Governor Mary Fallin

In her State of the State address, Governor Fallin laid out numerous areas where Oklahoma needs to invest to fix serious problems. She mentioned the shortage of troopers on the highways, the millions still owed to local governments to reimburse emergency expenses, the dilapidated state capitol and medical examiner’s office, crumbling bridges, high infant mortality, a beleaguered foster care system, and unfunded teacher health benefits.

These diverse problems have a common denominator: they are all substantially caused by inadequate funding to core public services after three straight years of budget cuts. Rather than setting a bold course for Oklahoma’s future, we are playing catch-up just to repair what we have allowed to fall apart.

In the same speech, Governor Fallin proposed a huge cut to the personal income tax. The plan is estimated to cost $350 million in the first full year. It also includes triggers to automatically cut taxes again any time the budget begins to recover.

The effect is that for the foreseeable future, tax cuts are shoved to the front of the line. It won’t matter what problems or responsibilities we face as a state. It won’t matter if our infant mortality stays high, if our water isn’t safe, if our schools are failing, if our communities are devastated by extreme weather. Whenever there is additional revenue, the number one priority will always be tax cuts.

That’s reflected in the Governor’s full budget proposal, which was also released yesterday. Going down the list of percentage changes from this year to next, we see a long string of zeroes. The budget is almost totally flat, which really means we can accomplish less due to inflation, rising health care costs, and further deterioration of infrastructure and equipment that we can’t afford to maintain.

The Governor does propose moving money around to fix some of the worst problems resulting from previous cuts. Certainly we should do this. However, since the pie is not any larger, we will inevitably defund other areas as we try to fix what’s already gone wrong.

What new problems will we hear about in next year’s State of the State address? Will we pay for teacher health benefits by defunding school buses? Will we fix our bridges and let dams break? If the Governor’s plan passes, we may never escape this vicious cycle.

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Rep. Earl Sears

Last week I participated in a StateImpact Oklahoma forum on the state budget with Rep. Earl Sears, the Chair of the House Appropriations and Budget Committee (R-Bartlesville),  and Sen. Tom Adelson (D-Tulsa).  An audience member asked the legislators what they would do to ensure that more individuals with mental illness were provided treatment in the community rather than in jails and penitentiaries.

Rep. Sears responded by saying that he is very supportive of the work being done by Commissioner Terri White and the Department of Mental Health and Substance Abuse Services to raise awareness about the prevalence and cost of mental illness. In particular, Rep. Sears praised the Department’s ‘Smart on Crime’ initiative‘ that uses evidence-based programs to reduce recidivism and decrease demand for correctional beds. By diverting non-violent offenders into programs such as drug court, mental health court, or other similar programs, Smart on Crime can reduce incarceration and ultimately save substantial tax dollars. The initiative, however, requires an upfront investment estimated at close to $100 million. And, Rep. Sears stated ruefully, we just don’t have $100 million to invest in Smart on Crime.

Rep. Sears is a thoughtful and caring legislator who has done solid work chairing the House appropriations committee. But to say we don’t have money to fund the Smart on Crime initiative is misleading. Yes, we’ve had three straight years of budget cuts and are looking at continued shortfalls or flat funding for next year.  But our budget shortfalls are due in part to the policy decisions of our elected officials. In the mid-2000s, the legislature and governor approved the largest tax cuts in Oklahoma history, with a fiscal impact estimated at some $770 million annually in lost revenue. Just this month, Oklahoma’s top personal income tax rate fell from 5.5 percent to 5.25 percent. This tax cut has a revenue impact of $120 million, with most of the benefit going to upper-income households.  Last year the legislature could have decided to repeal or suspend the tax cut based on the ongoing fiscal crisis and the continued cuts to vital public services. They chose not to.

As Senator Adelson noted at the forum, the legislature also chose not curtail tax credits to oil and gas producers that exempt most horizontal and deep well drilling from the gross production tax. These are paid out regardless of the price of oil and gas, so in many cases they are subsidizing production that would already be profitable. They cost the state from $80 million to $120 million annually. The legislature did vote to defer payment on these credits for two years – but the bill is now coming due, adding to the state’s obligations over the next three budget years. Many other narrow tax exemptions, such as the one that makes NBA basketball ticket exempt from the sales tax, have also been left intact.

