Ohio CPAs predict slow Ohio economy in 2008

By Amy Johnson

A majority of CPAs surveyed in November as part of the 2007 Ohio Business Poll rated Ohio’s overall economy a top concern for the state heading into 2008. Respondents pointed to Ohio’s tax climate, problems in the auto industry, and government regulation as key factors that would continue to inhibit growth over the next 12 months.
Education and rising health care costs were ranked second and third, respectively, as other leading concerns.

Economy
Looking ahead, almost three-quarters of respondents predicted the 2008 Ohio economy would be fair (56%) or poor (16%).

Job growth
Respondents also had a dim view of new job growth in Ohio. A full 90% expect flat to declining new job growth. Only one out of 10 anticipated that new jobs would be added in Ohio next year.

Capital investments
A majority said capital investments will stay the same in 2008, while a third of respondents said they would decrease and only 16% predicted an increase.

National and local perspective
The lack of confidence expressed by Ohio CPAs closely mirrors opinions held by CPAs nationwide. An October survey conducted by the AICPA revealed economic optimism among senior-level CPAs is at the lowest level in three years.

CPAs across the nation are pointing to problems in the mortgage industry, a slower housing industry, and tightening credit conditions for their shift in sentiment, while CPAs in Ohio are more concerned with a tax climate that they believe puts Ohio at a distinct disadvantage for economic development. For instance, Ohio is the only state that allows local governments to impose municipal income taxes. The administration of this practice is a significant expense for businesses that must file returns and a determining factor when companies are considering whether to locate in our state.

“Greater uniformity with other states would no doubt help Ohio better compete with neighboring states,” said James G. Haubrock, CPA, chair of the Executive Board of The Ohio Society of CPAs and a partner with Clark Schaefer Hackett & Co, Dayton.

Haubrock concurred with poll findings that the economy won’t immediately turn around in Ohio, but noted certain regions are experiencing growth.

“In Dayton, we are seeing a surge in new jobs connected with Wright Patterson Air Force Base. The base realignment projects are creating work for military and nonmilitary contractors, which has been positive for the local economy,” he said.

Similarly, Brendan Fitzgerald, CPA, Sustin Bartell Waldman & Fergus Ltd., Cleveland, said many of his clients—closely held, owner-managed businesses in the manufacturing and distribution sectors—are performing well in the current economy, although managing costs has continued to be a strong focus.

Cathleen Hare, CPA, who recently moved to Columbus from Michigan to manage Plante & Moran’s distribution practice, sees future growth even in the lagging automotive industry, where she has extensive experience with companies supplying the nation’s largest automakers.

“Certainly when one of the big auto manufacturers closes an operation, there is a huge ripple effect in the local economy,” Hare said. “But the big three manufacturers are going through a transition. They had too much capacity five years ago and are readjusting production accordingly.”

Hare said Plante & Moran predicts opportunity for Ohio as a manufacturing and distribution hub. She noted many companies that supply parts to the automotive industry are based here and have expanded into other industries as an offensive strategy.

Health care costs
Rising health care costs is one area in which all businesses are feeling pinched. It was rated the number one financial difficulty for Ohio businesses by almost half the CPAs polled, who said they or their clients are pursuing strategies to contain costs. This includes:

• Increasing employees’ share of premiums (30%)
• Exploring alternative health care plans (28%)
• Implementing Health Savings Accounts (21%)

The importance of financial literacy
In addition to the economy, Ohio Society members again singled out Ohioans’ personal finances as a key area for concern. They cited increasing consumer debt, excessive spending and a lack of savings as widespread problems that continue to plague residents.

“These problems are not new to Ohio, nor are they the result of any single economic situation—such as the mortgage industry crisis,” Fitzgerald said. “The use of credit can have a positive effect on the economy, because it stimulates consumer spending and allows people to buy things they might not otherwise be able to do.”
Fitzgerald contends there has been a shift in how credit is used, which is creating much of the problem.

“Excessive spending and the increased misuse of credit has become an acceptable cultural trend in America,” he said. “People used to reserve credit for big-ticket items that were considered assets, such as cars and houses, but consumers today are now putting those items as well as disposables, like groceries, on credit.”

When the bill comes, far too many have already spent the cash that was in the bank, and are racking up huge credit debt that they can’t pay off.

In the survey, CPAs emphasized the need for more personal finance education to help consumers fare better financially, prioritizing education in retirement planning, cash management and budgeting as critical areas.

To help, The Ohio Society maintains a Web site, http://www.financialfitnessohio.com/, where consumers can find financial advice for all ages and stages of life. In December, for example, it featured a month-long series of tax tips to help consumers lower their 2007 taxes.

The Ohio Business Poll was conducted by The Ohio Society of CPAs from Oct. 25 – Nov. 9, and surveyed more than 4,300 members who are senior executives in public accounting firms and Ohio businesses of all sizes. Nearly 600 members completed the survey.

An executive summary of the 2007 Ohio Business Poll is available in the newsroom of The Society’s Web site at www.ohioscpa.com.

This article appeared in the January/February 2008 issue of Catalyst… The Leading Edge of Ohio Business. Amy Johnson is senior manager, public relations for The Ohio Society of CPAs. She can be reached at ajohnson@ohio-cpa.com or 800.686.2727, ext. 341.

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