Special Session adjourned on Friday November 17th following eight weeks trying to pass a new budget to fill the hole triggered by the Supreme Court ruling striking down the smoking cigarette fee passed in May. Gov. Fallin quickly used her line-item veto authority to veto all but five sections of the General Appropriations bill sent to her that morning, stating that the bill “does not provide a long-term solution to the recurring budget deficits”. She announced she would call a new special session “in the near future.” On December 7th, Gov. Fallin set the second special session for December 18th but postponed issuing an executive order, or official call.
Our Frequently Asked Questions has been updated to reflect the outcome of the special session and what transpired over the previous eight weeks, as well as what may happen next.
(Last Updated: Nov. 29th).
What did Gov. Fallin do with the budget?
On Nov. 17th Gov. Fallin vetoed all but five sections of the General Appropriations bill, HB 1019, sent to her earlier that day (see her veto press release here). Among the sections of HB 1019 that she vetoed is one (s. 170) that repealed the General Appropriations bill (SB 860) from the regular 2017 session. The veto of the repealer provision means that all of the initial FY 2018 appropriations bill remains in effect, except for the sections appropriating $214 million to the three health agencies from the unconstitutional smoking cessation fee. This makes the remaining, non-vetoed sections of HB 1019 effectively an addendum to the GA bill passed in regular session.
The five sections of HB 1019 that were left standing are those that:
- Transferred $80 million from the County Improvement for Roads and Bridges Fund (CIRB) to the Special Cash Fund (s. 146);
- Appropriated money from the Special Cash Fund to the Oklahoman Health Care Authority ($67 million in s. 76), the Department of Mental Health and Substance Abuse Services ($88.3 million in s. 82) and Department of Human Services ($79.0 million in s, 91);
- Appropriated $30 million to the State Health Department from prior year General Revenue (s. 169)
The $80 million from the County Improvement for Roads and Bridges Fund was transferred to the Special Cash Fund and has been divided between the three agencies whose appropriations were maintained in HB 1019. (For a detailed discussion, see below: “Where does the line-item veto leave state agencies?”
With the Governor’s actions, a total of $133.3 million in one-time revenue will have been appropriated in Special Session.
- $23.3 million from the Rainy Day Fund to the Department of Mental Health and Substance Abuse Services
- $80 million in Special Cash from CIRB divided between OHCA, DMHSAS and DHS;
- $30 million in prior year GR to the State Health Department
There is also $48.7 million in additional FY 2018 General Revenue collections that are expected to be generated by HB 1085, which raises the gross production tax on “legacy wells”. That money was spread out among various agencies in HB 1019; the Governor’s line-item veto of HB 1019 means that the $48.7 million remains available for appropriation.
Where does the line-item veto leave state agencies?
The three agencies affected by the loss of $214 million in smoking cessation fee funds – Department of Mental Health and Substance Abuse Services, Oklahoma Health Care Authority, and Department of Human Services – saw their monthly allocations cut beginning in October. In order to maintain a balanced budget, the agencies announced massive cuts they would be forced to enact effective December 1st without additional funding from the Legislature.
The new General Appropriations bill (HB 1019) passed by the Legislature in the final days of special session largely filled the combined $214 million hole for the three agencies. The Governor’s line-item veto of HB 1019, along with money appropriated in an earlier bills from the Rainy Day Fund, provided a combined $103.3 to the three agencies, leaving them $110 million below their initial appropriations.
- Oklahoma Health Care Authority stood to lose $70 million in state funds – 7 percent of its total state appropriation – by the end of the year. In November, OHCA’s Board approved reimbursement rate cuts of 9 percent to most providers, and 4 percent cuts to nursing facilities, that would take effect in December without additional appropriations. OHCA received $22.9 million from the non-vetoed sections of HB 1019, leaving it $47.1 million below its initial FY 2018 appropriation. OHCA has announced it will move ahead with 6 percent cuts in reimbursement rates to most providers and 1 percent cuts to nursing facilities, along with eliminating Medicare crossover coinsurance and deductible payments for nursing facilities, effective January 1st.
- Department of Mental Health and Substance Abuse Service faced the loss of $75 million in state funds, equivalent to nearly one-fourth of its total appropriation. DMHSAS has announced the termination of all outpatient mental health services, except medication, beginning December 1st if funding was not restored. DMHSAS received $23.3 from the Rainy Day Fund in HB 1081 and $30.2 million from the non-vetoed sections of HB 1019, leaving it $21.5 million below its initial FY 2018 appropriation. The Department has now rescinded the scheduled cuts, stating that the additional funding will “carry the agency into the spring, but will still involve cuts to vital treatment services if a funding solution is not found.”
