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Oklahoma’s revenue growth is welcome but not a windfall (Capitol Update)

by | October 8th, 2018 | Posted in Budget, Capitol Updates | Comments (0)

[Image Source: Sarge Melki / Flickr]

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.

Those who rely on state funding to provide services to Oklahomans heard more good news this week from State Treasurer Ken Miller. Monthly numbers for September revenue show an increase of $141.4 million over September 2017 revenue. If monthly increases averaged, say $100 million for the year it would mean an additional $1.2 billion in state revenue. Only a portion of this goes to the General Revenue Fund from which the Legislature appropriates most of the budget, but if the trend continues it will mean a good year for next year’s legislative appropriations.

According to Treasurer Miller, revenue generated by increased tax rates approved in HB1010XX last session added $48.7 million of the $141.4 million to the monthly collections. This means approximately 35 percent of the increase in revenue came from the tax rate increases. Of the $48.7 million generated, $31.2 million came from the increase from 3 percent to 5 percent in the incentive tax rate on oil and natural gas gross production, $8.3 million came from raising the tax on gasoline and diesel fuel, and $9.3 million was generated from the $1 per pack increase in cigarette taxes.

The remaining 65 percent of the increase in the state’s monthly gross receipts presumably reflects new revenue caused by growth in the economy. As Treasurer Miller, an economist, puts it “Oklahoma’s economy continues to climb the expansion side of the business cycle.” In other words, state government revenue is riding the wave of an uptick in the economy, and this is a natural part of the business cycle. To those with a critical and experienced eye, this means as business continues to cycle there will at some time be a downtick.

The temptation for now will be to look at these numbers and conclude the state has a windfall. Nothing could be further from the truth. $1.2 billion in the budget will provide relief, but it will in no way catch up for a decade of budget cuts and deferred increases to meet new needs for schools, universities, and all the other state agencies that provide for the education, health, and public safety of our citizens. Simply relying on “growth money” from the same inadequate tax base will leave Oklahoma where it has been for many years: at the bottom of the barrel in meeting the needs of its citizens. We should be listening carefully to what the candidates for office are saying. As we’ve seen before, elections do have consequences.

The official SQ 780 savings calculation rests on flawed assumptions

by | September 6th, 2018 | Posted in Blog, Budget, Criminal Justice | Comments (1)

[duggar11 / Flickr]

Two years ago, Oklahoma voters passed State Questions 780 and 781, together known as the Smart Justice Reform Act. SQ 780 reclassified simple drug possession and many low-level property crimes as misdemeanors rather than felonies. SQ 781 directs the Office of Management and Enterprise Services (OMES) to calculate the savings to the state as a result of the changes made by SQ 780 and to distribute that amount to counties to provide mental health, substance abuse, and other rehabilitative services.

As required, OMES released the savings calculation for Fiscal Year 2018 on July 31. To the surprise of many, they estimated that the changes made by SQ 780 would save the state $63.5 million in FY 2018 and a total of $137.8 million from FY 2018 to FY 2026. Corrections Director Joe Allbaugh strongly criticized the report, saying that the Department of Corrections had not saved any money over the last year. Why is there such a divergence between the two agencies? Our analysis shows that the assumptions that OMES made are not supported by data, and they lead to an unrealistic picture of what SQ 780 accomplished in its first year.

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The state budget is growing but is not fully recovered

by | August 23rd, 2018 | Posted in Blog, Budget | Comments (1)

As Oklahoma heads into a new budget year and closes the books on FY 2018, two things are especially clear: Oklahoma’s fiscal situation is much improved, but we still have a long ways to go to recover from a decade of deep budget cuts.

State revenue grew strongly last year

After several consecutive years of shortfalls and lagging collections, last year (FY 2018) was a good one for state tax collections. Total collections to the General Revenue (GR) fund, the principal funding source for most Oklahoma government operations, reached $5.85 billion in FY 2018, which was an increase of $810 million, or 16.1 percent from FY 2017. Last year’s GR collections were the largest since the start of the Great Recession in 2009, but they were still some $100 million below the pre-recession peak of 2008, as can be seen from the chart.

All major General Revenue sources saw growth in 2018 compared to 2017, with increased sales tax collections (+$285.9M) being the largest contributor to overall revenue growth, followed by the individual income tax (+$208.8M), gross production taxes (+$195.9M), and corporate income tax (+$62.2M). Legislative changes approved during the 2017 regular session and 2018 special session, which included adding a 1.25 percent sales tax on motor vehicle purchases and raising the tax rate on older horizontal wells to 7 percent, accounted for approximately $358.9 million of the total GR increase in FY 2018, according to the state budget office.

Gross Receipts to the Treasury — a broader measure of tax collections before any tax rebates, tax refunds, and remittances to cities and counties are paid out, and that includes earmarked revenues which do not go to the General Revenue Fund — increased by $1.2 billion, or 11.1 percent, in FY 2018. Total Gross Receipts in FY 2018 reached an all-time high of $12.2 billion, which is some $900 million, or 7.9 percent, above the prior annual peak of $11.3 billion back in FY 2008.