Now, at a time when the state has some 6,400 persons with developmental disabilities on a waiting list for services, when some 600-900 people each day are on a waiting list for mental health treatment beds, when the legislature has eliminated funding for programs promoting quality teaching and schools, what is at the top of this year’s legislative agenda? Further cuts to the  state income tax- or perhaps its complete elimination.

Legislators may choose to prioritize further tax cuts over securing funds for initiatives like Smart on Crime that would help address our most troubling social problems and save money over the long run. But if they make that choice, they cannot pretend to be blameless when the funds aren’t available. Oklahomans deserve honesty from our elected representatives, not buck-passing.

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A brief recap: The Budget Control Act created a supercommittee tasked with finding at least $1.2 trillion in deficit reduction measures. When that group failed to reach an agreement, an automatic budget cutting process called sequestration went into effect. Under sequestration, there will be $1.2 trillion in cuts over the next decade, divided 50/50 between domestic and defense spending.

These cuts are scheduled to begin January 2013, with one important caveat. Although the cuts are automatic under existing law, Congress is still free to intervene at any time. Much like with the expiration of the Bush tax cuts, also scheduled for the end of 2012, there is certain to be legislative wrangling. However, President Obama’s promise to veto any attempt to alter the automatic cuts makes it much less likely that they will be stopped.

Assuming sequestration goes forward with no changes, an analysis from FFIS calculates the state-by-state impact of cuts.  The good news is that out of the $7.43 billion in federal grants received by Oklahoma in FY ‘11, $6.25 billion would be exempted from cuts. Exempted programs include Social Security, Medicaid, the Children’s Health Insurance Program (CHIP), Temporary Assistance for Needy Families (TANF), and SNAP food stamp benefits. Medicare, community health centers, and Indian health services are not exempt, but cuts to these programs would be limited to 2 percent.

Cuts to non-exempted programs mean that overall, Oklahoma would receive $100.3 million less in federal funding compared to FY ’12 and $133.7 million less compared to FY ’11. Fully affected programs would see cuts of about 8.7 percent of their federal funding compared to FY ’12.

The impact will be felt in two ways: reductions in services of the affected programs or a need for Oklahoma to cover the shortfall by shifting money out of other programs. Two programs in particular that would likely require an infusion of other state funds are Title I grants for disadvantaged schools funding and IDEA special education funds. Both are set to receive full cuts, but school districts facing mandates for student achievement may end up allocating more to cover the needs of high-poverty or special education student populations. Absent overall increases in state funding for education, this means that other parts of district budgets, including non-Title I schools, could take at least some of the hit.

By contrast, programs administered by the state but using entirely federal funds are unlikely to supplemented with state money. A major example is the Low Income Home Energy Assistance Program (LIHEAP), which helps low-income familes with winter heating and summer cooling costs. LIHEAP will take the full cut under the sequester, even though it’s already been reduced to one-third of its 2010 budget. As a result, OK DHS had to close new enrollment in the program and severely restrict eligibility. A DHS programs manager said of the move, “This goes against the very core of our mission at DHS, which is to help Oklahomans in need. However, with limited funds from the federal government we can only do what we can with what we have.”

Several other programs important for Oklahomans would receive the full cut. These include the Women, Infants, and Children (WIC) program, which subsidizes nutritious foods and infant formula for low-income mothers with young children, and Head Start, an important component of early childhood education in Oklahoma. The child care subsidy, a joint-federal state program, is only partially exempt and has already been threatened by cuts on the state level. After arousing significant opposition, these cuts were deferred indefinitely, but a loss of federal funds may put them back on the table.

We also shouldn’t forget the impact of the sequestration cuts going to defense spending. Federal employee salaries, both civilian and military, accounted for about 6.1 percent of the total personal income in Oklahoma in 2010, and private defense manufacturers are a major state industry.