- Department of Human Services faced the loss of $69 million, or 10 percent of its state appropriation. DHS released a plan that includes cuts to a wide range of services for children, seniors, and individuals with disabilities and sent out letters to over twenty thousand clients notifying them that the program providing them in-home care will be terminated December 1st. This prompted the ACLU to file a lawsuit challenging the termination of services. DHS received $27 million from the non-vetoed sections of HB 1019, leaving it $42 million below its initial FY 2018 appropriation. The Department has now rescinded the scheduled cuts and has sent out notices to providers and clients to that effect. Without additional funds, DHS is expected to provide notice in early February of a new round of cuts to take effect in March. The ACLU of Oklahoma previously filed a lawsuit, which remains ongoing, challenging DHS’ authority to terminate home- and community-based services for individuals with disabilities.
The line-item veto of the bulk of HB 2019 leaves funding for all other state agencies at their initial FY 2018 levels – with the exception of the Health Department, which received a $30 million supplemental appropriation.
What happens next?
The Governor has announced her intention to call a second special session beginning December 18th to approve recurring revenues and find long-term solutions to the state’s budget problems. However, after having failed twice – in regular session and in special session – to muster the votes for new revenues, it’s not clear that lawmakers will be eager to try again, especially with the 2018 regular session fast approaching. There are three main arguments for reconvening in special session:
- Legislators know they must find additional funds for the three health agencies that have been left with a cumulative $110 million shortfall (see above: “Where does the line-item veto leave state agencies?”). However, that task could be delayed until the start of regular session in February;
- The Governor’s action on HB 2019 transferred $80 million out of the County Improvement for Roads and Bridges (CORB) Fund, which is on top of $50 million taken from the fund in May. These transfers threaten delay or postponement of transportation projects that have been approved as part of county five-year plans. This will create pressure to find new revenue to restore at least some of CIRB’s funding;
- There is strong popular support for a comprehensive revenue deal and lawmakers fell only five votes short of passing a large revenue package in special session (See below: “What happened over the course of Special Session: Week 7”). Lawmakers may feel pressure from their constituents to show that they are up to the challenge of coming together to solve problems.
If no agreement is reached on a new budget, the House and Senate could just gavel in and immediately adjourn without conducting any business.
What was in the budget sent to the Governor?
The Legislature passed a new General Appropriations bill (HB 1019) that provided total funding for FY 2018 of $6.818 billion, which was $30.0 million less than the initial FY 2018 budget. The new budget provided:
- Cuts of 2.44 percent to most state agencies compared to initial FY 2018 funding. Since we are already five months into FY 2018, agency allocations would be some 4.2 percent less than anticipated for the remainder of the year.
- The three agencies that were directly affected by the loss of smoking cessation fee revenues and that were set to implement massive cuts in services beginning December 1st received smaller cuts. The Oklahoma Health Care Authority received a $15 million (1.46 percent) cut; the Department of Human Services received a $4 million (0.57 percent) cut and the Department of Mental Health and Substance Abuse Services received a $3.68 million (1.12 percent) cut.
- Twelve agencies received no cut compared to their initial funding: Common Education, Land Commission, School of Science and Math, Election Board, Tax Commission, Health Department, Rehabilitation Services, ABLE Commission, Corrections, Medicolegal Investigations, Court of Criminal Appeals, and Indigent Defense System. Two other agencies received smaller cuts – Juvenile Affairs (0.55 percent) and District Attorneys Council (0.5 percent).
- The Health Department received a $30 million supplemental appropriation.
See our comparison of overall and agency-level funding that looks at funding trends since FY 2009.
In addition to $30 million in net overall cuts, the new budget included the following additional revenue (all revenues were contained in the GA bill, HB 1019, unless otherwise noted):
- $23.4 million from the Rainy Day Fund (HB 1081);
- $53 million in prior year General Revenue that carried over from FY 2017;
- $30 million transferred from the County Improvement for Roads and Bridges Fund (CIRB);
- $30.2 million from the Unclaimed Property Fund and agency revolving funds;
- $48.5 million from accelerating the expiration of a tax break on horizontal wells drilled prior to July 2015 (“legacy wells”) (HB 1085). Production from these wells will now be taxed at 7 percent rather than 4 percent once the new law takes effect rather than as of July 2019.
Overall, the new budget used an additional $136.6 million in one-time revenues; combined with one-time revenues in the initial budget, the total is $510 million.
Other components of the comprehensive revenue plan that failed to gain 76 votes during Special Session (see below) – including increases in tobacco taxes and motor fuels tax, an increase in the gross production tax on new wells, restoration of the state earned income tax credit, and raises for teachers and state employees – were not part of the final budget.