Last year’s General Revenue collections exceeded the official estimate by $381.6 million, or 7.0 percent. The full amount of this surplus will be deposited in the state Rainy Day Fund, in accordance with the constitutional provision stating that GR collections above 100 percent of the final certified estimate are deposited in the Fund. This year’s RDF deposit is the largest since the Fund was created in 1988 and brings the current balance to $453.8 million (see chart). The cap on the Fund, which is 15 percent of the current revenue estimate for the General Revenue Fund, is just above $750 million.

 

The current revenue outlook is positive

State appropriations for the current budget year, FY 2019, are $7.567 billion — an increase of $718.5 million, or 10.5 percent, compared to last year. Of the total budget growth, about $500 million is a result of revenue increases approved earlier this year primarily to pay for pay raises for teachers and other employees, with the rest attributable to economic growth. The major tax increases on cigarettes, motor fuels, and new oil and gas production took effect July 1st.

Initial tax collections for FY 2019 are mixed. Gross Receipts to the Treasury for July 2018 were up 10.8 percent compared to the prior year. Treasurer Ken Miller noted, “continued improvement in state employment, notably in the oil fields, and positive numbers in other economic indicators are continued signs of ongoing growth.” However, while General Revenue collections for July were up 9.2 percent from a year ago, they fell short of the official estimate by $9.6 million, or 2.1 percent.

We still have a long ways to go to make up for years of cuts

The revenue increases approved by the Legislature in 2017 and 2018, in conjunction with a growing economy, have stabilized the budget and allowed for some critical investments in the state’s most urgent needs. Yet there’s still a great distance to be climbed before we are out of the hole created by a decade of cuts and shortfalls.

As Senate Appropriations Chair Kim David stated during debate on the FY 2019 appropriations bill, “this budget in no way makes everyone as complete and whole as we were in 2009.” This year’s budget remains 9.4 percent ($788 million) below the budget of FY 2009 when adjusted for inflation, as can be seen from the chart above. As noted above, General Revenue collections, which are the primary funding source for most government operations, have not even fully returned to where they were over a decade ago, even without accounting for inflation and population growth. The effects of sustained cuts can still be seen across much of state government. For example:

  • State support for K-12 school operations will remain $145 million less than in FY 2009 (not including the new money that must be dedicated to teacher and school staff pay raises), even as school enrollment has grown by over 50,000 students. The Legislature managed to increase state aid funding by only $17 million last session, just enough to offset mid-year cuts but not enough for most school districts to be able to replace teachers, counselors, librarians, and other positions lost in recent years. Most school districts are reporting that the teacher shortage is worse compared to last year and that they will continue to need emergency certification of teachers to fill vacancies.
  • The Regents for Higher Education received an additional $7.5 million for concurrent enrollment programs, but no additional money to support operations of colleges and universities. Higher education funding will remain $263 million, or 25.3 percent, below its FY 2009 levels.
  • State funding for the Department of Corrections is 2.8 percent above what it was in 2009, but the state’s inmate population has grown by close to 10 percent during this time, along with growing costs for medical care and other fixed expenses.
  • The Adult Protective Services division within the Department of Human Services has lost 30 percent of its workers since 2014, while the number of investigations it is responsible for has jumped more than 50 percent. 
  • State employees will receive raises of $500 to $2,000 depending on their salary this year, but a study last year found that average salaries for state employees fell to 24 percent below the competitive labor market in 2016. There were more than 4,000 fewer state employees in 2017 than in 2009.
  • Overall, of 65 agencies funded with state appropriations, 39 are operating with at least one-fifth less state support than in 2009, without adjusting for inflation.

The Legislature took bold but partial steps last year to change direction after a prolonged period of shrinking investments in our public institutions. There is still a very long ways to go before we have restored our public resources to levels needed to build a thriving, prosperous state.

With revenue growing again, can Oklahoma make up for a lost decade? (Capitol Update)

by | July 9th, 2018 | Posted in Budget, Capitol Updates | Comments (1)

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.

According to State Treasurer Ken Miller, gross receipts to the state treasury during FY-18 were at an all-time high. Receipts for the 12 months ending June 30, 2018, were $12.18 billion, an increase of $1.2 billion, or 11% over FY-17 gross receipts. According to Treasurer Miller, last month marked the 15th consecutive month of positive growth in monthly gross receipts compared to the prior year. Interestingly, only $33.8 million of the increase in receipts are attributable to revenue measures passed by the legislature in the 2017 session. This year’s tax increases only began to be collected on July 1, so none of the FY-2018 increased revenue is attributable to the 2018 tax measures.

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What we know – and don’t know – about the revenue bill veto challenge

by | May 23rd, 2018 | Posted in Blog, Budget, Education, Elections, Taxes | Comments (3)

In late March, on the eve of an anticipated teacher walk-out, Oklahoma lawmakers approved a series of bills intended to provide pay raises for teachers, school support staff, and state employees. To pay for the raises, lawmakers approved a number of revenue measures, including HB 1010xx, which managed to overcome the three-quarter supermajority requirement for tax increases established under State Question 640.