Much remains uncertain, but what’s clear is that we need to be prepared for more federal austerity. Sequestration is just one more obligation in a growing pile that threatens to squeeze every dime from the state budget. Rather than fantasizing about the next tax cut, it’s time to acknowledge these obligations and bring our budget discussion back to reality.

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Elsewhere, people seem to have read a different budget estimate than the one we saw. Two elements of the discussion show a growing disconnect between Oklahoma’s budgetary politics and reality.

First, Governor Mary Fallin and many others continue to advocate for reduction or elimination of the state income tax. A closer look at the budget shows that, of the $400 million forecast revenue growth from FY ’11 to FY ’13, fully  half comes from the income tax. Overall, the income tax is expected to provide $2.5 billion next year for General Revenue, the HB 1017 Education Reform Fund, and the ROADS Fund, which has helped restore the worst of our roads and bridges. Cutting this vital revenue support makes no budget sense. It also makes no economic sense.

Second, the budget “shortfall” was reported as $150 million, the rough difference between revenue growth and loss of one-time budget boosters in the FY ’12 budget. But the shortfall in meeting our public needs is much greater. To determine this, we would have to start with the $600 million difference between the budget for FY ’09, when the recession began, and the estimate for FY ’13. A more realistic calculation would also add at least $100 million for the increase in the cost of providing services over the last four years. So the true budget shortfall is closer to $700 million, not $150 million.  Our recent forecast indicates we won’t reach this level until FY ’15, if we keep the current revenue structure.

And even that calculation is deeply flawed, in that it assumes the FY ’09 level of service should be the target. However, in FY ’08, the most recent available year, Oklahoma state and local governments spent 18 percent less than the national average and ranked 43rd among the states in spending. At least monthly, a new national ranking puts Oklahoma among the bottom states in health, education, transportation, or environment and shows the impact of this chronic under-investment. Our state’s economic and social viability are being eroded by poor budget decisions.

Measuring shortfalls against last year’s budget is a not-so-subtle way of assuming that last year’s budget was the correct one. That could be the case, but probably is not. Instead of letting the available revenue define the budget, Oklahoma should define the budget by the cost of providing the services that are needed to educate children, protect seniors, reduce poverty, maintain infrastructure, and promote economic growth. Current services budgeting and pay-as-you-go policies are used by many states to help define budgetary needs and hold elected officials accountable for whether and how they choose to meet those needs.

Adopting these important reforms would be the right way to begin to get our fiscal house back in order. Cutting income taxes can and should wait until we’ve worked harder at defining what we want and need our state government to do and developed a realistic plan for how to pay for it.

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The preliminary FY ’13 estimates, developed by the Oklahoma Tax Commission and Office of State Finance, will form the basis for the Governor’s Executive Budget that will be delivered in early February; the Board will meet again in mid-February to provide revised estimates that will be binding on the 2012 Legislature. As we see in the chart below, collections to the General Revenue (GR) fund are expected to continue their recovery next year from their collapse during the recession of 2008-09. Next year’s GR is estimated at $5,540 million, which is 19.9 percent greater than FY ’10.  Yet next year’s revenues are expected to remain 7 percent below their levels of six years ago (FY ’07), even as the cost of providing services rises due to inflation, population growth, and increased caseloads.

We can see, too, that next year’s revenues are projected to grow only very modestly – $82 million, or 1.5 percent, compared to this year.  This slow growth projection reflects, in part, uncertainty about the strength of the economic recovery over the coming months and the assumption of less robust oil and gas revenues in the coming year. But it also reflects policy decisions made by previous Legislatures. In particular, the reduction in the state’s top marginal income tax rate from 5.5 percent to 5.25 percent, set to take effect on January 1st, will reduce revenues by $70 million in FY ’13 on top of a $50 million partial-year impact in FY ’12. Additionally, the state is obligated to pay back deferred tax credits to the oil and gas industry beginning in FY ’13, with a fiscal impact of $50 million. Also, the income tax revenue going directly to the ROADS Fund for transportation projects will increase by $41.7 million in FY ’13.