Click here for OK Policy’s statement on the budget, “New budget is a squandered opportunity of massive proportions”.
What happened over the course of special session?
Week 8: After the failure of the comprehensive budget plan in Week 7, House and Senate leaders began to move forward with a new budget that relied on some $140 million in additional cash, a higher gross production tax on “legacy wells,” and cuts of up to 2.44 percent on most agencies to fill the $215 million shortfall. (See our statement on the plan here). A new General Appropriations bill, HB 1019X narrowly passed out of House and Senate committees Tuesday. It passed the full House, 56-38, on Wednesday and the Senate 29-16 on Friday. Click here for agency-level appropriations under HB 1019. The House and Senate then adjourned special session sine die. The Governor signed the bill raising the gross production tax on legacy wells (HB 1085) while using her line-item veto authority to veto all but five sections of HB 1019 on Friday evening
Week 7: On Monday, November 6th, the Governor signed HB 1081, appropriating $23.2 million to the Department of Mental Health and Substance Abuse Services. Also on Monday, the Senate met and passed HB 1035 by a bipartisan vote of 37-5. HB 1035 includes a $1.50 cigarette tax increase, a $0.06 fuel tax increase, and a 4 percent gross production tax on new wells. The bill is the cornerstone of a comprehensive budget plan, also dubbed Plan A+ and the Grand Bargain, that would allow for pay raises for teachers and state employees and restoration of the state earned income tax credit. An identical measure to HB 1035, HB 1054, passed the full House 71-28 on Wednesday, but fell 5 votes short of the 76 votes needed to pass a revenue bill. HB 1054 was held on a motion to reconsider, which expired on November 13th.
Week 6: On Monday, Oct. 30th, the House met in full session and passed several bills that would appropriate $106 million from the Rainy Day Fund and carryover funds to the three health and human service agencies affected by the lost smoking cessation fee revenue. On Tuesday, the Senate passed one of those bills, HB 1081, appropriating $23.2 million to the Department of Mental Health and Substance Abuse Services. Also on Tuesday, the House passed a bill (HB 1085) to raise the gross production tax to 7 percent on certain existing wells that are now taxed at 4 percent, a measure projected to raise $50 million in FY 2015. On Friday, Speaker McCall issued a press release urging the Senate to pass the House’s revenue measures. The Senate still appears committed to holding out for the comprehensive budget proposal that stalled in Week 5 (see below).
Week 5: On Monday, Oct. 23rd Gov. Fallin and Republican legislative leaders announced a budget plan that includes various revenue increases but does not raise the gross production tax or income tax, which Democratic legislators have insisted on (see next section). Their plan also included raises for teachers and state employees and restores the refundable portion of the state earned income tax credit. Four bills to implement the Republican budget plan passed out of JCAB on Tuesday. The main revenue bill – HB 1035 – was heard by the full House on Wednesday; the 54-44 vote in favor was less than the required 75 percent support for a revenue bill. On Thursday, the Senate passed a bipartisan resolution calling on the House to amend HB 1035 to raise the gross production tax on new wells to 4 percent from 2 percent. House and Senate committees also passed a number of “Plan B” revenue bills that require only a simply majority. On Friday, HB 1054, which was a new version of HB 1035 that included a higher initial gross production tax rate of 4 percent for 36 months, failed on a 11-11 vote in the House JCAB committee, with all but one Democrat joining 5 Republicans in rejecting the measure.
Week 4: With the Capitol shut down for electrical upgrades, there were no legislative meetings the week of October 16th.
Week 3: There were no legislative meetings the week of October 9th. At the end of the week, Gov. Fallin issued a press release stating that she is “disappointed in the lack of progress” in reaching an agreement.
Week 2: There were no legislative meetings the week of October 2nd.
Week 1: The Governor called for the Legislature to convene in special session that began Monday, September 25th. House and Senate members introduced a total of 196 bills and resolutions prior to start of session. Most bills were filed as “shell bills” authored by the chairs of the Appropriations committees in the House and Senate or by the House Speaker. Shell bills cover some broad topic but do not yet contain specific language, which must be added later in the process. Most budget and tax bills were assigned to the Joint Committee on Appropriations and Budget (JCAB) or to the Rules Committee.
Both chambers met briefly on Monday, September 25th and Tuesday, September 26th to allow all bills to be introduced. Several JCAB meetings were scheduled throughout the week; however, the only bill heard in JCAB was HB 1099, a bill to provide for a $1.50-per package cigarette tax, which passed both the House and Senate committees on Sept. 26th.
