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What Would You Do With a Budget Surplus?

One Ohio county is rolling in so much extra revenue that it's offering other counties low-interest loans for infrastructure projects.

Budget cuts, among other things, tend to flow downhill. That was certainly true in the recession, when states cut overall aid to localities by a total of $31 billion between 2009 and 2011, according to the Pew Charitable Trusts. And it’s still a problem for local governments.

But at least one county in Ohio is trying to buck the trend. Faced with a budget surplus in 2014, Franklin County is actually using its extra cash to offer below-market-rate infrastructure loans to cities that apply for one. Ohio’s localities have had a particularly brutal struggle with drops in state aid. Cities across the state are still reeling from the 2013 decision by Gov. John Kasich to cut the local government fund by half. Franklin County, like many other Ohio localities, responded by raising its sales tax to cover the expected shortfall. But thanks to a state law that requires tax increases to be done in quarter-percent increments, the revenue Franklin got from the tax hike was more than the county needed. “That’s where the idea of an infrastructure bank came up,” says County Commissioner John O’Grady. “We wanted something that would be impactful for local government and economic development.”

The county has offered up $3.5 million so far in startup funds for the infrastructure bank and plans to boost it to $30 million over the next five years using surplus revenue. In addition to infrastructure loans, which can include telecommunications projects like offering free wireless Internet downtown, future loans will also be available for workforce investment programs and green energy projects. Loans will be capped at 50 percent of total project costs. But county staff estimates its loans, which come with an extremely favorable interest rate set at one-quarter of a percent below AAA municipal market rates, will probably make up about one-quarter of the total financing for any given project. The loan terms are crucial, says O’Grady. “We think those below-market-rate loans are the final piece of the puzzle that helps push projects over the top from idea stage to implementation stage.”

Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
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