With Oklahoma facing a gaping budget hole for the upcoming fiscal year of anywhere from $850 million to $1.6 billion,  depending on one’s calculations, the search for new revenues to fill the gap and avoid devastating cuts to services has assumed real urgency. The Governor in his FY ‘11 Executive budget proposed a long laundry list of revenue enhancing proposals that were estimated to generate over $700 million in additional revenue for FY ‘11. His proposals ranged from appropriating unused balances in agency revolving funds and issuing bonds to raising fees, eliminating tax credits, and collecting taxes on online purchases.

But what about SQ 640? Few discussions of revenue options in Oklahoma get very far before being met with: “But what about SQ 640″?. Last week, for example, House Democrats tried unsuccessfully to argue that a bill containing a fee increase should be ruled out of order due to SQ 640. But while the specter of SQ 640 casts a giant shadow over policy discussions, its actual scope is not always well understood.

SQ 640, which was proposed in an initiative referendum and approved in a 1992 referendum, is generally taken to require a vote of the people or a 3/4 vote of the Legislature to raise taxes.  In fact, SQ 640 didn’t mention the word “tax” at all.  Instead, it added two new sub-sections, C and D, to Article V, Section 33 of the State Constitution that places limits on the passage of revenue bills:

A.  All bills for raising revenue shall originate in the House of Representatives.  The Senate may propose amendments to revenue bills.

B.  No revenue bill shall be passed during the five last days of the session.

C.  Any revenue bill originating in the House of Representatives shall not become effective until it has been referred to the people of the state at the next general election held throughout the state and shall become effective and be in force when it has been approved by a majority of the votes cast on the measure at such election and not otherwise, except as otherwise provided in subsection D of this section.

D.  Any revenue bill originating in the House of Representatives may become law without being submitted to a vote of the people of the state if such bill receives the approval of three-fourths (3/4) of the membership of the House of Representatives and three-fourths (3/4) of the membership of the Senate and is submitted to the Governor for appropriate action.  Any such revenue bill shall not be subject to the emergency measure provision authorized in Section 58 of this Article and shall not become effective and be in force until ninety days after it has been approved by the Legislature, and acted on by the Governor.

The relevant question for determining whether any measure is subject to SQ 640 and the other requirements of Article V, Section 33, is whether or not it falls under the definition of a revenue bill.  Because SQ 640 used the same terminology as the existing language in Section 33, the courts assume that the drafters intended to keep the same meaning which had been applied to the language in Section 33 for over 80 years. A landmark Oklahoma case from the 1950s, Leveridge v. State of Oklahoma, interpreted the existing Section 33 language and asserted that:

“Revenue Bills” are those laws whose principal object is the raising of revenue and which levy taxes in the strict sense of the word, and said phrase does not cover laws under which revenue may incidentally arise (emphasis mine).

Leveridge’s two-part standard – 1) that the principal object of a bill must be to raise revenue, and 2) that it levy taxes in the strict sense of the word – has been used both prior to and since passage of SQ 640 to determine if bills are subject to the provisions of Article V, Section 33.

In a 1992 article in the Oklahoma Bar Journal, Mark Ramsey, then a staff attorney for the State Senate, reviewed how the Courts have applied this standard for defining a “revenue bill”.  Ramsey showed that Oklahoma Courts have generally adopted a narrow interpretation of what constitutes a revenue bill, upholding a whole range of legislation in which revenue increases were determined to be incidental to the bill’s primary purpose, or which involved revenue but was not deemed to levy a tax. For example, all of the following measures were among those ruled not to levy a tax:

• Elimination of tax exemptions;
• Mandatory contributions to retirement programs;
• Addition of property to tax rolls;
• Penalties on delinquent tax payment;
• Court costs and filing fees.

In general, Ramsey concluded:

It is quite clear that a bill which creates or increases a tax which is for the general revenue of the state is a “revenue bill.” It is also quite clear that a bill which imposes a license fee on a discrete group of persons and activities and which is reasonably related to the cost of regulating the persons or activities is not a “revenue bill.” Between these extremes is a wide gulf of shark infested waters.