In May, a group called Oklahoma Taxpayers Unite launched a veto referendum petition drive that, if successful, would submit HB 1010xx to a vote of the people to approve or reject the new law. This effort has been designated Repeal Petition 25 (R.P. 25); if it gets on the ballot, it will be State Question 799. On June 22nd, the Oklahoma Supreme Court struck down the referendum petition, ruling that it was misleading and fatally flawed. The organizers subsequently announced that they were abandoning the petition effort, ensuring that both the tax increases and the pay raises would take effect on schedule.

This post addresses key questions related to the veto referendum effort. Language in bold reflects the Supreme Court’s June 22nd ruling, which renders moot much of the discussion on this page.  (Last Updated: July 9th)

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Bill Watch: This year in #okleg

Last week, the Oklahoma legislature adjourned one of the more extraordinary legislative sessions in recent memory – one that followed one special session, ran partially concurrently with another, included nine days of protests at the Capitol, saw the Legislature raise revenues for the first time in nearly 30 years, witnessed a first step in criminal justice reform after years of efforts, and resulted in the largest funding bill in state history (although not if adjusted for inflation). But in all of the confusion and breaking news, it was easy to miss other developments. In the posts below, brief summaries by issue area lay out the major victories and defeats of this spring’s legislative session.

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The FY 2019 Budget: Been down so long this looks like up

by | May 2nd, 2018 | Posted in Budget | Comments (1)

In the 1960s, the New York City poet and folksinger Richard Fariña published a novel titled “Been Down So Long It Looks Like Up To Me.” This title certainly applies to Oklahoma’s FY 2019 state budget, approved by the House and Senate last week. After several straight years of large shortfalls and repeated rounds of budget cuts, including mid-year cuts the past three years, lawmakers were finally able to pass a budget that kept funding for all agencies at least flat, provided modest increases for some critical programs and services, and included over $350 million for teacher pay raises.

State agencies next year will be appropriated a total of $7.567 billion in SB 1600, which is the annual General Appropriations bill. This is an increase of $718.5 million (10.5 percent) compared to the initial FY 2018 budget approved last May, and an increase of $601 million (8.6 percent) compared to the final FY 2018 budget, which included various mid-year cuts and increases. Next year’s appropriations will be the largest in state history, surpassing the $7.235 billion budget in FY 2015; however, when adjusted for inflation, next year’s budget remains 9.4 percent ($788 million) below the budget of FY 2009.

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New budget marks a return of line-item appropriations (Capitol Update)

by | April 30th, 2018 | Posted in Budget, Capitol Updates | Comments (1)

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.

When Republicans took full control of the legislature, both House and Senate, they began a process of dismantling the use of line items in state appropriations measures. The policy took full root in 2010 when Republican governor Mary Fallin was elected. The new legislative majority felt it was not their place to dictate to the executive department, particularity through line-item budgeting, how to spend the appropriated dollars. They also accused Democrats of using line items to promote favored programs over others. In sum the mantra was to give the executive agencies flexibility in the use of funds in the name of efficiency.

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Unheralded law puts increased funding in doubt

by | April 18th, 2018 | Posted in Budget, Taxes | Comments (4)

Image by photosteve101/Creative Commons via flickr

Lawmakers this year have approved over half a billion in new taxes to pay for a package of spending measures, including increased pay for teachers, support staff, and state workers, and increased operating support for schools. While the new obligations are almost fully funded for the first year, in future years legislators are counting on growth revenue from an expanding economy to meet the spending commitments they’ve already made and to do more for education and other critical priorities.

But leaving economic uncertainties aside, there’s a hitch. Under a law passed quietly in 2016, several hundred million dollars could be directed automatically to a new budget reserve fund in FY 2020, rather than being available to meet funding commitments. Unless lawmakers revisit the law this session, they may find themselves facing major unexpected budget problems a year from now.

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The education funding package is a major step forward. There’s more work to do.

by | April 3rd, 2018 | Posted in Budget, Featured Budget & Tax, Taxes | Comments (3)

The Oklahoma Legislature last week passed a set of bills to provide pay raises to teachers, school support staff, and public employees funded primarily by a tax increase on tobacco, motor fuels, and gross production. Passage of the revenue bill was a truly landmark moment: it marked the first time that a major revenue bill has surpassed the three-quarters supermajority threshold for tax increases since passage of State Question 640 over a quarter-century ago, and it followed at least two years of intense but unsuccessful efforts to reach agreement on a grand bargain on the budget. More broadly, it signified a belated but clear recognition by Oklahoma lawmakers that renewed investment in education and other core services is critical for Oklahoma’s prosperity and requires significant new recurring revenue.

These bills mark a crucial step in tackling some of the state’s most urgent problems. But they in no way mark an end to the state’s budget challenges.  The new revenues fall short of fully funding new spending commitments. The state will also need additional revenue to balance this year’s budget and make greater investments in education and other needs in the future.

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