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. Read the rest of this entry »

Last week we reported that next year’s revenues are expected to be 7 percent below their levels of six years ago (FY ’07), even though costs are higher due to inflation, population growth, and increased caseloads

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. Read the rest of this entry »

While some state leaders continue to discuss making top-down cuts to the income tax or eliminating it entirely, a new OK Policy issue brief shows why that policy is ill-advised.

Before the economic downturn, the income tax brought in more than $2.5 billion a year. In FY 2010, it made up about one-third of all state tax collections. It is the single largest source of support for education, health care, transportation, public safety, and other necessities. The state could not provide basic, essential services without income tax revenue unless other taxes were drastically increased.

The issue brief shows that shifting to greater reliance on other taxes would disadvantage local business, create more risk of revenues not being adequate to needs, and put a disproportionate burden on low- and moderate-income Oklahoma families. Contrary to the claims of its critics, Oklahoma’s income tax is not a hindrance to the state’s business climate or a spur for people to move out of state. In fact, Oklahoma is out-competing most states that lack an income tax.

After three years of repeated cuts to the state budget, the state has fallen further behind in funding teacher salaries and benefits, staffing our prisons and juvenile facilities, and ensuring the safety of children at risk of abuse and neglect, among other vital functions. We face growing obligations to fund our public pensions, protect our water system, repair our crumbling infrastructure, and take care of an aging population. In this context, cutting the income tax is the wrong priority for Oklahoma’s future.

You can download the full 8-page issue brief here. Find more presentations, fact sheets, blog posts, op-eds and newspaper articles addressing Oklahoma’s tax reform debate here.

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.” Read the rest of this entry »

A study released today finds that inverting state tax structures—whereby the highest income earners would be taxed at the current percentage of income for the lowest income earners, and vice versa—would raise more than $4 billion in new revenue for Oklahoma (a 35 percent increase). The additional revenue would immediately eliminate state budget shortfalls and avoid the serious consequences of budget cuts.

The report, titled “Flip It to Fix It: An Immediate, Fair Solution to State Budget Shortfalls,” attributes a large part of states’ current deficits to regressive tax structures that are designed to fail.

Current vs. Inverted State and Local Tax System in Oklahoma (click for larger image)

“Trying to raise adequate revenue through a regressive tax structure—where a greater percent of income is demanded of the poor than the well-off—is like trying to squeeze water from a stone,” said Karen Kraut, coordinator of state tax policy at United for a Fair Economy and co-author of the report.

[See OK Policy's press release announcing the report here.]

In 2007, the poorest 20 percent of Oklahoma households paid 9.9 percent of their income in sales, property, and income taxes, which is nearly twice as much as the 5.9 percent of income paid by the wealthiest 1 percent. The cut to the top income tax rate set to go into effect next year will worsen the disparity, as the wealthiest 20 percent of Oklahomans will take home nearly three-fourths of the tax cut while the bottom 60 percent of Oklahomans together receive only 9 percent of the benefit. Read the rest of this entry »

In a recent article on state budget negotiations, House Speaker Kris Steele said he and other state leaders are “doing our best to minimize the cuts” to core agencies. He contrasted the treatment of core agencies to the larger cuts that would be made to other areas of government.

This is a red herring. Perhaps education will be cut 5 percent, compared to, say, a 10 percent cut to the Department of Environmental Quality. But those areas identified as core services (education, health and human services, public safety, and transportation) already make up almost 90 percent of state appropriations.

The real issue is not how the vast majority of the budget is treated compared to a few of the smallest state agencies. Speaker Steele and other lawmakers cannot claim in good faith to be protecting core services while ignoring revenue options and voting to make the problem worse. Read the rest of this entry »

After two straight years of cuts, the state’s budget situation remains dire. Despite the economic recovery and improving revenue collections, the state faces a huge shortfall for next year. The substantial non-recurring revenues that were used to balance the budget over the past two years, including federal stimulus dollars, state reserve funds, and assorted one-time revenue enhancements,  have mostly dried up.  The Board of Equalization has certified some $500 million less in available revenue for FY ’12 than what was appropriated for the current year budget. As we stated in our recent issue brief on protecting core services:

The impact (of budget cuts) is being felt by Oklahoma families, businesses and communities in far-ranging ways… Deeper cuts will further impinge the ability of state agencies to fulfill their core missions and may seriously affect the well-being of schoolchildren, seniors, persons with disabilities, correctional and public safety officers, and other members of our communities.