On Wednesday, Sept. 27th, House Speaker Charles McCall announced that the House would recess and would not meet again that week, and the Senate followed suit. The House Rules Committee met on Thursday, Sept. 28th and approved two bills: HB 1093 a measure to add new verification requirements for the Medicaid program, and HB 1074, a measure to exempt semi-trucks and other vehicles from the newly-enacted motor vehicles sales tax.
What are the possible outcomes of special session?
Over the course of special session, four outcomes all seemed possible. With the Governor’s line-item veto of the budget bill passed in Special Session, some new variations of these options will again shape the debate in a second special session and/or in the 2018 regular session.
- Excise Taxes Only: On October 23rd, Republican leaders unveiled a plan that included a mix of increased excise taxes on tobacco, motor fuels and alcoholic beverages that would take a 3/4 vote to pass but did not provide for more progressive revenue sources that Democrats have insisted on (see section above for more details). The Republican plan passed the House on Oct. 25th but failed to gain the 3/4 support needed for a revenue bill. The plan also included pay raises for teachers and state employees, and restored the refundable state earned income tax credit.
- The Bipartisan Bargain: Under this scenario, both parties agree to multiple revenue sources that fully or mostly fills the $214 million budget hole, avoids further budget cuts, and provides a teacher pay raise. One initial proposal included an increase in the tobacco tax and motor fuels tax, a higher initial tax rate on gross production tax, a new top income tax rate on high income earners, the expansion of the sales tax to selected services, and the end of the sales tax exemption for wind turbines. This proposal failed to gain approval from legislative Republicans. In late October, Senate Republicans and Democrats came together to support a 4 percent initial gross production tax rate along with the other components of the excise taxes plan discussed above. This comprehensive plan, also dubbed Plan A+ or the Grand Bargain, initially failed to pass out of a House committee but passed the Senate as HB 1035 on November 6th on a 37-5 vote. The House took up an identical measure, HB 1054, on Nov. 8th; it fell five votes short of gaining the three-quarters supermajority needed to pass a revenue bill. (see above, What has happened so far in special Session, Weeks 5 and 7).
- The Simple Majority: Following the narrow failure of the bipartisan bargain, Republican leaders put together a plan that included revenues that only require a simple majority and thus do not need support from Democrats. This approach – now referred to as “Plan B” or “cash and cuts” – was favored from the start by House Republican leaders but was resisted by Senate leaders and the Governor, who are averse to increasing next year’s budget hole. In the version announced November 13th, the plan raises $185 million in additional revenue by tapping the Rainy Day Fund and agency revolving funds, using carryover funds from last year, and raising the gross production tax on wells currently taxed at 4 percent. It also includes $60 million of budget cuts, with most agencies cut 1 – 2.5 percent, but some agencies exempted. Click here for agency appropriations under HB 1019. Governor Fallin promised to veto any budget that includes cuts to state agencies; on Nov. 8th, after the failure of HB 1054 in the House, she pledged to veto a budget bill with “draconian cuts”. On Nov. 17th she made good on her veto promise by striking down all but five sections of HB 1019.
- The Doomsday Option: If a new budget isn’t passed in special session, the full $214 million cut would be absorbed by the three health care agencies, which would also lead to the loss of hundreds of millions in matching federal funds. As more time passes without an agreement, these agencies are beginning to move forward with enacting cuts that will begin to take effect December 1st (see next section).
What have the agencies affected by the loss of smoking cessation fee revenue done?
The three agencies affected by the loss of $214 million in smoking cessation fee funds – Department of Mental Health and Substance Abuse Services, Oklahoma Health Care Authority, and Department of Human Services – have been required to submit revised budgets based on not receiving those revenues. The agencies saw their monthly allocations cut beginning in October. In order to maintain a balanced budget, the agencies have had to move forward with cuts they will be forced to enact beginning December 1st without additional funding from the Legislature. UPDATE: Bills passed in Special Session provided $103.3 million in cash to the three agencies, leaving them $$111 million below their initial funding levels. The Governor’s press release stated:
Her action will provide funding for the short term for three health care agencies that were facing severe cuts because they were to receive most of the $215 million earmarked in a proposed cigarette cessation fee, which was struck down as unconstitutional earlier this year. The Department of Mental Health and Substance Abuse Services, the Department of Human Services and the Oklahoma Health Care Authority were facing cuts unless revisions were made in the current fiscal year budget.