What do these revenue projections mean for the FY ’13 budget? The Board of Equalization was presented initial estimates of  how much will be available for the Legislature to spend in the upcoming year. This amount includes available cash balances and projected collections from non-certified funds, such as the 1017 Education Reform Fund. The estimate of $6,531 million for FY ’12 is almost identical to the current year appropriated budget of $6,511 million. As we can see from the chart, based on the initial certification, next year’s budget would remain almost $600 million below its pre-downturn peak and would not even return to FY ’07 levelsBy the time the Legislature meets and begins work on next year’s budget, there is a good likelihood that additional revenues will be available. Based on strong revenue collections in recent months, February’s re-certification is expected to be higher than December’s. In addition, there should be a considerable cash reserves built up over the past two years that the Legislature can appropriate for next year.

Still, the consensus among the state’s elected leaders is to expect a flat state budget next year. Many agencies need additional funds to deal with rising costs and increased caseloads and enrollment, as well as to restore essential staffing and programs that have been eliminated over the past three years of budget cuts. The state has fallen short of its obligations for teacher health care costs and stipends for Board certified teachers. We are $28 million behind in payments to local governments for emergencies. We have been among the worst in the nation for maintaining our roads and bridges.

In this context, the statement by Senate Pro Tem Brian Bingman deserves to be taken seriously:

We should celebrate the positive indicators of recovery while proceeding with thoughtfulness and caution in the coming fiscal year.

This caution means this in not the time to consider major expansions of government programs. Agencies will have to continue to find savings where they can and find ways to operate at less than full capacity. Likewise, politicians need to show discipline. As we claw out of our deep budget hole and struggle to bring state finances back into into balance,  promising tax cuts may be politically appealing, but is not the fiscally responsible way.

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“An Incomplete Recovery” sums up the forecast part of the story. These are the key findings:

• The General Revenue Fund (GRF), which makes up 76 percent of the state’s budget in FY ’12, will continue its slow recovery. As we discussed here, GRF revenue has now grown over the prior year for 18 straight months. Unfortunately, revenue still remains 15.9 percent below the peak levels of FY ’09. Our forecasts indicate it will be two more years, FY ’14, before GRF revenues reach pre-recession levels.
• Much of the revenue decline and subsequent slow recovery can be attributed to the severe economic downturn, but not all. Our forecasts show that decisions already made by prior legislatures, including income tax cuts, diverting revenues for road construction, and reinstating tax credits that were suspended during the worst of the downturn, will reduce revenues substantially between now and FY ’15.
• It will take some time for growth in the GRF to make up for loss of federal assistance, Rainy Day Fund monies and other non-recurring revenues that partially sustained the budget in FY ’10-’12. As shown in the graph below, we expect the FY ’13 budget to be just $160 million, or 2.5 percent, above the FY ’12 budget. Even by FY ’15, our most likely projection for the total budget is $7.52 billion. That’s only 5.5 percent over the budget six years earlier in FY ’09.

Thus, Oklahoma’s state government is poised not for real recovery, but for continued stagnation. When the budget finally exceeds the pre-downturn level, it will not even begin to support the services we offered before the recession. Inflation has increased the cost of services, population growth has increased the demand, and changing demographics (mainly an aging population) will create significant burdens on many services. At the same time, deficit reduction efforts  in Washington will is likely to increase fiscal stress on the states.

The rest of the story is our recommendations for dealing with the incomplete recovery. We advocate for a package of reforms that will allow state government to restore our economic and social well-being. These include:

• Creating a revenue structure that supports adequate, effective, and essential public services. We can do this by protecting the income tax against further deterioration, reducing wasteful and inefficient tax credits and exemptions, revitalizing the sales tax for the 21st century economy, and adopting combined reporting to equalize the tax burden between local businesses and large corporations.
• Implementing current services budgeting to help legislators and the public understand whether a proposed funding level for a particular service would expand it, shrink it, or keep it at its current level.  This can improve government efficiency by providing a regular, thorough examination of each program’s costs.
• Adopting PAYGO (pay-as-you-go) limitations that require policymakers to pay for the cost of any reduction in revenues or expansion of services.  Paying for these policy changes could take the form either of a revenue increase or cuts to other services. The undesirable alternative is to promise tax cuts or increased services and then not be able to deliver because the money isn’t there. See this post for more on current services budgeting and PAYGO.
• Instituting a formal long-range forecasting process so that we aren’t continually surprised by revenue fluctuations and so we can better understand whether current revenues are sufficient to support services.

