Throughout the 2023 legislative session, lawmakers discussed further reducing state revenue by cutting various taxes, with the understanding that any major tax and spending changes would only be passed as part of the state budget. As is typical, the state budget for the coming fiscal year (FY 2024, which starts July 1, 2023) was unveiled in the last few weeks of session. This year, however, the full FY 2024 budget package was not finalized and passed into law until July 31, 2023, which is highly unusual, particularly because the fiscal year began on July 1, 2023. Rather than passing the budget during the regular legislative session, lawmakers finalized the budget through a special legislative session that lasted throughout the summer.
The FY 2024 budget is $11.8 billion. Notably, it passed with far fewer tax cuts than was expected when the session began. The budget makes some investments in Oklahomans, including long-awaited agency increases and a promising new housing program. It also, however, includes several programs that prioritize corporations and the wealthy, rather than the inflation relief for low- and middle-income Oklahomans that lawmakers promised in the early months of the session.
The budget contains some revenue reductions, but fewer than anticipated.
Many of the tax cuts that were subjects of discussion throughout the legislative session would have primarily benefited the wealthiest Oklahomans – like shifting to a flat income tax, cutting the income tax, instituting economic “triggers” for future tax cuts, and creating tax credits for private school tuition. In Oklahoma, questions of tax cuts largely are decided as part of the behind-the-scenes budget negotiations. The only major revenue reduction that passed this session was the home- and private school voucher tax credit program.
While there weren’t wholesale revenue reductions this session, this new home- and private school tax credit is bad for the vast majority of everyday Oklahomans. The bill provides a refundable tax credit of between $5,000 and $7,500 (depending on income) for private school tuition, and a $1,000 credit for homeschool expenses. The program is capped at $255 million when fully phased in. Future lawmakers, however, could easily remove that cap and direct even more state revenue to home- and private schools. About 90 percent of Oklahoma students attend public school, and directing public tax revenue to nonpublic schools will inevitably impact the state budget for public education moving forward.
Other smaller revenue reductions include elimination of the franchise tax, which will cost the state $56 million annually without a requirement that businesses pass those savings to consumers. This is wholly unnecessary, as Oklahoma already has one of the lowest corporate tax rates. Lawmakers also eliminated the “marriage penalty” from the personal income tax, which will cost $15 million annually.
Lawmakers’ decision this session to not enact drastic revenue reductions will serve the state well in the future, as the state’s economic future remains uncertain. Oklahoma has a long history of volatile revenue, revenue failures, and budget cuts, which impeded the consistent delivery of high-quality services as revenue has fluctuated. Protecting revenue in times of plenty is vitally important for leaner years, especially given the State Question 640’s supermajority requirement to raise new tax revenue.
The FY 2024 budget also includes new programs and one-time investments.
In recent years, lawmakers have directed increasingly more funding towards specific projects. This year, they funded five specific programs. The first and largest is a $600 million investment in the newly created Legacy Capital Financing Fund, which will allow the state to self-finance for capital projects. In conjunction, they approved $349 million in projects that will be financed through the fund.
Lawmakers also directed $180 million to the newly created Perform Fund — which will provide tax rebates to companies that meet certain job creation requirements — and $145 million to be used for improvements at an industrial park, which is reportedly an effort to bring a new Panasonic battery plant to the state. Oklahoma leaders have been focused on luring large, multinational companies to the state for several years now, without much success. Rather than spending $325 million on new incentives, lawmakers could have provided inflation relief or made other targeted investments that helped low- and middle-income Oklahomans.
Finally, lawmakers did direct some funding to programs for everyday Oklahomans. They allocated $215 million to two newly created housing programs that would fund affordable housing development, provide gap financing, and help with downpayment assistance for first-time homebuyers. The budget also includes a $200 million appropriation to the Rural Economic Transportation Reliability and Optimization Fund to be used for highway repair in rural areas with “robust economic development.”
Funding increases for most agencies, and specific investments in some Oklahomans
Due to tense negotiations about the home- and private school voucher tax credit, education funding was unclear for much of the legislative session. In the end, the Department of Education will see a significant increase in FY 2024. The total budget for common education will be $3.97 billion, and teachers will see pay raises ranging from $3,000-$6,000 annually and six weeks of maternity leave. The Health Care Authority’s budget will include $30 million for provider grants for costs related to the health information exchange, $47 million for increased reimbursement for certain facilities, and $200 million for one-time payments to critical access hospitals. Lawmakers also dedicated $10 million to serving individuals with developmental disabilities who are waiting for services.
The original budget package included a requirement that the Department of Mental Health and Substance Abuse Services spend $12.5 million of the FY 2024 budget on mental health and substance abuse services as required by SQ 781 However, the bill requiring that investment was not ultimately part of the budget. The Department of Mental Health and Substance Abuse Services will still receive the money, but it is not required to spend it according to the requirements of SQ 781.
Most other agencies will also see some budget increase in FY 2024. Even with these investments, most agencies have lost significant buying power in the last decade, accounting for inflation and for population growth. Lawmakers should continue this new trend of increasing agency budgets, so that state agencies can truly meet the needs of Oklahomans.
Missed opportunities for low- and middle-income Oklahomans
Lawmakers failed to provide any significant assistance to low- and middle-income Oklahomans. Lawmakers could have modernized the Sales Tax Relief Credit, which hasn’t been adjusted in more than 30 years. This measure would have cost about $120 million and lowered taxes for 576,000 Oklahomans, nearly half of whom are senior citizens, according to analysis by the Institute on Taxation and Economic Policy and OK Policy. Rather than directing hundreds of millions to corporate incentive programs, lawmakers could have made a meaningful difference for hundreds of thousands of Oklahomans.
Looking ahead to next year’s budget
As has been the case in recent years, most of the major tax and spending decisions were made in the last few weeks of the legislative session. The results brought several initiatives and changes, most notably a significant investment in public education while at the same time creating potential long-term revenue issues for some school districts. It’s vitally important that lawmakers carefully monitor the implementation of this program to ensure it delivers on its goals without jeopardizing public education for the vast majority of Oklahoma students and families who will continue to rely on high-quality public schools.
This year’s budget saw increased funding for many agencies, new opportunities for affordable housing, and the addressing of some long-standing needs for Oklahoma residents. While these investments signal some progress, more work remains ahead. To help Oklahoma achieve its fullest potential, lawmakers should continue protecting state revenue and find ways to better support everyday Oklahomans.