Public Finance of the States: Ohio

Ohio’s Fiscal Middle Ground

Ohio is the Midwest’s great median case—large enough to matter, diverse enough to reflect the full range of regional tensions, and fiscally positioned neither at the crisis end (Illinois) nor the model end (Indiana). Understanding Ohio means understanding a state managing genuine post-industrial transition while navigating intense interstate tax competition and the fiscal complications of being a genuine political swing state.

Revenue Structure

Ohio’s revenue mix has shifted significantly over the past two decades. A major tax reform in 2005 phased out the tangible personal property tax and the corporate franchise tax, replacing them partly with a Commercial Activity Tax (a gross receipts tax applied to business revenues) and partly with reductions not fully replaced—a net tax cut that reduced the state’s fiscal capacity.

The personal income tax has been reduced multiple times through legislative action, with the rate cut by roughly half since 2005. Sales tax is a significant revenue source.

Pension and Debt Position

Ohio’s pension systems are better funded than Illinois’s but carry meaningful unfunded liabilities. The State Teachers Retirement System and the Public Employees Retirement System have both made benefit adjustments in recent years to improve their actuarial positions—a contrast with Illinois where constitutional protections blocked similar action.

Key Tensions

• Post-industrial transition: The legacy of manufacturing decline in Cleveland, Youngstown, Dayton, and other industrial cities creates fiscal demands (concentrated poverty, aging infrastructure, blight remediation) that the state’s revenue system is not well-designed to meet
• Opioid crisis: Ohio was among the hardest-hit states; the fiscal costs—public health, social services, criminal justice—have been substantial and persistent
• Columbus vs. the rest: Columbus has become one of the country’s fastest-growing metros while the rest of the state has struggled, creating a widening fiscal and political divergence
• Interstate competition: Ohio competes intensely with Indiana, Kentucky, and Michigan for manufacturing investment, creating persistent downward pressure on taxes that constrains revenue capacity

What to Watch

Ohio’s fiscal trajectory depends heavily on whether post-industrial cities can stabilize their tax bases, whether manufacturing investment continues to arrive (particularly in the semiconductor and electric vehicle supply chains), and whether pension systems can maintain their improved funding trajectories.