Next month the state will release its first official revenue estimate for FY ’13. We should respond to that estimate with resolve to create and use new tools to keep our services viable and our economy competitive. The alternative – annual budget decisions that ignore the real costs of state services, hide fiscal impacts in future years, and define budgets by what we have instead of what we need –  has not served the state well through the downturn. It will work even worse in the incomplete recovery.

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While the monthly revenue reports show encouraging signs of economic and fiscal growth, this remains an incomplete recovery. For the first four months of the fiscal year, collections are up 17.0 percent from the depths of the downturn in FY ’10, yet they remain 15.9 percent below their pre-recession peak in FY ’09. As the chart below shows, FY ’12 year-to-date revenues remain slightly below their levels of six years ago.

Through the first four months of the fiscal year, sales tax collections ($591.1 million) are at an all-time high, but no other major tax has returned to pre-downturn peaks. Personal income tax collections through October ($653.8 million), while up 11 percent from two years ago, are 18 percent below FY ’07 and less than they were a full decade ago, in FY ’01. This reflects a combination of factors: continued fragility in the job market, the impact of the permanent income tax cuts passed in the mid-2000s, and the allocation of a growing share of income tax revenue to the ROADS fund and higher education scholarships rather than the General Revenue Fund.

Overall,with revenues remaining well below pre-downturn levels, meeting our obligations and ensuring the adequate funding of state services will remain an enormous challenge. We will have more to say on this next week, when OK Policy publishes our forecast of revenues over the coming years along with our recommendations for navigating a steady fiscal course.

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Oklahoma is facing serious challenges when it comes to having the resources to provide the sorts of public services that help create jobs and build a strong economy.

Yet while the need to chart a sound, sustainable fiscal course is urgent, our policymakers too often are flying blind. Legislators routinely make spending and revenue decisions that will have long-term consequences without access to key information about the cost of funding existing obligations in the coming years.

Two recent reports from the Center on Budget and Policy Priorities (CBPP) suggest a pair of sensible budget management tools that Oklahoma should adopt .

• Current services budget: This tool would provide lawmakers and the public with the cost of maintaining today’s level of programs and benefits.
• State PAYGO requirement: It would require all new spending and tax cuts be fully paid for.

Together with a third reform –creation of multi-year revenue forecasts – these reforms would help policymakers make  better decisions.

These reforms are important in part because  the cost of providing services and varies from one year to the next even if the level of services stays the same or even goes down. Factors like inflation and demographic changes are the main reasons why.  Under a current services budget, the state would make it clear what it needs to spend on, for example, health care for low-income seniors, stipends for children in foster care, or higher education scholarships, in order to maintain them at the current level. As the CBPP’s Elizabeth McNichol explains in a blog post accompanying a recent  report, current services baselines provide a tool for understanding spending choices:

A current services baseline provides a reality check in the budget process.  It gives an honest assessment of the state’s overall fiscal health by enabling policymakers to see if the state will likely have enough resources to maintain services at current levels — or possibly expand them.

This tool helps legislators and the public understand whether a proposed funding level for a particular service would expand it, shrink it, or keep it at its current level.  This can improve government efficiency by providing a regular, thorough examination of each program’s costs. Currently, 21 states use this tool, and it’s time for Oklahoma to follow their lead.

A second tool Oklahoma should adopt is a “pay-as-you-go”(PAYGO) requirement. As the Center on Budget states in its report:

Today in most states, it is impossible for policymakers to know whether proposed program increases or tax cuts are affordable over the longer term. Nor do most states have appropriate mechanisms for considering and implementing tradeoffs among fiscal policy options. These problems impede decision-making and leave states vulnerable to serious long-term budget problems.

