COLUMBUS, Ohio - Officials in Ohio are watching the negotiations in Washington to avert automatic tax hikes and spending cuts set to start with the new year.
And it's the tax increases that are on the mind of Ohio budget director Tim Keen, who is helping to write the governor's two-year state spending blueprint.
State income tax revenue could rise or fall as a direct result of federal tax hikes.
The so-called "fiscal cliff" takes effect in January unless Congress passes a budget deal by then. The economy would be hit so hard by tax increases and spending cuts that it would likely sink into recession in the first half of 2013, economists have said.
Middle income families would have to pay an average of about $2,000 more next year, the nonpartisan Tax Policy Center has calculated.
Keen said if the country plunges over the "fiscal cliff" and into recession, Ohio could again find itself facing budget challenges as residents lose jobs and hold onto their money.
"We are monitoring that and we're trying to keep that into consideration as we move through this budget and think about putting a budget together for fiscal years `14 and `15," he said in an interview.
Ohio Gov. John Kasich, a Republican, is expected submit his budget proposal to the legislature by February. His last spending plan closed a budget gap that approached $8 billion. And the state doesn't want to find itself in the hole again.
Keen is mindful of the ongoing talks between President Barack Obama and House Speaker John Boehner of Ohio, but he said he's not following every development.
"We'll have to deal with whatever happens," Keen said.
Many states depend on federal grants to help finance education, environmental and community programs. But Keen said he's not expecting the state to take a significant blow if the automatic cuts occur.
A spokeswoman for the state's Department of Jobs and Family Services, the largest recipient of federal grant money, said programs dealing with adoption services, child care, child support, and workforce development are among those that could see funding drops.
Department spokeswoman Angela Terez said it's impossible to know what, if any, impact the cuts would have on the programs because the state doesn't know how the reduction will be managed. For instance, she said, the Obama administration could pass along the cuts to the states, choose to absorb the reductions in Washington, or come up with a combination of both.
If nothing is done, states stand to lose $7.5 billion in federal funding in 2013 for 165 grant programs subject to automatic spending cuts, according to the Federal Funds Information for States, a Washington-based organization that tracks the effects of policy decisions on states. Ohio could see a $262 million drop next year for such programs, the group found.
Last week, Obama met with nine mayors from around the country and spoke to more on a conference call about the "fiscal cliff." Columbus Mayor Michael Coleman and Cincinnati Mayor Mark Mallory, both Democrats, were in attendance.
Each expects his city to take a hit if no deal is reached. However, neither mayor said his office had analyzed the potential impact.
Columbus has an unemployment rate of 5.4 percent, the lowest among metropolitan areas in the state. And Coleman said he doesn't want to see that number rise again.
"Congress should not be coming home for Christmas until they've solved this national crisis," Coleman said.
Mallory said his city is enjoying what he called "a renaissance" of new activity, housing and businesses coming to its downtown. He said the uncertainty surrounding the "fiscal cliff" has already created fear in consumers.
"We don't want anything to slow down our progress in Cincinnati," he said.