Obviously, SQ 640 has real relevance in shaping which options could be decided by a majority legislative vote and  which are subject to requirement of the super-majority or vote of the people. But as discussions and negotiations on the budget heat up, it will be worth remembering that in trying to determine whether a measure is or is not subject to SQ 640, just because something quacks, has webbed feet, or swims in the water, that doesn’t necessarily make it a duck.

From time to time, we use the OK Policy blog to post submissions we receive from Oklahomans who have interesting perspectives on important policy issues for the state. This entry is from Tom Daxon, an Oklahoma City CPA who served as State Finance Director from 1995 – 2001 under Governor Frank Keating and is a noted conservative voice in Oklahoma. The opinions stated below are not necessarily the opinions of OK Policy, its staff, or its board. This blog is a venue to help promote the discussion of ideas from various points of view and we invite your comments and contributions. To see our guidelines for blog submissions, click here.

State government spends too much money.  It should spend less.  However, even this strong conservative realizes some government is necessary and further, we should pay for it currently.  As former Chief Justice Oliver Wendell Holmes observed, “Taxes are what we pay for a civilized society.”

Good tax policy dictates that when we tax, we should impose the tax on the largest possible base to keep the rate to a minimum.  Unfortunately, all the tax credits, exclusions and preferences that riddle Oklahoma’s tax code have led some to note that our tax code resembles Swiss cheese.

Perhaps we should consider a “TRACC” – tax realignment and credit commission – modeled after BRACC that successfully closed unneeded military bases at the federal level.  TRACC would be a bipartisan committee including both House and Senate members with participation from the Governor’s office.  TRACC would prepare a list of tax expenditures for elimination.  The legislature would then consider the list in a straight up or down vote, without amendment.

If TRACC could meet a target of $300 million, roughly twice the ongoing static impact of reducing the marginal rate on the individual income tax to 4.95%, we could lessen the need for budget austerity and provide helpful tax stimulus.  In other words, conservatives would get to apply half the proceeds toward reducing the marginal rate on the income tax while their liberal brethren could use half for state appropriations along with another $85 million immediately because the income tax reduction would not take effect until the middle of the fiscal year.

A bold step?  You bet!  Oklahoma could fill a big part of its budget hole and also send the rest of the country a message that we are making ourselves more competitive for entrepreneurs who want to pursue business opportunities.  While the rest of the country stumbles, Oklahoma moves boldly forward.

Before my more liberal friends think about seizing this as an opportunity to spend the entire $300 million, this would be my best offer.  After all, the rate is already scheduled to drop to 5.25% when revenues rebound.  But, if our liberal counterparts are willing to meet us half way, we might be able to do something positive for Oklahoma.

The latest state revenue collections announced today provided mixed news:

State revenue collections in February exceeded the official estimate for the first time since December 2008, but fell short of prior year collections for the same month, State Treasurer Scott Meacham announced today.

Preliminary reports show General Revenue Fund collections in February are $220.6 million. That amount is:

• $17.3 million, or 7.3 percent below the prior year; but,
• $0.8 million, or 0.4 percent above the estimate.

February collections were buttressed by $25 million in gross production taxes on oil that were allocated to the General Revenue Fund and by stronger-than-expected income tax collections. After tax refunds, the state took in net income tax collections of $10.7 million in February, whereas the official estimate was for a net loss of $9.1 million in income tax payouts.

Still, the revenue numbers provide far from unambiguous signs that the state’s fiscal situation has turned a corner. Not only were February’s collections 7.3 percent below those of a year ago, they were only 76.1 percent of the average collections for the same month over the five prior years. By this measure, February actually stands as the worst month of the entire downturn, as shown in the table above. On the other hand, a good part of this month’s poor performance compared to prior years was in the “other sources” revenue category, which includes investment earnings and miscellaneous taxes, fees, and charges. General Revenue from “other sources” was a full $23.8 million below the month’s estimate for February and $17.9 million below last year. It’s unclear at this point what accounts for the weakness in this revenue category, but it may relate more to a quirk in the timing of collections and transfers  than actual economic conditions.  Had “other sources” come in at the estimate, February 2010 revenues would have reached 84 percent of the five-year average and provided much clearer evidence of a genuine upswing.

