Revenue growth triggers are the latest gambit in this effort. Under triggers, automatic tax cuts would go into effect whenever revenues increase by a certain percentage. Supporters say that triggers promote fiscal responsibility because they prevent us from cutting taxes during a recession.

The word out of the Capitol is that Governor Fallin is pushing to include triggers in the final proposal that comes out of conference committee. Triggers were part of the Governor’s original plan, and they have been added by the Legislature to two other bills.

We previously discussed why triggers are bad policy in general. An examination of the specific language in these triggers reveals numerous ways that they would not protect us from cutting taxes when we cannot afford it.

For example, the triggers added by the House onto SB 1571 would cut the top rate any time state revenues increased by at least 2.5 percent from year to year. First of all, 2.5 percent is a much too low bar for growth. Inflation over the last year was 3.2 percent, which is fairly typical. Inflation rose above 2.5 percent in six out of the last ten years. In any of these years, 2.5 percent revenue growth would have meant income rose more slowly than expenses. The state would be cutting services even without a tax cut.

Second, a year to year trigger ignores whether the growth was due to a boom economy or merely a partial recovery from a recession. Revenues could drop by 20 percent and never be allowed to recover, because every bit of growth triggers another cut. In fact, that’s exactly what happened in January, when a trigger reduced the top rate from 5.5 percent to 5.25 percent even though revenues remain substantially lower than they were in FY ’08. That trigger took $125 million out of the budget at a time when schools are being forced to lay off teachers. Lawmakers seem to have very short memories.

The triggers added by the Senate to HB 3038 did attempt to respond to this concern,  but in the process they created new problems. The Senate’s trigger is set at a 5 percent increase above fiscal year 2012. By setting the base year at 2012, they avoid the problem of a very low base caused by a recession. However, the “growth” year to year is not adjusted by inflation, and it is also cumulative over multiple years. It’s not hard to imagine a scenario where that triggers a tax cut at a very bad time.

For example, revenues could rise by 1 percent in 2013 and then stay flat for the next 4 years. We already know many expenses will go up over that time due to inflation, rising health care costs, and increased caseloads and enrollment. To cover those expenses, we would be forced to make significant cuts to core services. Yet by the trigger’s definition, that would be enough “growth revenue” to force another tax cut.

If legislators could predict the future of our economy, they should be off making millions on Wall Street. But they cannot predict the future, and they cannot design a formula to fit every possible scenario. That’s why putting our tax system on auto-pilot is a risk we should not take.

share this post

But how do we define right-sizing? Is government the right size if there aren’t enough correctional officers to handle prison unrest? Is it right-sized if children are crowded into classrooms? Is it the right size if sex offenders cannot be properly supervised? Is it the right size when DHS caseloads are so high that the vulnerable slip through the cracks?

The chart below provides numerical support for the idea that state government has shrunk dramatically in recent years. As a share of state personal income, state appropriations are at their lowest level in at least three decades. In FY 2011, the state appropriated budget of $6.77 billion represented just 4.9 percent of  state personal income ($137.8 billion). This is almost a full percentage point below the historical average of 5.8 percent over the past 25 years. This year, with appropriations having been cut by a further 2.4 percent and state personal income rising, the share will fall even further.

Source: Bureau of Economic Analysis (State Personal Income), OK Policy (State Appropriations)

As we showed in an earlier blog post, state tax collections are also at an historic low and are failing to keep pace with growing costs and growing needs. Rather than being bloated and in need of right-sizing downward, the question we must now face is whether years of underfunding have shrunk state government to the point where it is no longer capable of performing the core functions that Oklahomans expect: educating our children, training our workforce, maintaining our infrastructure, protecting our communities, and aiding our most vulnerable family members and neighbors

share this post

Meanwhile, the Legislature has also cut the activities budget for common education, which funds health care costs for teachers and support staff, as well as a portion of retirement costs and programs that aim to improve teacher quality and student performance. This year,  the Department of Education was forced to eliminate or drastically cut a slew of programs, including adult education, alternative education, Great Expectations, A+ Schools, and Literacy First. With its activities budget slashed, the department also opted not to allocate $11.4 million to fund the $5,000 annual bonus promised to some 3,300 National Board Certified teachers and saved $37 million by funding only ten months of teacher and support staff health care benefits for current year contracts. Outrage in the education community over this failure to meet the state’s commitments on health care costs and board certified teachers led some elected officials to promise to make up the funding as mid-year supplementals to this year’s budget.

