OKPOLICY.ORG
By David Walters
Watching the demise of Oklahoma’s state-government services (public education, health care, corrections, infrastructure funding and mental health, to name a few) is similar to watching a car accident or the Donald Drumpf campaign: You are horrified, but you can’t take your eyes off of it.
Thoughtful Oklahomans want to know how this happened. Thankfully, our Republican state leaders have a ready answer: That unfortunate and periodic crash in energy prices is once again ravaging our state. Nevermind why they were unprepared for massive and historic budget cuts.
One has to wonder, having been under supermajority control for several years of the most radical elements of the Teapublican party (in which Oklahoma’s hyper-conservative Tea Party and Republicans merged) and having $100-a-barrel oil revenue flowing in, how is it, no matter the cause, that this group of fiscal conservatives managed to drive us off the cliff so catastrophically?
North Dakota, with a tiny budget, took advantage of their oil-revenue bonanza and built a $2 billion-dollar rainy day fund. The Oklahoma Rainy Day fund balance for a much larger budget is now about $300 million and soon could be zero.
Education and health care are where the catastrophe is currently most visible. One by one, schools are now announcing four-day weeks rather than five. Many programs are being eliminated, with band, track, arts or other programs that are apparently optional in Oklahoma being cancelled daily. Now, the Legislature is half-way to passing a radical cut in Medicaid whereby 111,000 Oklahomans below the $9,500 annual earnings level and with a dependent in the household will be thrown off this essential lifeline of health care.
One-hundred eleven-thousand Oklahomans with kids!
More draconian is the discussion of becoming the first state in the nation to eliminateMedicaid, thereby stopping health care to 800,000 adults and more than 500,000 children while losing billions in federal funds.
‘Just not much our conservative leaders can do’
When I am keeping my grandkids and some small misfortune occurs, I have trained them to say to their mothers, “It was not Papaw’s fault.”
The governor and the Legislature have made it clear this is not their fault. Even our media have bought into the idea that Oklahoma’s budget crisis is due only to the drop in oil and gas prices, and there is just not much our conservative leaders can do.
Meanwhile, it is comforting to all of us to see the Legislature busy itself by doing what it does best: spending scads of time processing anti-gay bills, undoubtedly unconstitutional abortion bills and an effort to change the state Constitution to allow the Ten Commandments monument back on the Capitol grounds.
If we accept the notion etched into the National Archives Building that, “the Past is Prologue,” then let’s avert our eyes from the car wreck and spend a moment understanding how we got here. You will need pencil, paper and a small calculator.
Elections have consequences
The amount of the shortfall for FY 2017 has been “certified” by the people who do such things as being $1.28 billion. This is an 18 percent shortfall from last year’s certified appropriation level.
But it gets “better.” When revenue is disappearing faster than excuses are being made, bureaucrats call that an “emergency failure of revenue,” and we have had two of those so far in what is known as the FY 2016 budget (from July 1, 2015, to June 30, 2016).
Our state leaders advised the agencies to cut 3 percent in December and another 4 percent in March. Because these cuts are made to agency budgets after the agencies have already spent part of the budget, the effective size of the cut was 18 percent in the funds remaining for the balance of this budget year.
This will be “good practice” for cutting another 18 percent out of the budgets starting on July 1 as required by the “certification” of what is available for FY 2017 (July 1 to June 30, 2017). Perhaps even worse, smart people at the Oklahoma Policy Institute areforecasting budget cuts for the following year (FY 2018 — July 1, 2017, to June 30, 2018) of potentially another billion dollars, which would be 14 percent of the original 2016 budget.
So, let’s add this up: 7 percent this year in emergency reductions, 18 percent in the next year and 14 percent in the following year. This sounds like a 39 percent cut in state appropriations, but the 7 percent is included in the 18 percent shortfall, so it is actually “only” 32 percent.
So, for those like Grover Norquist who want to shrink government down to a size where one can “drown it in a bathtub,” Oklahoma’s budget situation should be eliciting nothing but high fives.
For the rest of us horrified at the tragic collapse of education, health care and public safety that is upon us, it is time to speak up and do more to somehow wake voters from their slumber.
Decline hinges on tax cuts, not oil
If you break next year’s shortfall into its major components, the $1.28 billion deficit boils down to a shortfall in gross production taxes (oil and gas taxes), individual income tax, sales tax and one-time funds.
Anatomy of the shortfall
(in millions)Gross production decline: $224.3
Individual income-tax cut impact: $147.0
Individual income tax decline: $177.4
Sales tax decline: $229.1
All other sources: $10.2
Rainy Day funds $150.0
Other one -time funds: $350.0
TOTAL SHORTFALL: $1,288.0
The decline in gross production tax clearly can be blamed on the current oil bust, right?
Wrong. Yes, the prices have declined to result in a $224 million shortfall from that funding source, but guess which band of geniuses voted to cut the rate of the gross production tax in 2010, which today shorts the state budget by about $300 million?
So, the overall decline in the gross production tax over time has been more due to boneheaded reductions in tax rates than another oil bust. I find it amazing that an industry that is 13.2 percent of our economy only accounts for 2 to 3 percent of the state’s budget revenue. North Dakota has a 10 percent production tax (compared to Oklahoma’s 2 percent tax) with one-third of that revenue put aside for its rainy day fund.
So let’s give the Teapublican party its excuse on the $224 million shortfall as being the fault of declines in oil and gas prices, but let’s not forget they had already reduced this funding source to a ridiculous and historically low level. That impact remains far larger than this year’s oil-bust-related revenue loss.