As an indicator of how severe this revenue downturn has been and how long and difficult the recovery is likely to be, this year’s February collections are 30 percent below their peak of four years ago — and lower than any year since at least FY 2001.

Finally, while it is not fully clear whether revenue collections are now recovering, the fact that February’s collections hit the estimate does mean that this year’s General Revenue shortfall may not end up quite as enormous as previously assumed.  The shortfall, which was projected by the Board of Equalization last month to reach $940 million by year’s end, now stands at $863 million, basically unchanged from a month ago. Should the final four months of the fiscal year look like this month, it might actually allow the state to enter the next fiscal year with a small amount of cash left in the bank.

According to the latest U.S. Census figures, 565,000 Oklahomans, or 15.8 percent of the total population, were without health insurance in 2007-2008. The uninsured rate is just under 10 percent for children but over 20 percent for adults ages 18-64.

The Oklahoma Legislature has made several efforts in recent years to chip away at the number of uninsured by expanding eligibility for Insure Oklahoma, a program that provides public subsidies towards the purchase of employer-sponsored coverage for employees of small businesses or a public product for those without access to employer coverage. Eligibility for Insure Oklahoma goes up to 200 percent of the federal poverty level ($44,000 for a family of four) and is available to employees of businesses with up to 250 employees.

Back in 2007, the Oklahoma Legislature passed the All Kids Act (SB 424), that aimed to expand access to health insurance coverage for children in low- and moderate-income working families.  The bill offered subsidized coverage in the Insure Oklahoma program for children 18 years of age or younger with family income between 185 percent of the federal poverty level – the current income threshold for the Medicaid program – and 300 percent .  The bill included an $8 million  set-aside from Insure Oklahoma revenues to help pay for coverage for an estimated 20,000 children. In 2007 and 2008, the Legislature also approved expansions of Insure Oklahomans to new categories of adults, including those with incomes up to 250 percent of poverty, employees of businesses up to 500 employees, and foster parents regardless of the size of their employer.

All that was left to do was for the Oklahoma Health Care Authority secure federal approval for the amendments to the state’s SoonerCare and Insure Oklahoma waivers that would allow for the expanded coverage. How long could that take, right? As it turned out, it wasn’t until this past December, after two-and-a-half long years of negotiations, discussions, revisions, and waits,  that CMS (the Centers for Medicare and Medicaid Services) finally informed OHCA that the amendments had been approved to the applications for both children and adults.

Despite the delays associated with the lengthy approval process, OHCA has indicated that it intends to implement the expansion slowly and gradually.  Beginning in October, enrollment in Insure Oklahoma will be opened to children between 185 and 200 percent of the federal poverty level whose parents are already enrolled in Insure Oklahoma. OHCA estimates that 3,000 children could gain coverage during this initial phase.  No date has been set to open up enrollment for children above 200 percent of poverty or to those with parents not enrolled in Insure Oklahoma. Similarly, OHCA has not set a timeline for expanding enrollment for adults in categories that have now received federal approval for coverage in Insure Oklahoma.

The cautious approach is explained as due to both systems implementation issues and to uncertainty about the ongoing availability of funding to cover the expansion. Insure Oklahoma is funded through a portion of the increased tobacco tax collections approved by voters in 2004. In FY ‘09, OHCA was allocated $45 million for Insure Oklahoma. For several years, the program accumulated large surpluses as enrollment lagged. However, enrollment nearly doubled in 2009; with 30,314 participants as of February 2010, the program is approaching the level where annual revenues will only match expenditures on an ongoing basis. At that point, OHCA anticipates imposing a cap and waiting list on new enrollment.

The agency’s cautious approach to expanding eligibility without additional revenues is understandable, especially given the fraught fiscal outlook for the state as a whole, and the Medicaid program in particular, over the next few years.  The problem is really one only the Legislature can resolve. Expanding coverage to new categories of uninsured children and adults was the right commitment to make. Now it’s time to fund the commitment.

If you’re reading this blog, chances are you’ve got opinions and points of view on some of the major policy issues confronting Oklahoma. What impact is the economic downturn and fiscal crisis having on the organizations you’re involved in and the people you care about? What should we be doing to operate government more effectively and fund services more fairly? What program is working that not enough people are hearing about?

