State Investment Portfolio Performing Horribly In Ohio: 85% Below Estimate In Latest Monthly Report

Investment Earnings Way Off Estimates

CINCINNATI (TDB) -- On any given day, the State of Ohio's general fund has about $5.6 billion stashed away in various investments, including certificates of deposit and various funds that are supposed to produce revenue.  It's like a piggybank run by experts.  The earnings generated from the investments are budgeted and pay to run the state government; they go to schools and colleges, to pay state troopers and prison guards, to the people who build roads and drive salt trucks.  But the earnings estimates are wildly incorrect as the state fiscal year begins -- last month they were off the mark by 84.7%.  Incompetence or an unreliable investment market?  Nobody is talking yet about the busted numbers.  In October, the state made $3.142 million -- it expected to earn $20.5 million.  It was a $17.4 million shortfall.  That might be the biggest miss in recent history, a whiff of epic proportions.  The monthly financial report issued last week by Ohio's Office of Budget and Management generally had good news about state finances. It said October was a month of "slow, but positive economic progress."

But the investment earnings report was decidedly dismal.  It is not clear who prepared the projections that are based upon the performance of the state treasurer's office.  Democrat Kevin Boyce -- the current treasurer -- was defeated Nov. 5 and leaves office in January.  Republican Josh Mandel takes over.  Mandel has his work cut out.  He has to prove that he can do any better investing state funds, and he has to prove he can forecast earnings accurately.  Tall orders.  The investment earnings aren't the biggest revenue producer for the state -- but they are supposed to bring in more than liquor sales ($7.8 million) and utility taxes ($16.3 million).  How bad are the investment earnings?  In October 2009, the state made $11.54 million.  That was 72% ($8.4 million) better than last month.

Comparative data for investment earnings from other states is hard to track down -- not everybody is as transparent as Ohio, nor do they keep records in the same fashion.  Neighboring Indiana reports interest income and it earned $200,000 --down 78.8% from a year earlier.  Its state budget agency report did not show any estimates for Indiana (or at least The Daily Bellwether could not locate them).  In Ohio, there are certainly questions to ask about the investment earnings estimates and how they were derived, where they came from, who made the overly sunny forecast?  Did somebody get paid, an outside consultant, to predict that Ohio would earn $20,500,000 on its investments?  Maybe the state needs to get a refund . . .

Ohio's Budget Report: Danger Ahead As Medicaid Expenses Exceed Projections

COLUMBUS (TDB) -- The costliest program in the state budget -- Medicaid health care for the poor and elderly -- is spending money faster than Gov. Ted Strickland and lawmakers projected earlier this year. A monthly financial report from the Office of Budget and Management reports that costs were $34.6 million over estimates in October. It says the state's lousy job market may be one reason 18,500 more people than expected have signed up for government paid health care. The report warns of "increased concerns about the Medicaid budget for the remainder of the biennium."

The state budget office also told the governor the economy would likely slow significantly next year.

Over the next two years, Ohio planned to spend $18.4 billion on Medicaid. Strickland got the state's monthly financial report last week. The complete text of the monthly financial report is here and it gives a snapshot of the state's income and expenses. It also tries to forecast general economic trends that can affect Ohio, and it sees a significant slowdown ahead in the coming months. The report does not use the word recession.

"Looking ahead, the widespread consensus is for a significant slowing in growth in the current quarter and during the first half of next year. The reasons are the ongoing deterioration in housing, an expected slowdown in business investment, and a very significant expected slowdown in consumer spending in response to the recent run-up in energy prices."

On Medicaid, the budget office appeared close to pressing an alarm button, noting that caseloads have risen since the summer. Medicaid costs nearly as much as schools, $14.9 billion, and colleges, $5.7 billion, put together. Any unplanned growth in Medicaid spending clearly could leave the state government in a pinch.

The budget office told Strickland:

"For three consecutive months, Medicaid caseloads have exceeded the estimate. Currently, there are 15,000 more recipients in the Covered Children and Families (CFC) population that expected with enrollment in the Healthy Families and Children in Care programs driving the increase. CFC caseloads peaked in August 2006 and declined steadily through June 2007. This decline has been attributed to increased citizenship requirements under the federal Deficit Reduction Act of 2005. The forecast for FY 2008 and FY 2009 assumed that caseloads would increase, however, it now appears that the increase may be steeper than anticipated.

"The Healthy Families category includes children and their parents with incomes up to 90% of the federal poverty limit. Enrollment increases in this category may be due to economic factors or successful outreach to eligible families who had not previously sought Medicaid coverage. At the end of the first quarter, Aged, Blind and Disabled caseloads have exceeded the estimate by 3,500 recipients. It is important to note that while this increase is small, this is the most expensive population group in the Medicaid program and is driving spending above the estimate in many categories of service."