Tax breaks benefit the rich and GOP incumbents
Those that argue the entire shortfall is due to an oil bust have to believe that the $324.4 million shortfall in individual income tax collections is all due to the loss of income and jobs in the oil and gas business. The biggest fiction of this theory is that $147 million of this shortfall is due to the current Legislature’s unfathomable cut in the income tax this year from 5.25 percent to 5 percent. Eighty percent of Oklahoma households save an average of $29.50 per year. Of course, the top 20 percent save $298.25, and the top 1 percent save more than $2,000 per household — because they really need it more, obviously!
Let’s just admit, shall we, that 45 percent of the loss in individual income tax revenue this coming fiscal year, FY 2017, is due entirely to the ideological requirement to survive the next Republican primary election by being FOR (!) tax cuts, no matter how unnecessary and no matter the consequences.
(By the way, the loss in individual income tax collections as a result of this completely unnecessary cut is expected to balloon to nearly $200 million in FY 2018 and over a quarter of a billion dollars the following year.)
The balance of the $324.4 million in individual income tax shortfall is $177 million (8.5 percent of total individual income tax collections) and is obviously due to less income to tax — but is it all due to a loss of oil-related income?
A stroll through a recent economic-indicator report on Oklahoma clearly show that “mining” (the odd term applied to oil and gas extraction) constitutes 12.5 percent of the state’s economic activity and is responsible for about 5 percent of private-sector jobs and 13.5 percent of overall earnings statewide.
Can a decline in only 5 percent of our total jobs truly account for all of the 8.5 percent decline in the individual income tax collections? Not unless ALL oil and gas jobs in the state were eliminated and then some.
Partisan ideology: a wholesale assault
So what accounts for this significant decline in incomes? Consider the wholesale assault that has been going on for years against government services, education and health care, and ask yourself whether or not this assault by the Teapublicans is beginning to take its toll.
In December, employment statistics actually reveal a small increase in oil and gas employment but significant losses in government, education and health care. By comparison, government comprises 15.5 percent of our economy while education and health care account for a combined 7.5 percent — much larger than the 12.5 percent attributable to oil and gas.
So, as our state leaders stubbornly hold out, refusing to accept billions of dollars in health care funds through the Affordable Care Act’s Medicaid expansion, do we really think this leaves our economy unaffected?
Even after a Republican former governor came to town and prepared a report (the Leavitt Report) showing that the state would benefit by hundreds of millions of dollars from the Medicaid expansion, it was still rejected for purely partisan reasons. As a result, health care is denied funding, and massive cuts have and will continue to be made with severalrural hospitals either closing or beginning the process of closing.
In the face of this assault on education, government services and health care, can we really say that the entirety of the individual income tax shortfall is due oil prices dropping?
Of course not.
My own view is that about 40 percent of this shortfall is oil-and gas-related, and the rest is due to the continuing assault on government services, education and health care (totaling 23 percent of the Oklahoma economy) by Teapublican leaders who control the Legislature and the executive branch.
When 111,000 households with children face potential denial of health care to save $100 million, when recent headlines trumpet that Oklahoma is considering being the first state in the nation to eliminate the entire Medicaid program, do we really fail to realize the dramatic and adverse effects those actions will have on individual income- and sales-tax collections?
This brand of partisan ideology is taking a terrible toll on our state.
At most, half of the shortfall can be blamed on an oil bust
Without belaboring the argument further, the sales tax collections shortfall succumbs to the same proportionate share of the economy reasoning I’ve offered above for individual income taxes. The “other” revenue shortfall is small, so for the sake of argument, let’s apply the same “40-percent-of-the-problem” estimate as it relates to oil-and-gas declines.
Here are the results of these assumptions. We accept the Teapublican leaders’ excuse that 100 percent of the gross-production-tax shortfall is all due to an oil and gas rate decline, although one has to turn a blind eye to their doubling the oil and gas give away in 2010. Then, we can partially accept their “not my fault” mantra by allowing them to credit oil-and-gas declines with 40 percent of the income tax, sales tax and other revenue fall off, even though it stretches credulity to think a partial jobs decline in 13.2 percent of our economy is creating an 8.5 percent drop in the whole state’s income. Seventy-five percent of all oil and gas jobs would have to have been eliminated to achieve such a number, and actual job losses in the mining sector to date are minimal. The one-time fund numbers have nothing to do with oil and gas price declines and everything to do with careless, short-term budgeting.
Using the 100 percent assumption on gross production taxes and a 40 percent estimate on other taxes depending on economic activity produces a conclusion that 30.4 percent of the budget shortfall is due to an oil and gas rate decline and that 70 percent is due to stupid, ideological, uncaring, boneheaded decision making by people concerned more about their re-election than Oklahoma’s interests. The 40 percent estimate is too low, you say? Then give the Teapublicans full license to use their excuse that it is all due to an oil bust, and still only 50 percent of the shortfall can be attributed to an “oil bust.”
Digging a hole with asinine decisions
As mentioned above, “elections have consequences.” In Oklahoma’s case, elections of ideologues rather than problem solvers have resulted in the implosion of the most basic and most important functions of government — educating our children and caring for those who cannot afford to care for themselves.
We have elected a band of nearly crazed, right-wing, poorly informed and apparently uncaring “leaders” who — under one-party rule — have no electoral downside to enacting policies that sound great in hyper-conservative town halls but are creating a hole out of which it will take decades to climb.
Not since the gubernatorial terms of Alfalfa Bill Murray have our decisions been so asinine — his born out of hatred for FDR, ours now born out of a hatred for Barack Obama.
May God grant our voters more wisdom in the next election.