This blog aims to be a forum where Oklahomans can share their perspectives, and we encourage you to contribute to  the conversation by submitting a guest blog post. Think of it as an op-ed with links.  We will help publicize pieces we post to our audiences and encourage you to send out the link to your friends, colleagues and networks.

Here are our blog guidelines:

– We will post entries that make an argument on public policy issues of importance to Oklahomans, whether we agree or disagree with the author’s point of view. However, we reserve the right not to post any blog entry submitted to us.

– Contributions addressing OK Policy’s core policy areas of state budget and taxes,  poverty and wealth creation, health care and social services, or the economy will receive strongest consideration.

– Blog entries should be between 300 and 600 words. They should be original contributions and not pieces that have been published elsewhere.

–  Please provide links for articles or studies referred to in your piece.

– Blog entries should avoid personal attacks and undue partisanship.

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If you’re looking for examples of guest blog articles, click here for one on health care reform or here for one on protecting natural resources.

I hope to hear from you!

As the economic downturn continues to take its toll in Oklahoma and across the nation, how financially prepared are families to deal with extended periods of unemployment and underemployment. Newly-released data (PDF) from CFED that focuses on “asset poverty” confirms that many Oklahomans have little or no financial cushion on which to fall back.

Asset poverty is a measure that establishes a minimum threshold of wealth needed for household security:

A household is asset poor if it has insufficient net worth to support itself at the federal poverty for three months in the absence of income. Asset poor households would not have enough savings or wealth to provide for basic needs during a sudden job loss or a medical emergency.

Their data estimates that over a quarter of Oklahoma households, 28.8 percent, were asset poor in 2006, slightly above the national average of 26.6 percent. Minority households were considerably more likely to have minimal or no assets, with 38.9 percent of Native American households, 43.2 percent of Latinos, and 50.1 percent of Blacks or African-Americans falling below the asset poverty threshold. Younger households, single-parent households, and renters are among the categories most likely to be asset poor. The data also reveal that while a majority of households with income below the poverty level are also asset poor, asset poverty can extend up the income ladder: nearly one in five Oklahoma households with income between $44,801 and $68,800 were estimated to be asset poor.

This data is a supplement to the 2009-2010 Assets and Opportunity Scorecard project, of which OK Policy is a state partner. For all the data, which looks at financial assets, see this page of our website or this page from the CFED website. OK Policy’s recent issue brief,  More Than Just Getting By (PDF), serves as an overview of asset building and identifies policy proposals for expanding opportunity and strengthening Oklahoma’s middle class.

Just when it looked as if the the extended negotiations over how to address FY ‘10 budget shortfalls were finally resolved, a new wrinkle emerged this week.  As a means to protest the continued failure to find supplemental funds for senior nutrition programs in the Department of Human Service, Senate Democrats refused to approve the emergency clause on a bill to transfer $30 million to the Special Cash Fund . Without an emergency clause, the transfer cannot take effect until July 1st, which threatens a whole series of agreements between the House, Senate and Governor intended to put this year’s budget to rest. (Update: an agreement was announced Wednesday afternoon on funding for senior nutrition programs allowing the emergency clauses for the funding bills to be passed).

» continue reading From the frying pan to the fire: As FY 10 budget battle re-erupts, the real hard work waits

We are following with keen interest legislation introduced this session by Senator Bill Brown that would allow for the issuing of health insurance coverage across state lines. SB 2046, which passed the Senate Retirement and Insurance committee and awaits consideration by the full chamber, is part of a national push to expand access to health insurance by creating inter-state competition. According to a recent New York Times article:

Proponents of the idea say that the tangle of state regulation drives up costs, particularly in states with heavy mandates, and that a quick and easy way to reduce prices would be to allow people in states where insurance is expensive, like New York or Massachusetts, to buy policies in low-cost states like Minnesota.

Senator Brown’s bill explicitly states that “out-of-state insurers shall not be required to offer or provide state-mandated health insurance benefits required by Oklahoma law or regulations in health insurance policies sold to Oklahoma residents.”

» continue reading Barking up the wrong tree again: New insurance legislation aims to offer more choices for third-rate coverage