In her 2013 budget request, State Superintendent Janet Barresi has asked for an increase of $158 million to ensure that common education is adequately funded. This increase includes $78.2 million to restore state aid funding levels back to 2011 levels, an amount which would still be $134 million less than 2009, when the state had at least 12,000 fewer students. She has also requested $45.5 million to fully fund health benefits, $11.4 million for National Board teacher bonuses, and additional money to restore programs cut or eliminated last year, including adult education, Parents as Teachers, and Advanced Placement initiatives, and to implement her education reform priorities, including the mathematics intervention initiative and new professional development programs.

The Governor’s 2013 budget, however, allocates not one additional dollar for common education next year. The department’s proposed funding for 2013 is $2,278 million, exactly as in 2012. Although the Governor does recommend a $37.6 million supplemental appropriation to cover the full cost of health care benefits in 2012, this money is not carried over into the base budget to fund twelve months of benefits in 2013.  Since the cost of health care benefits is expected to rise, this creates a $45 million budget hole. The Governor’s budget does not include supplemental funding for National Board certified teacher bonuses this year – and with flat funding, there seems little chance the bonuses could paid next year either. There would be no additional funding to restore the state aid formula, adult education, teacher development programs, alternative education, or other programs slashed in recent years.

The result of continued flat funding is likely to be increased class sizes, fewer resources for teacher and student improvement, and no funding for initiatives that can make a real difference in strengthening our public education system. If our common goal is to improve our schools, reward quality teachers, and prepare our students for success in higher education and the workforce, does anyone believe this is how we are going to get there?

However, while there is no additional money to support public schools in her 2013 budget, the Governor’s budget allocates $111 million to partially fund her plan to cut the income tax – a plan that will cost at least $340 million, and perhaps much more, in lost revenue in its first full year. What in the world does this say about our priorities?

share this post

We provided overviews on previous rounds of budget cuts here, here, and here. This is an update on a few more of the ways we’re falling behind in public safety, child welfare, education, health, and other areas:

Public Safety

• The number of state troopers on Oklahoma highways is at its lowest level in 22 years. Without funds to train new troopers, the problem is likely to get worse because more than 1/4th of existing troopers are already eligible for retirement.
• The Oklahoma State Bureau of Investigation has frozen hiring with 35 vacant jobs, and Director Stan Florence said further cuts would lead to furloughs. Inadequate staff has forced the agency to reduce investigations of the theft of equipment from oil and gas fields and curtail other investigative work.
• Department of Corrections Director Justin Jones said almost $78.6 million has been cut from his agency’s budget since 2010, and he needs at least $31 million restored for vital infrastructure, including new electronic locks at four prisons. “These have to be done,” he said. “When we lock the doors, there are ways to get out. These are life-safety issues.”
• Reaccreditation of the Medical Examiner’s Office cannot be accomplished with its current “decrepit” facility. The office lost its accreditation with the National Association of Medical Examiners in 2009 after 18 consecutive years of accreditation. The legislature has yet to provide the needed funding for a new building.

Child Welfare

• Oklahoma has decreased child-welfare spending since 2006, going from $248.4 million to $244.2 million. Even before these cuts, Oklahoma spent much less per child than other states with similar child population sizes. In 2006, Oklahoma spent $270 per child, compared to Iowa at $488 per child, Oregon at $468, and Kentucky at $408.
• Overcrowded state children’s shelters are in violation of state law. Children must be removed from homes when their safety is in imminent danger, but Oklahoma doesn’t have enough foster homes to place them. The Oklahoma City shelter exceeded the capacity allowed by the fire marshal on 48 days from October through December.
• National child welfare experts expressed shock that Oklahoma is housing infants in group shelters. “It’s because a fundamental task for those very young children, particularly children ages 6 months to 3 years, is to attach to one particular caregiver and that’s how they learn,” said Carole Shauffer, senior director of strategic initiatives for the Youth Law Center in San Francisco. “It’s how they learn language. It’s how they learn to rely on people … So, if they have constantly changing caregivers, which is what happens in a shelter, they cannot attach to any one of them because they are not there long enough.”
• With a shortage of foster homes and severe overcrowding in shelters, DHS was pressured to leave many more children with their families. In several highly publicized cases, this resulted in children dying or experiencing severe abuse and neglect. DHS currently pays foster parents about $200 a month less than the minimum monthly rates recommended by the Children’s Rights child advocacy group and the National Foster Parent Association.

Education

• Since the 2007-2008 school year, the number of students in Oklahoma has increased by more than 15,000, but there are about 1,000 fewer teachers. The result is being seen in increased class sizes.
• The Department of Education eliminated stipends for National Board Certified teachers,  alternative education for at-risk students, all adult education programs statewide, and three programs that provide intensive teacher-training based on nationally-proven models.