In this context, the Governor and legislative leaders are actively considering additional ongoing or one-time revenue sources that could avert truly catastrophic cuts to core services. One option being discussed is appropriating this year’s “5 percent money” for next year’s budget.  This post explains the “5 percent option” and suggests why, on balance, we think a portion of this money should be used, along with other revenue solutions. Read the rest of this entry »

Another budget year, the same sad story: The combination of tax cuts and the recession results in severe cuts to public services.

Over the past two years, most agencies have lost 15 percent or more of their funding. Even though state appropriations as a share of the economy is at a 30 year low, next year’s shortfall is projected at $500 million. The Governor’s proposed budget for next year would eliminate some agencies and take another 3 to 5 percent from the rest.

Last year we surveyed some of what’s been lost. Here’s an update:

• With personnel costs making up 93 percent of its budget, more cuts to the Public Safety Department will mean furloughs and possibly laying off troopers. The Department already has 110 fewer employees than 2 years ago, and more than half of the drivers’ license testing sites across the state have been closed. A portion of these funds are being replaced by increasing the fee to reinstate a driver’s license. Read the rest of this entry »

Oklahoma’s tax system is broken. Despite a recovering economy, the state is unable to raise enough revenue to sustain core public services. The strains will only increase over time as we cope with a rapidly aging population, unfunded pension obligations, and decaying infrastructure.

But inadequate revenues is not the only problem. It’s just as important that the cost of supporting government is fairly distributed and does not privilege some businesses or individuals over others without good justification.

As we explain in an issue brief released today, Oklahoma’s sales tax has fallen victim to both of these problems. The economy has evolved so that services and online goods which are not covered by the sales tax make up a larger proportion of purchases. In addition, the legislature has granted a growing number of exemptions, many with questionable economic rationale. One report found that just 35.7 percent of all purchases in Oklahoma were covered by the sales tax in 2003, compared to 52.0 percent in1990. Trends in the economy make it likely that the situation has only gotten worse since then. Read the rest of this entry »

As we discussed in this recent blog post, the State Department of Health has been among the state agencies hit hardest by successive rounds of budget cuts the past two years. State appropriations have been reduced by $11.3 million, or 15 percent, since 2009. The agency has some 250 fewer staff today than at the beginning of FY ’10 as a result of attrition and two rounds of voluntary buy-outs. It has cut dental health programs, tobacco prevention programs, services for children with developmental delays, jail inspections, and other services. According to a summary of actions prepared by the Department, which is led by Commissioner Terry Cline, the cumulative effect of the cuts has been to put the state’s core public health infrastructure in critical danger: Read the rest of this entry »

With the state anticipating large budget shortfalls – estimated by Republican legislative leaders as in the vicinity of $600 million -  for the upcoming fiscal year, there is renewed talk from state leaders about the need to protect “core public services” from the full impact of potential cuts. While the interpretation of core public services varies, most officials define the term to include education, health (which may encompass human services), public safety and transportation.

The graph below presenting the allocation of current year (FY ’11) state appropriations shows why the task of balancing the budget without cuts to core services or new revenues is so difficult, if not outright impossible:

Read the rest of this entry »

Last week I attended the annual State Fiscal Policy conference hosted by the Center for Budget and Policy Priorities, the top non-governmental organization analyzing state fiscal policy across the nation. The message we heard was clear and grim: As rough as the past two years of  revenue shortfalls and budget cuts have been here in Oklahoma and across the states, the upcoming budget year, FY ’12, is going to be even worse.

This chart created by the Center presents the story succinctly:

Read the rest of this entry »