OKPOLICY.ORG
Steve Lewis served as Speaker of the Oklahoma House of Representatives from 1989-1991. He currently practices law in Tulsa and represents clients at the Capitol. You can sign up on his website to receive the Capitol Updates newsletter by email.
The budget picture in Oklahoma is finally beginning to look like the 1980s. In 1983 there was a historic downturn in Oklahoma’s economy that produced dramatic revenue failures and budget cuts threatening to leave Oklahoma’s state government in a shambles. For more than 7 years we suffered from the oil bust that caused banks to fail, which in turn resulted in overleveraged farmers and business owners losing what had often taken generations to build. Finally we began to slowly recover in the early 1990s. Things felt especially bleak in Oklahoma because during the 1970s we had enjoyed an oil boom at the expense of the rest of the nation. When our bust arrived in 1983 the rest of the nation was pulling out of its “malaise” and moving forward, but Oklahoma’s troubles were just beginning.
During the 1970s our political leaders had made substantial investments in education and other necessities and at the same time passed tax cuts. But when the bottom fell out in 1983 the economy declined so rapidly and unpredictably that even tax increases and budget cuts barely kept the ship of state afloat. Today history may be poised to repeat itself. When oil prices began to boom in the early 2000s Governor Henry tried to blunt tax cut fever with tax rebates instead of cuts, but as the economy kept growing, politically appealing tax cuts took hold. Now even tax cuts to occur in the future have been passed that further cripple state revenues.
So, now where are we headed? There are already reports about another “budget hole” next year, the size of which is currently unknown but expected to be large. The United Way of Central Oklahoma is proposing to fund some mental health programs while the state’s budget is unable to meet the need. And OU President David Boren is part of a group that has proposed a one-penny sales tax increase to be voted on by the people to increase funding for common, higher and career technology education. We were sheltered for several years from the worst budget woes by federal stimulus funding that got us through the first lean years of the national recession and by creative bookkeeping by legislative leaders who have basically found ways to “eat the seed corn” to postpone disaster. They’ll undoubtedly do more of the same next year, but the current oil bust may mean we’re just at the beginning of our worst budget problems.
We’ve limited our options in Oklahoma by passing SQ 640. A combination of reaction to the tax increases of the 1980s and the misfortune that tax limitation initiatives were a fad sweeping some states at the time, helped SQ 640 make its way to the ballot and pass on March 10, 1992 with 56 percent of the vote. So the people, absent a 75 percent vote of legislators, have taken back the legislative power to tax ourselves. We live in America in a representative form of government, not a direct democracy, but we’ve essentially reverted to direct democracy in Oklahoma when it comes to tax increases.
So who is going to lead? Our elected leaders are off the hook. We took them off when we passed SQ 640. The best they can do is to re-arrange the chairs on the Titanic and happily remind us that they can’t raise taxes. The problem with direct democracy is there’s no process to bring people together and develop a proposal as in representative government. Perhaps it was anticipated by some when SQ 640 was passed that the legislature would submit tax proposals to the people. But most legislators consider a vote to submit a tax increase the same as voting for a tax increase. So we’re left with someone throwing a proposal out there and you get to vote either “yes” or “no.” Those interested in seeking solutions should first thank President Boren for again stepping up, this time as a citizen leader. No doubt he’s already received some criticism. And if we don’t like the proposal let’s help develop a plan that can solve the problem and get a majority of the peoples’ support.
OU President Boren’s proposal is unfortunate as it does only one thing…pass a greater expense in the form of taxation to those struggling to make a paycheck stretch to the next payday. As long as we tax food an increase in sales tax in punitive and regressive.
What we need is a governor with common sense and a legislature which will stop pandering the top 5% income earners in this state (who could easily afford another penny sales tax).
There are other options which have been bantered about, yet those require sacrifice on some part by the powers that be – thus they are less likely to meet with legislative and the governors support.
I concur with the post above. A sales tax is regressive, and OK is already more reliant on sales taxes than our regional neighbors. In an ideal world, sensible voters would pass a repeal of SQ 640, and begin electing state officials who recognize a responsibility to govern, rather than voting in homunculi of the energy lobby.
That said, if an initiative came to the ballot I would support this proposal. I am an educator, and we simply have nothing left to cut.
As long as the legislator keep most of Oklahoma budget in one “barrel” we are at the mercy of the price of oil. This barrel has so many outside factors that beyond the states control, that we must find a more stable revenue source in which the state has more control. The OPEC has for to long played our nation as a puppet on a string by holding us over a barrel. We must strive to used what we have here in Oklahoma to control our own destiny.
Some good points made here, but lets make sure we don’t pretend this budget shortfall is the fault of lower gas prices. This downturn to the oil and gas industry is just the last straw after a generation long assault on tax rates.
In 1982 Oklahoma’s tax rates were much much higher:
Income Tax – 23.6% in 1982, 5.25% in 2015
Sales Tax – 17.8% in 1982, 4.5% in 2015
Gross Production Tax – 7% in 1982, 2% in 2015
The only reason that didn’t have another revenue collapse is because the federal government started picking up the tab.
Percentage of state revenues from federal receipts in 1982: 20.5%
Percentage of state revenues from federal receipts in 2015: 37.9%
We have cut our taxes to such low rates that we will never again be able to properly fund our core services without a tax increase.
Sources:
http://www.nber.org/chapters/c8900.pdf
http://www.okstatechamber.com/sites/www.okstatechamber.com/additional/21stCentury/Reports/1983.pdf
http://www.ok.gov/OSF/documents/cafr14.pdf
Justin, I think you’re misreading your sources. For example, in the NBER report you cite the 23.6% is the percentage of state taxes raised from personal income taxes. That is, for every $1 in state taxes raised in 1982, 23 odd cents of it came from personal income taxes.
The income tax rate is an entirely different number. Later in that same report they give the marginal rate in Oklahoma in 1982 for someone earning $40k as 5.88%. That is the number in the report most comparable to the 5.25% of today.
That said, I agree 100% with your broader point. The economy of OK has done reasonable well for the past decade. Budget problems in OK are almost entirely self-inflicted. If there is a budget crunch, it’s time to cut spending. If there is a bump in revenue, it’s time to cut taxes. Either way we ratchet downwards ever closer to third world conditions.