Health

• The Oklahoma Department of Mental Health and Substance Abuse Services has taken a $36.6 million funding cut over the last three years, including drops in state appropriations, reduced federal block grant awards, and higher maintenance costs that have gone unfunded. Mental illness is the third leading cause of chronic disease in the state, and ODMHSAS has reported that 70 percent of those in need are not receiving treatment.
• Oklahoma’s youth suicide rate is 31 percent higher than the national rate, and cuts in mental health services have resulted in a dramatic increase in calls to Oklahoma’s suicide hotline.
• About 6,400 Oklahomans are on a waiting list to obtain services for families caring for physically and developmentally disabled people in their homes. The waiting list has grown significantly as state institutions have been closed. It can take up to 10 years to get moved off the list. “I had two sons on the waiting list, but one died before he could be moved off the list,” said one mother.

 Other Gaps

• The state owes an estimated $36 million to more than 600 cities, counties, electrical cooperatives, state agencies, fire districts, schools and Indian tribes for its share of costs associated with 21 natural disasters dating back to 2007. The emergency fund hasn’t had any state appropriations since 2008 and currently has a balance of just $944. Governor Fallin said that “It is not fair for the state of Oklahoma to ignore its obligations when towns and cities are struggling to find the money to pay for firefighters, police and basic services.”
• State workers have not received a pay increase in 6 years. There are about 3,000 fewer state workers now than there were three years ago, not including public school teachers, which have also decreased significantly. Rising costs due to inflation, higher gas prices, and other expenses imposes hardships on state workers and reduces the state’s ability to keep effective and experienced employees, which in turn reduces the effectiveness of all public services.

The continuing damage from underfunded public services is making Oklahoma less safe, less healthy, and less prosperous. In this context, we should be highly skeptical of claims that Oklahoma has any extra money lying around to be handed out in tax cuts.

Certainly there are areas where we can reduce unnecessary spending, but there are just as many obvious, underfunded core needs where those savings should be directed. It’s time to get our priorities straight and stop shoving tax cuts to the front of the line.

share this post

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.

share this post

View other clips from OKPolicy’s “Watch This’ video series:

What is an IDA?

Elderly parole

Long term unemployment, 1967-2011

Packed Oklahoma prisons, rising costs

share this post

What’s up this week at Oklahoma Policy Institute? The Weekly Wonk is dedicated to this week’s events, publications, and blog posts.

This week OK Policy explained what federal budget cuts could mean for Oklahoma.  Doug Hall of the Economic Policy Institute underscored the urgency of fixing America’s crumbling infrastructure.  Our director David Blatt spoke at a StateImpact Oklahoma forum about why proposals to reduce or eliminate the income tax would effectively raise taxes for most Oklahomans.

Also this week, we featured remarks by Maryland Governor Martin O’Malley on how health care reform improves business competitiveness.  We posted event information about the first annual Grandparenting Workshop at Oklahoma State University.

Numbers of the Day

• $107 – Average tax increase on sixty percent of Oklahoma households under a legislative proposal to eliminate a slate of broad-based tax credits and exemptions.
• 8,600 – Number of jobs lost in state and local government in Oklahoma over 2010.
• $22,007 – Annual average wage for home health aides in Oklahoma, just below the federal poverty level for a family of four in 2010, $22,050
• 11 percent – Percentage of ex-offenders released in Oklahoma who were re-incarcerated for technical violations of their probation/parole in 2004, up from 3 percent in 1999.
• $34 million – Amount needed to repair sewer lines and make major improvements to two facilities slated for closure that house medically fragile, mentally disabled Oklahoma residents.

In The Know, Policy Notes

• The Center for Economic and Policy Research shares five reasons we should be concerned about the rising share of low-wage work.
• Touchstone examines the austerity curve, or the point at which cutting government spending becomes self-defeating because it lowers growth, depresses tax revenues, and pushes up social security spending by more than the government is cutting.
• The Century Foundation shares a series of graphs that bust the myths about food stamps.
• The Kaiser Family Foundation released their annual survey of employer health benefits, with a detailed look at trends in employer-sponsored health coverage.

share this post

Arthur Laffer

Some Oklahoma politicians have trumpeted a report by economist Arthur Laffer to claim that eliminating the state income tax will fuel an economic boom. Laffer is best known for the Laffer Curve, which he famously sketched on a napkin while meeting with Dick Cheney in a hotel bar. It went on to form the basis of the Reagan administration’s trickle-down economics.

The Laffer Curve makes an obvious point: government revenues peak at a tax rate somewhere between zero and one-hundred percent. In the lower half of the curve, raising taxes will increase revenue, but go too high and the reduced economic activity due to excessive taxation will result in lower revenue.

