larger appropriations in this bill is for the state's capital improvement program managed by the Ohio Public Works Commission. The authority to issue general obligation infrastructure improvement bonds that provide the funding for these appropriations was granted by the citizens of Ohio at the ballot in May 2025. Issue 2 was put to the voters to amend the Constitution specifically to an Act Section 2T of Article 8 and authorize the state to issue $2.5 billion over a 10-year period. Prior to the adoption of that ballot measure, the state had been issuing bonds under authority granted in Section 2S of Article 8, which was enacted in 2014. These bonds support local infrastructure projects across the state. And Mr. Chairman and members of the committee, when you review the bill, you will notice that many, many pages of the bill's length are necessary to update our statutes to account for these new provisions. Next, I'll talk a bit about some of our other state agency projects. The Department of Behavioral Health is the system that serves as a safety net by providing specialized care for Ohioans living with mental illness, addiction, and crises. Building out the behavioral health continuum of care to guarantee access to evidence-based prevention, early intervention, and treatment and recovery support is among Governor DeWine's top priorities. The recommended capital budget provides $385 million in new appropriation for the Department of Behavioral Health to fund general renovations at Ohio's six psychiatric hospitals, to continue support of program spaces for young individuals affected by mental illness and drug addiction, and to fund the construction of a new behavioral health hospital in the Dayton region, a project that was begun in our last capital budget. The capital budget further includes total appropriations of $528.7 million for the Department of Higher Education and our institutions of higher education across Ohio. Following the Governor's directive, the higher education community worked collaboratively to shape a system-wide funding strategy that prioritized shared needs over individual institutional interests. Led by the Inter-University Council of Ohio and the Ohio Association of Community Colleges, this collaborative effort resulted in a strategic, consensus-driven capital plan that recommends $400 million for campus-level projects addressing critical facility upgrades, academic spaces, and long-term infrastructure needs. The capital budget also allocates targeted funding to specific smaller campuses that face heightened challenges resulting from age facilities and outdated infrastructure. This funding supports renovations, safety improvements, and essential upgrades to ensure that students at these institutions learn in safe environments and campuses that remain sustainable. The budget also includes $36.7 million for investments that serve institutions statewide. This funding includes ORNET, which provides high-speed broadband connectivity to Ohio's higher education institutions. the Ohio Supercomputer Center, which offers advanced computing resources in research and innovation, and related initiatives that enhance our digital infrastructure, academic research capabilities across the system. And along with the investments into higher education institutions, the proposal contains appropriations for K-12 school facilities across the state. The Ohio Facilities Construction Commission administers the state school building program, which provides state support to assist local districts with primary and secondary education facilities. The bill total provides $611 million for appropriations to OFCC to continue the K-12 program, the energy efficiency program, and the state building assistance and assessment planning program. Specifically, the budget includes $600 million for ongoing and new construction in our K-12 school buildings. Also included is $3 million for the Energy Conservation Program to reduce costs in state facilities, which is an incredibly important program, given that energy prices are continuing to rise. To date, OFCC has administered 44 energy conservation projects with an annual savings of about $1.4 million, and the average time for full return on investment of these projects is about seven years. Next, the Department of Rehabilitation and Correction has an inmate population of more than 45,000 across 28 facilities. Many of these facilities were built early to mid-last century. DRC also supports 18 community-based correctional facilities, which serve as residential programs for felony offenders and help divert low-level felons from prison. DRC also operates two halfway houses, which provide transitional supervision and services to offenders as their sentences come to an end. The capital bill provides approximately $246 million to support capital projects in our state and community-based correctional facilities, and this investment enables DRC to maintain existing facilities, keeping staff, inmates, and visitors safe while creating more effective programming spaces in living areas. Next, Ohio's state parks were recently named the best park system in the nation, receiving the 2025 National Gold Medal Award for Excellence in Park and Recreation Management. A record number of people have visited our parks across the state in recent years, enjoying the beauty that Ohio has to offer and contributing to our local economies. This capital budget provides the Ohio Department of Natural Resources with a total of $265 million, supporting renovations to our lodges, cabins, campgrounds, and playgrounds, and enhancing the safety of our communities through dam rehabilitation projects statewide, including the Muskingum River State Park locks and dams from Zanesville South to the Ohio River in Marietta. Additionally, funding through this capital budget will support the purchase of approximately 12,000 acres of forest land in Southern Ohio, which will expand six existing state forests and two wildlife areas, conserving the land for Ohioans well into the future. Next, the Ohio Department of Developmental Disabilities focuses on ensuring the health, safety, and supporting access to community participation, increasing opportunities for meaningful employment to Ohioans with developmental disabilities. The capital budget includes $208 million for crucial infrastructure updates at the department's eight developmental centers across the state which provide residential placement and intensive care for adults and youth with disabilities This funding will support the construction of a new Columbus Developmental Center of a new youth unit at the Southwest Ohio Developmental Center, and various renovation projects at our developmental centers all across the state. This investment will provide safe restorative environments for Ohioans with developmental disabilities who reside in our centers. And an additional $25 million in the capital budget supports the capital assistance program which is available to all 88 counties for the purpose of construction, renovation, and purchase of housing for Ohioans with developmental disabilities in our communities. Finally, the Department of Administrative Services is funded with $122 million for statewide facility and IT improvements, and the multi-agency radio communication system, or MARCS. Building projects include chiller replacements, security upgrades, fire system upgrades, sanitary drain replacements, and more across our state-owned facilities. The MARCS program provides interoperable services for Ohio's first responders and public safety providers. $15 million in the budget is dedicated to improvements of our towers and upgrades and local partnership development efforts to incorporate regional systems into the network and increase tower coverage areas. Mr. Chairman and members of the committee, I am pleased to report that Ohio continues to be well positioned to support the projects included in the capital budget. As we approach the end of this fiscal year through the end of April, our general fund tax receipts are almost 5% above forecast. And as I noted earlier, the state's AAA credit ratings are top tier and stronger than at any point in our history, which, of course, is crucial as we consider bond finance projects. Our annual debt service per capita reached historic lows, and according to our most recent calculation, our projected highest future debt service represents only 2.25% of total estimated revenues, which is well below the 5% constitutional cap. Ohio's economy is strong, and in April our state's unemployment rate was 3.9%, which is one full percentage point below Ohio's 10-year average. Additionally, Ohio's state income tax rate is lower than it's been in more than 40 years, now a flat 2.75%. Ohio's economy and our finances are strong and will support this bill and our ongoing state operation. Ohio is well managed, our liabilities are low, and our strong leadership and positive returns are recognized. Ohio is a great investment. Mr. Chairman, members of the committee, I appreciate the opportunity to present Governor DeWine's capital improvements budget for 2027 and 2028. I want to thank Governor DeWine and his staff, Lieutenant Governor Trestle, members of the Governor's Cabinet, and especially my team at OBM, who provided a lot of tremendous work for this bill that I am happy to present today. I also appreciate the work of your team, Mr. Chairman, and LSC as we work together on this proposal. This capital budget really is a team effort. And Mr. Chairman, I also want to take a moment just to thank you and the committee for the collaborative work over this past seven plus years. It is very likely my final appearance before you and this committee to present a budget as we have worked together on now four strong operating budgets. This is our fourth capital budget, a few appropriation budgets in between, and I have really appreciated, Mr. Chairman, your collaboration, the work with previous Chairman Dolan and the entire committee and all the members who have served over these almost eight years. So it has been my honor to represent Governor DeWine before this committee, and I am able to answer any questions that you have this morning about the bill.

