COLUMBUS — Ohio quietly ended its fiscal year on June 30 with an unprecedented year-end surplus of nearly $5.7 billion but did so without triggering provisions of state law that might have required some of that largess to be socked away for a rainy day or returned to taxpayers.

Instead, the state set aside $3.5 billion of the excess to pay up to $2.8 billion in cash as an alternative to borrowing for planned brick and mortar projects, $600 million to compensate Intel Corp. for building two superconductor chip factories in Ohio instead of overseas, and $110 million for state road improvements tied to the Intel project outside the Columbus beltway.

In an unusual move, the current two-year budget ordered that any surplus from the just finished fiscal year be rolled over into the next.

“This budget was planned during what continues to be very uncertain times,” Gov. Mike DeWine's budget director, Kimberly Murnieks, said. “Due to the uncertainties, it was prudent to put language in the budget to maintain the cash balance in the state's general fund so we'd be prepared.

“Given the current national economic outlook, in retrospect, that was a very good decision,” she said. “Remember, this budget did include significant income tax reductions that were permanent, and we reduced the number of brackets.”

Despite early worries in the two-year budget about the lingering effects of the coronavirus pandemic on the state's economy, Ohio's tax collections have proven robust. The budget's first year saw $2.7 billion, or 10.8 percent, more collected than initially projected, despite the income tax cuts.

Personal income taxes, the largest revenue pot, came in a whopping $1.8 billion, or nearly 21 percent, above projections, representing two-thirds of the total surplus.

The sales tax — on autos and other goods — were $714.8 million, or 5.8 percent above expectations. The commercial activities tax, which taxes business gross receipts, was $196.1 million, or almost 11 percent, above projections.

Alcohol taxes — by the drink and gallon — were up again, while cigarette taxes were down for the year.

By comparison, state spending was $580.4 million, or 1.6 percent, above what was expected, primarily due to the federal government's expanded pandemic-related Medicaid assistance that had been expected to sunset but was instead extended.

The state's books were also boosted by unprecedented billions in other federal coronavirus response aid, much of which ultimately flowed to local governments but some of which were used by the state to supplant state dollars.

“It is somewhat artificial,” said Greg Lawson, research fellow at The Buckeye Institute, a conservative think tank. “You had an unprecedented amount of federal money following through, and that was getting picked up by income and sales taxes. There was direct money to folks that had an impact on people's income during the pandemic.”

Higher prices due to inflation may have also played a role in the sales tax boost, but Ms. Murnieks said that, while consumers may be paying more for certain goods, they tend to buy fewer goods to control costs.

Sales tax collections are stabilizing with the end of direct federal assistance payments.

While suspended in this budget, state law generally requires the Office of Budget and Management, as of July 31 of each year, to transfer part of the unspoken for year-ending balance as of the prior June 30 to the state's “rainy day fund” budgetary reserves and to the Income Tax Reduction Fund, which triggers automatic one-time tax cuts.

Ohio's rainy day fund, which held just 86 cents a little more than a decade ago, now holds $2.7 billion. But Ohio could still add another $700 million or so into the fund before bumping up against the statutory cap.

“The ITRF is fine to have, but from our standpoint it isn't the systemic tax reform we prefer,” Mr. Lawson said “It's based on whatever situation you're in at the end of a fiscal year, and it's an across-the-board rate cut. It's not a permanent modification. It's better than having so much money that you don't know what to do with.”

He would prefer debate next spring on another round of permanent income tax cuts for the next budget.

The ITRF was last triggered in 2000, leading to a temporary 3.6 percent across-the-board tax cut. But it went unnoticed by many, so lawmakers weren't able to claim the same political credit they usually want when cutting taxes.

“For most individuals, it is better to know what your tax rate is so you can do individual financial planning rather than have an unknown that changes from year to year,” Ms. Murnieks said.

Mr. Lawson said the Buckeye Institute would use some of the largess to replenish the state's unemployment compensation system that was drained during the pandemic. The state did use some of its federal coronavirus assistance to repay the federal government the billions that Ohio borrowed to keep the system afloat, but now it has to rebuild the fund's balance at a time when some economists predict a recession may be around the corner.

Any surplus is also typically eyed hungrily by those who argue that Ohio continues to underfund K-12 education, higher education, and health care, but the DeWine administration has insisted that one-time financial resources should be spent on one-time things rather than ongoing programming costs.

The governor has not proposed a single significant tax cut as part of his two budget proposals to date, arguing instead that the state should invest in “unfinished business” like mental health treatment, child welfare, and Lake Erie cleanup. But he has signed into law and taken political credit for cuts that lawmakers insisted on including in the final products.

First Published July 16, 2022, 12:00 p.m.