The argument was not original to Laffer. It had been stated previously by thinkers ranging from 14th Century Arab philosopher Ibn Khaldun to John Maynard Keynes, the founder of modern macroeconomics. What made this idea influential in recent decades was not any special insight into economics, but its powerful appeal for politicians. Rather than explaining how tax cuts (popular) would be paid for by budget cuts or increases in other taxes (unpopular), they could simply claim that the tax cuts would pay for themselves.

However, whether a tax cut will result in higher or lower revenue depends on where you are on the curve. Estimates of the revenue-maximizing tax rate differ, but defenders of tax cuts have a much stronger claim when the top marginal rate is 70 percent, as it was at the beginning of the Reagan administration, than they do when the top rate is 35 percent, as it is today.

Laffer Curve with a maximum revenue point at about a 70% tax rate, based on "How Far Are We From The Slippery Slope? The Laffer Curve Revisited" by Mathias Trabandt and Harald Uhlig.

That doesn’t stop politicians from repeating to the point of absurdity the idea that all tax cuts lead to revenue growth. In Oklahoma, the top marginal rate is only 5.25 percent, and the average family pays an effective rate of less than 3 percent. No credible economist will argue that cuts from such a low starting point can pay for themselves.

To be fair, Laffer doesn’t say this either. His report argues that increases in other tax revenues will replace just one-half of what would be lost by eliminating the personal income tax. Even that much rests on rosy predictions for the economy and the highly questionable assumption that the state income tax is the most important variable for economic success.

Most people realize the picture is more complicated. Oklahoma’s economy is vastly more affected by oil and gas prices, as well as national and global economic trends, than it is by our modest state income tax. Tax cuts won’t put more oil in the ground or protect us from a European collapse.

Laffer also conveniently leaves out the obvious point that budget cuts have a cost. The economic benefit of a modest increase in individual income would be countered by cutbacks in what we can accomplish collectively, with fewer resources to ensure good schools, well-maintained roads, and a safe and healthy community. We have already slashed budgets for three consecutive years, and the result is larger class sizes, fewer officers on the streets, and longer waiting lists for treatment of children with disabilities, to name just a few.

It comes down to this: Arthur Laffer’s work leaves out more than it includes, because his goal is never to provide an accurate economic assessment. It is to tell politicians what they want to hear. As Jay Bookman put it, “It’s like telling someone with an obesity problem that the best way to lose weight is to always eat more ice cream — more times than not, their eagerness to believe overwhelms any skepticism.”

As a result, we keep going further down the tax cut rabbit hole. At least one lawmaker has already said that eliminating the income tax should be the first step towards… more tax cuts. Where does it end?

share this post

James W. Utterback, Ph.D. is President of Seminole State College and Chair of the Oklahoma Educational Television Authority Board. The opinions expressed herein are those of the author and do not reflect the opinions of OETA or any other group or business.

In his acceptance of the Republican Presidential nomination in 1880, James A. Garfield stated that, “Next in importance to freedom and justice is popular education, without which neither freedom nor justice can be permanently maintained.”  The Oklahoma Educational Television Authority (OETA) plays a vital role in enhancing the public education mission of our state.

As Chairman of the Board for OETA, it has been exciting to witness over 24,000 Oklahoma families step forward to donate in excess of $2 million annually to support Oklahoma’s only statewide public television network.  An additional $1.5 million is donated annually by Oklahoma foundations and corporations. In spite of such overwhelming grassroots support, a small group of Oklahoma Legislators are calling for the elimination of funding for OETA.  As an educator and a concerned citizen who cares deeply about the future of our state, I believe this action would be reckless and irresponsible.

The Oklahoma Educational Television Authority is a valuable resource that provides tremendous educational benefits to the children of Oklahoma and cultural and informational experiences for all ages.  Not only have many of our children learned their ABCs with help from Sesame Street’s Big Bird, but they also have learned values and ethics from public television children’s programming.  Similarly, students in classrooms all across our state are inspired and motivated every day about science and nature by watching NOVA.  OETA also provides Oklahomans the opportunity to experience world-renowned musical and theatrical performances through “front row” seats at Great Performances, Live from the Met and Masterpiece Theatre.  Additionally, the citizens of Oklahoma benefit from OETA providing the only statewide news network – delivering unparalleled coverage of political, cultural, and entertainment events and activities.  OETA is the only media outlet to have the capability to transmit the culture of Oklahoma all across this state.  It is also the only means of communication that can simultaneously reach virtually every Oklahoman with statewide emergency information.