Of course, Mr. Chairman, as you may recall, when I testified about a year ago to the conference committee, OBM always looks at the potential downside risks to a forecast. And the most worrisome downside risks to Moody's baseline forecast right now is global trade and uncertainties related to trade restrictions in the national environment. There are also concerns related to higher-than-expected oil prices and the impact not just on Ohio but in the wider economy, and that that could moderate economic growth and contribute to higher levels of inflation. That could bring a potential of wage price spiral, which could set in, and these phenomena together could potentially lead to elevated inflation above the Federal Reserve's targeted 2 rate or sorry 2 rate levels And there are other risks that we always consider things like the impact of AI on jobs and stock markets So overall, OBM always cautions when evaluating strong revenues that we look at these above the baseline revenues as, you know, one time and not incur ongoing obligations. If you look at the current revenue picture, the personal income tax has been by far the largest contributor to our revenue overage this fiscal year, and that accounts for about 58% of that increased revenue over our forecast. And almost half of the positive variance in the personal income tax is a result of annual returns for individuals and pass-through entities, which largely is in non-wage income driven by a very strong tax year 25 stock market. So those are things that we can't count on being recurring year after year, so we advise caution. And you may recall me talking in previous committees about using one-time above target revenues for one-time expenses. I talked a little bit about how we utilized some of the previous one-time revenues to cash fund a capital budget, and that was a strategy that did provide long-term returns on the use of one-time money and outlined some of those positive results earlier.

So we monitor our debt portfolio very closely. We work with our financial advisors, and when there is callable debt, we do an analysis of whether it is financially advisable for the state to pay off that debt. So that is something that we are constantly doing. We take a close look at our portfolio, and we have a team of advisors that assists with that. Okay, thank you.

Thank you, Mr. Chair. Thank you for your comments regarding especially the caution that we definitely need to take. So having said that, one of my questions in regard to the other sources for certain departments, basically where is that from?

Thank you. That's good. I do have another question. Can you just kind of, for the committee's benefit, briefly walk through the bonding versus GRF utilization, particularly for areas like the broadcast media or education media thing? So I know there have been lots of discussions going on. And I think the committee understands the fundamentals of GRF is better than bonding with longer-term debt service and so on. But can you explain a little bit about what was going on with those discussions?

Thank you.

Thank you, Mr. Chairman.

Thank you.