“My action avoids immediate health and human services cuts and provides time for legislators to come back and approve revenue proposals that can provide a permanent fix,” Fallin said
- Oklahoma Health Care Authority stood to lose $70 million in state funds – 7 percent of its total state appropriation – by the end of the year. OHCA has already begun the process of enacting 9 percent cuts in reimbursement rates for most providers (long-term care facilities would be cut 4 percent). The cuts will go into effect December 1st unless the agency’s revenue picture changes. OHCA’s Board approved these cuts on November 9th. OHCA received $22.9 million from the non-vetoed sections of HB 1019, leaving it $47.1 million below its initial FY 2018 appropriation.
- Department of Mental Health and Substance Abuse Service faced the loss of $75 million in state funds, equivalent to nearly one-fourth of its total appropriation. DMHSAS has announced the termination of all outpatient mental health services, except medication, beginning December 1st if funding is not restored. The process of notification to providers affected by cuts will begin November 1st. DMHSAS received $23.3 from the Rainy Day Fund in HB 1081 and $30.2 million from the non-vetoed sections of HB 1019, leaving it $21.5 million below its initial FY 2018 appropriation.
- Department of Human Services faced the loss of $69 million, or 10 percent of its state appropriation. DHS has released a plan that includes cuts to a wide range of services for children, seniors, and individuals with disabilities beginning as early as December 1st. DHS has sent out letters to over twenty thousand seniors and individuals with disabilities notifying them that the program providing them in-home care will be terminated December 1st. DHS received $27 million from the non-vetoed sections of HB 1019, leaving it $42 million below its initial FY 2018 appropriation.
Why is the Legislature in special session?
In August, the Oklahoma Supreme Court struck down a bill (SB 845) passed by the Legislature in May that assessed a $1.50-per-package cigarette fee. The Court ruled that the bill violated the constitutional requirements for “revenue bills,” including that they must be approved by a 3/4ths vote of the Legislature. The ruling left a $214 million hole in the budget of three state agencies that had been set to receive the smoking cessation fee money: the Department of Mental Health and Substance Abuse Services ($75 million), Oklahoma Health Care Authority ($70 million), and Department of Human Services ($69 million). See “What has been the impact of failing to reach a budget agreement” above for a discussion of how agencies are being affected by the loss of smoking cessation fee revenue.
Governor Fallin responded to the Supreme Court ruling by calling a Special Session for September 25th.
What issues can be addressed in special session?
A special session is restricted to those matters specified in the Governor’s call; however, the Governor may amend the call during special session. In her Executive Order calling the 2017 special session, Governor Fallin recommended that lawmakers:
- Address the immediate budget shortfall created by the loss of the $215 million cigarette fee revenue.
- Have the option to address a long-term solution to continuing budget shortfalls.
- Address the need for more consolidation and other efficiencies in all areas of state government.
- Clarify intended exemptions to the new 1.25 percent sales tax on vehicles.
- Address a needed pay increase for K-12 public school teachers.
Since then the Governor amended the call of special session to include:
- State employee pay raise.
- Low-income tax relief (refundability of the EITC)
- Supplemental funding for the State Department of Health
Other proposals are not within the purview of the special session.
How long will special session last?
There is no constitutional limit on the length of special sessions. However, a special session called during one Legislature cannot extend past the swearing in of the next Legislature (January 2019 in the current case). Special Sessions can run concurrently with regular sessions. The Legislature may adjourn without acting on the issues that it has been asked to address
If lawmakers do reach agreement on measures to pass in special session, it will take a minimum of five days for bills to be introduced, considered, and passed. Also, the Constitution (Article V, Section 33) prohibits revenue bills from being passed in the last five days of session, so the special session may need to be held open for an additional week after any revenue bills are approved.
The House and Senate adjourned the first special session on November 17th. After vetoing most of the new budget passed by the Legislature, Gov. Fallin promised to call a second special session “in the near future.”
What is the cost of Special Session?
Legislators are entitled to per diems for all days they are in session, but only on days when each Chamber actually convenes. The daily cost has been estimated to be about $30,000. Legislative leaders have said they will absorb the cost of special session from their existing budgets.
Where can I find bills filed in Special Session?
You can look up bills from the Legislature’s website under the Legislation tab. Be sure to choose 2017 Special Session, which is currently the default option.
What can I do to have an impact on lawmakers in Special Session?
We encourage Oklahomans to contact your own two legislators, the House Speaker, the Senate President Pro Tem and the Governor to insist that they use Special Session to find a fair mix of recurring revenues needed to avert deeper cuts, invest in key priorities, and put the budget on a sustainable path. You can find all the resources you need from the advocacy alert on OK Policy’s website and from Together Oklahoma. The Save our State Coalition has created a Blueprint for a Better Budget that lays out a comprehensive budget plan.