Recently, OETA has extended its reach into Oklahoma communities adding diverse outreach initiatives to complement programming.  Highlights include Centennial productions, World War II and Native American story collections, and literacy initiatives.

Our public television authority is one of only 14 states that have statewide licenses to operate.  It receives less state funding per capita than all but one of these 14 networks.  Currently, only 39 percent of its funding comes from the state.  This year, citizens of Oklahoma are served with public television for less than $1.02 per capita in state funds.  By comparison, citizens of Nebraska pay $5.73 per capita for public television access.

The value of OETA in meeting Oklahoma’s educational mission cannot be overstated and is in many ways immeasurable.  As Supreme Court Chief Justice Earl Warren wrote about the now famous decision of Brown V. Board of Education of Topeka, “Today, education is perhaps the most important function of state and local government.”

What a travesty it would be to deprive the 1.8 million weekly viewers of our Oklahoma network access to the many benefits of public television simply to save roughly 0.06 percent of the state budget.  It is imperative that we all speak out to help save funding for OETA.  As the Reverend Martin Luther King once said, “The time is always right to do what is right.”

The opinions stated above are not necessarily those 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.

share this post

[This post has been changed slightly from the original. An earlier version questioned SoonerPoll's reliability without providing evidence to back up that claim.]

As part of the agreement to raise the federal debt ceiling, Congress will vote on a Balanced Budget Amendment this fall. Every Republican Senator has endorsed it. So have many Oklahoma state legislators.

So what’s the problem with a Balanced Budget Amendment?

#1: The BBA endorsed by Senate Republicans is not really about balancing the budget.

In fact, this amendment would make it much harder if not impossible to balance the budget, because it would require any tax increases to have a two-thirds majority in both houses of Congress.

On top of that, it says total spending cannot exceed 18 percent of GDP. To understand how radical this is, we should realize that not a single year’s budget under the George W. Bush or Reagan administrations would be constitutional under this rule. Even Rep. Paul Ryan’s budget plan, which included cuts so unpopular that they were quickly abandoned by Republicans, would have spent too much under this amendment.

There are problems with using GDP as a metric in the first place. Calculating GDP is not an exact science, and it is constantly revised, sometimes retroactively. Nor is government spending as a percentage of GDP useful as a measure of anything. The size of government fluctuates over time to reflect age demographics (older populations require more government services), an evolving economy (as health care becomes a larger part of the overall economy, the public sector will grow), and democratic will (generations of Americans have voted in the social safety net that we have today).

That brings us to…

#2: The Balanced Budget Amendment is undemocratic.

The appropriate size of government has been contentiously debated for decades, and Americans remain split on this issue. By creating supermajority requirements for tax increases and putting arbitrary limits on budget size, the Amendment attempts to make an end run around this debate in favor of a minority’s desire to shrink the public sector.

In some cases, it is important to protect minority rights against an overweening majority. That is the motivation behind the First Amendment, which protects the freedom of speech and religion even for unpopular beliefs. These and other rights are the principles we have elevated above democratic influence.

However, we should be very cautious about creating new rights. Those who want smaller government should not have the right to enforce that desire outside the normal democratic process. The BBA is just an attempt to fix the game.

Besides, when inevitable disagreements arise over how to define “balanced” or which revenue projections to use, it is unclear how any requirements will be enforced. Do we really want the courts to take over government budgeting?

#3: State-level balanced budget requirements only work because of federal help.

A common argument made by supporters of a BBA is that most states, including Oklahoma, have a balanced budget requirement, so the federal government should be able to have one too. However, states are only able to balance their budgets during bad times because the federal government does not. This chart provides a clear example:

Oklahoma avoided disastrous cuts during the recession by using federal relief from the stimulus bill (shown in yellow) to supplement state appropriations. In 2010, that federal money accounted for more than 12 percent of all state appropriations. The picture is the same nationwide – without an influx of counter-cyclical federal spending, we would have seen devastating job losses in the public sector that almost certainly would have sent the economy into a severe depression.

Even during good years, federal money makes up a significant part of the state’s budget and the overall economy of Oklahoma. The federal government spent $38.5 billion in Oklahoma last year, which works out to $10,256 for each resident. The budget has never been balanced without federal help.

The Takeaway

The fact that the proposed balanced budget amendment was written with such obvious flaws should tell us something: it was only ever a political ploy. Certainly it’s important to pay attention to our debt over the long-term, but almost no budgets are balanced year-to-year in this way. Even individual households routinely take on debt for a mortgage or auto loan. A shoddily constructed BBA allows politicians to claim credit for supporting “balanced budgets” while knowing it will never pass.

At least we should hope so, because the prospect that they believe their own rhetoric about this terrible idea is even scarier.

share this post