CLEVELAND — Hold onto your hats! Ohio’s recently passed Issue 1 could mean a lot of different things. Only time will tell exactly what Ohio voters did on Nov. 8. But voters across the country would be well-advised to study these developments carefully, as similar proposals are bound to show up in other states in future elections. Try not to fall asleep as you need on, as the issues are a little complex.
In the Nov. 8 election Ohio voters passed the ballot initiative known as Issue 1, a constitutional amendment allowing the state of Ohio, its state universities and local governments to become shareholders in private companies and to share in any resulting financial gains. The amendment also allows the issuance of general obligation bonds to directly aid industry, up to $500 million over 10 years.
The amendment overrules prohibitions against the state government or any local government investing public money in private companies, a prohibition that has been in place in Ohio for over 150 years. The amendment makes “public purposes” out of local government public infrastructure, financial support for research and development and the development of sites and facilities in Ohio that support industry and commerce.
The amendment included support for Gov. Bob Taft’s “Third Frontier” program, which was defeated by voters in 2003. It is widely believed that the amendment passed this time because it coupled a bond program for meeting infrastructure needs with money that, supporters argued, will stimulate research and development. According to these supporters, this could mean the creation of up to 96,000 jobs, earning roughly $55,000 per year. Ohio has been ravaged over the last four years by the loss of at least 200,000 good-paying manufacturing jobs.
The amendment was supported by business, labor, politicians, and many other groups, and it passed with 63 percent in favor, 36 percent opposed.
In a cautionary note, Policy Matters Ohio, a nonpartisan think tank which took no position on the issue, warned that the state will be obligated to meet its payments to bondholders no matter what the financial state of the state. “The risk of general obligation debt is that debt service will crowd out discretionary programs in difficult financial times,” said the Policy Matters report. Interest payments would equal more than one out of every four dollars of debt service over the life of the program.
Concern about the new, close relationship between public and private funding was voiced by former Ohio state Rep. Bill Schuck. Shuck stated: “If some private companies in which the state and local governments invest grow and become profitable, public budgets will increasingly depend on direct corporate earnings rather than taxes. This is bound to change how government officials think and act.” Jon Honeck, author of the Policy Matters report, said, “A closer relationship between public and private interests in economic development policy will be the enduring legacy of the amendment.” The Ohio League of Women Voters supported Issue 1, with Linda Lalley, the group’s co-president, stating, “While we have lingering concerns about expanding ‘public purpose’ to include private-sector recipients, we are willing to risk it with this proposal to improve the economy.”
Schuck, in his analysis, asked: “If a government agency’s budget depends on corporate dividends, how willing will it be to impose environmental controls on, seek taxes from, or examine the labor practices of the company?” The examples one could cite are endless. “If,” he asks, “a local government invests in a local company, and the company’s stock ought to be sold or its management replaced, what will a county commissioner, township trustee, or mayor do when that action is opposed by managers who are community leaders or by a large number of employees who are voters?”
The president of Public Citizen, Joan Claybrook, was even more sharply critical, telling the Cincinnati Enquirer, “Government normally oversees and regulates industry. Here they’re integrated into one.” Bill Allison of the Center for Public Integrity told the same newspaper, “Government should not be in the business of picking stocks.”
According to the Ohio Committee on Corporations, Law and Democracy, the new amendment is very similar to a law passed in 1837, which allowed direct investment of public funds in private corporations. The state went into deep debt. The law was repealed in 1842, and a constitutional amendment was passed in 1851 prohibiting joint ownership or direct investment of public funds in private corporations. This constitutional prohibition has been in place ever since.
According to the Policy Matters Ohio report, “Whether the public sector uses its expanded authority successfully will depend on the vigilance of the Legislature and the appropriate state agencies in defining and tracking the public interest in economic development policy.”
Needless to say, public vigilance will be required to carefully watchdog and be ready to take action if the use of public monies turns out to primarily benefit private industry at the expense of the public good.
The new amendment also contains a requirement missing from the failed 2003 amendment that all of Ohio’s regions receive benefits, and that the state provide access to the program by economically and socially disadvantaged individuals and businesses.