PAYGO would require policymakers to pay for the cost of any reduction in revenues or expansion of services.  Paying for these policy changes could take the form either of a revenue increase or cuts to other services. Regardless of how it is paid for, the goal is to maintain fiscal balance. The undesirable alternative is to promise tax cuts or increased services and then not be able to deliver because the money isn’t there.. Oklahoma’s law to prevent passage of unfunded public pension benefits could serve as a precedent for a comprehensive PAYGO requirement.

These two reforms would work best along with a third measure: multi-year revenue  forecasts created by an official body of economic and fiscal experts. Currently, policymakers make budget and tax decisions without access to any projections beyond the upcoming year. We’ve long advocated for better and longer-term forecasting. Legislation to create the Oklahoma Revenue Forecasting Board was introduced in 2010.

Better budgeting tools alone can never ensure that policymakers will make wise decisions. But taken together, multi-year revenue forecasting, a current services budget, and PAYGO requirements would provide clearer direction and sensible controls for the difficult journey ahead.

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Budget-cutting efforts in Washington are adding to the perils confronting the state budget. Federal spending has a major impact on both the state economy and the state budget. The federal government spent $38.5 billion in Oklahoma last year, which works out to $10,256 for each resident.  The largest component of federal spending is for direct payments to individuals for Social Security and Medicare, along with salaries and wages to military personnel and other federal employees based in Oklahoma.

The federal government also transferred $7.8 billion in grants to state and local governments for over 530 programs.  The largest of these by far is Medicaid ($3.5 billion). In 2008, almost one dollar of every three in Oklahoma’s total state revenue came from the federal government.

Under the Budget Control Act approved this summer, the Joint Select Committee on Deficit Reduction, known as the Supercommittee, has until November to propose at least $1.2 trillion in deficit reduction measures over the next decade. If the Joint Committee fails to agree on the requisite savings, or if its recommendations are rejected by Congress or the President, then automatic procedures to achieve $1.2 trillion in deficit reduction will take effect (You can watch our video explanation of the Budget Control Act or see our summary slides). The impact that the Budget Control Act will have on Oklahoma and other states will depend decisively on whether the Joint Committee reaches an agreement, and what the agreement looks like.

Should the Joint Committee reach an agreement, the impact on the state budget will depend on the size and make-up of the deficit-reduction measures it adopts – in particular, decisions affecting Medicaid. In September, President Obama released a proposal aimed at reducing the deficit by over $4 trillion over the next ten years through a combination of spending cuts and tax increases. The President’s plan includes modest cuts to Medicaid spending totaling an estimated $66 billion over ten years, primarily by reducing limits on provider fees and phasing in a new blended match rate for Medicaid and CHIP.  His plan does not envision additional cuts to discretionary spending beyond those agreed to under the Budget Control Act. However, it is quite possible that any agreement would include much deeper cuts to Medicaid and to other federally funded state programs.

Should, however, the Joint Committee fail to reach an agreement, this outcome will trigger automatic cuts known as ‘sequestration’. Under sequestration, discretionary spending will be subject to across-the-board cuts, while most mandatory spending will be exempt. Many of the largest federally funded state-run programs will be exempt from automatic cuts, including Medicaid and CHIP, cash assistance payments, major nutrition programs such as WIC and the school lunch program, vaccines for children, child care entitlement spending, and transportation. In total, Federal Funds Information for the State estimates that of $497 billion in federal funding for major grant programs, $364 million, or 73 percent, would be exempt from cuts under sequestration.

But even if only roughly one-quarter of federal grant payments to the state are subject to cuts, the impact would be significant. The Center on Budget and Policy Priorities calculates that non-exempt programs would face a 9 percent annual cut under sequestration effective January 2013. These cuts would be above and beyond $900 billion in cuts to discretionary programs over ten years already agreed to under the Budget Control Act. Programs facing cuts include:

• almost all federal education spending, including Title I funding for low-income students, IDEA funding for students with special needs, and Head Start;
•  important social programs, including child welfare services, community service and community development block grants, low-income heating assistance, housing programs, and non-mandatory child care spending;
• law enforcement programs;
• environmental protection programs;
• agricultural programs.

It’s also important to note that if automatic cuts take effect, half of all cuts, equal to $54.7 billion each year from 2013 to 2021, must be absorbed by the defense budget.  States such as Oklahoma with a large military presence would be disproportionately affected by such deep cuts in defense spending.

The Joint Committee can avoid automatic sequestration and minimize cuts in Medicaid and other grant programs to states to the extent it achieves part of its deficit reduction goals by increasing federal revenues rather than reducing federal support to states.  Since Oklahoma is not a wealthy state, Oklahoma would likely do better under a plan that reduced deficits by raising revenues from the well-off than by cutting aid to states.

Whether states should be rooting for the devil known (the failure of the Supercommittee triggering significant cuts to many discretionary programs but exempting Medicaid) or the devil unknown (an agreement where everything is on the table, including Medicaid) can’t really be determined. Either way, we can expect that federal cuts are coming and that they will make the challenge of funding core services even more daunting in the years ahead.

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Highway 51 Bridge between Wagoner and Coweta. Photo by flickr user doug_wertman used under a Creative Commons License.

Last week, Gov. Fallin announced a plan to fix the state’s decaying bridges by 2019. The proposal involves putting more money in the ROADS fund, which receives a portion of income tax revenues that would otherwise go to the state’s General Revenue Fund.

OK Policy released a statement on the Governor’s plan that was mentioned by both The Oklahoman and The Tulsa World:

We welcome Governor Fallin’s focus on fixing Oklahoma’s crumbling bridges. However, we must note that her proposal would be paid for entirely by diverting more income tax revenues from an already cash-strapped state budget. At the same time, Governor Fallin and other state leaders are promoting further cuts or outright abolition of the income tax. This should remind us that the income tax remains vital for funding Oklahoma’s needs and that we cannot meet our obligations to pay our bills while undermining our revenue base.

The Oklahoman included a response from the Governor’s spokesperson that the effort to fix bad bridges “does not reflect a lack of commitment to other areas of government.” Fallin’s office told The Oklahoman, “much of the additional transportation funding would come from growth revenue, and Oklahoma has enjoyed nice growth in revenue this fiscal year.”

It’s true that state revenues are increasing, and there is a broad, bipartisan consensus that the state needs this growth to meet all of our obligations. In a discussion of Oklahoma’s long-term water infrastructure needs, which are estimated to cost $81 billion over the next 50 years, Sen. Brian Crain (R-Tulsa) said:

I absolutely believe that the Waters Resources Board needs this additional money. We need more money for monitoring and to gather data. … The problem is we also need more money for health insurance for our teachers; we need more money for our mental health system in order to provide some alternatives to incarceration; we need more money for our roads and bridges.

That is on top of large, unfunded pension obligations and increasing costs due to an aging population.

We don’t disagree with the Governor that decaying bridges are a serious problem for Oklahoma, and we’re glad she has decided to make them a priority. We’re also glad that the Governor recognizes bridges are just one of several areas that need government support. Increasing revenues give lawmakers breathing room to make some of these longer-term investments.

However, we should also remember that the growth is only a partial recovery from historic shortfalls. Budgets have been cut for three successive years, and almost every state agency has seen funding reductions of at least 10 percent. Per-pupil K-12 education spending has gone down 18.7 percent, the 5th largest drop in the nation. Far from having extra money, we’re still playing catch-up.

Meanwhile, increasing revenue brings another temptation: tax cuts. We’ve been here before. During the last boom economy in the mid-2000s, Oklahoma passed large, permanent income tax cuts. These were an easy sell when we had plenty of funds to go around. But when the recession hit, the tax cuts contributed to huge revenue shortfalls.

Then as now, we shouldn’t expect revenue growth to last forever. We need a tax system that is adequate to our state’s needs in both good years and bad. Unfortunately, we don’t seem to have learned from recent history, and the tax cut refrain has begun again. Our constitution and politics make it much easier to lower taxes than to raise them, so tax cuts tend to be permanent. But “growth revenue” never is.

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