In The Know: Oklahoma's creditworthiness imperiled by tax cuts

In The KnowIn The Know is a daily synopsis of Oklahoma policy-related news and blogs. Inclusion of a story does not necessarily mean endorsement by the Oklahoma Policy Institute. E-mail your suggestions for In The Know items to You can sign up here to receive In The Know by e-mail.

Today you should know that proposals to cut income taxes are threatening municipal bonds from Kansas and Oklahoma, which have been the safest among U.S. states for more than two years. Urban Tulsa Weekly discusses how inadequate tax revenues are creating mounting debt for the state. The push to eliminate state income taxes in favor of higher sales taxes in Missouri and Kansas looks unlikely to succeed.

The Senate passed a bill to reduce the top income tax rate to 4.95 percent immediately and then eliminate the income tax using automatic triggers. The OK Policy Blog has a guest post from Dr. Stephen Ellis on how tax cut boosters are misapplying economic theory. After contentious debate, a second attempt to override Gov. Fallin’s veto of a trailer park tornado liability bill failed.

At least 22 House floor amendments have been filed to Senate Bill 1433, better known as the Personhood Act. The Lost Ogle contrasts the very different coverage by NewsOK and the Texas Observer of an industry-sponsored fracking website. In a NewsOK editorial, Rev. Stan Basler questions whether the poor are receiving fair consideration from the Oklahoma Legislature.

The Number of the Day is how many feet above sea level is the highest point in Oklahoma, the Black Mesa. In today’s Policy Note, The Atlantic discusses how the legal reasoning of health care reform’s opponents could replace our democracy with “nanny judges.”

In The News

Oklahoma’s creditworthiness imperiled by tax cuts

Proposals to cut income taxes are threatening a winning streak for municipal bonds from Kansas and Oklahoma, which have been the safest among U.S. states for more than two years. Debt of Kansas and Oklahoma issuers has earned 7.79 percent and 7.32 percent, respectively, since the end of 2009, after adjusting for volatility, according to data compiled by Standard & Poor’s and Bloomberg through April 13. The risk-adjusted gains were the highest among 26 states tracked by S&P. Republican Governors Sam Brownback of Kansas, the biggest U.S. wheat exporter, and Mary Fallin of Oklahoma, home to two of the largest U.S. oil fields, have benefited from gains in commodity prices. They have proposed tax cuts to stimulate job growth and attract business. The plans portend a “risky” trend for municipal debt as state finances are still rebounding from the recession that ended in 2009, Chris Mier at Loop Capital Markets LLC in Chicago, said in an interview. The states “have nowhere to go but down” in terms of risk-adjusted performance, said Mier, Loop’s chief municipal strategist.

Read more from Businessweek.

Balanced budgets and Oklahoma’s mounting debt

State leaders love to crow that — unlike the feds — Oklahoma balances its budget. Yes, it does. But before you burst your buttons with pride, know this: it’s not because our elected officials are preternaturally disposed toward exceptional fiscal management and discipline. It’s actually because they have no choice: the state Constitution requires it. And what makes the self-congratulating, balanced-budget rhetoric even more hollow is that it helps hide a rather significant fact: Oklahoma government is billions of dollars in debt. Yes, billions — between about $2 billion and nearly $10 billion depending on how you define debt. Like every other state, Oklahoma sometimes borrows money to help finance capital projects (think: highways, public buildings and other infrastructure). It often does so by selling bonds to investors who are repaid with interest. Billions sounds like a lot — and it is — but when compared to other states, Oklahoma’s debt is, by most accounts, considered quite reasonable. There are reasons to fear, however, that it won’t always be so, despite our state leaders’ incessant anti-Washington, pay-as-you-go blather.

Read more from Urban Tulsa Weekly.

Bids to eliminate state income tax falter in Kansas, Missouri

The push to eliminate state income taxes in favor of higher sales taxes in Missouri and Kansas may soon be over for the year, officials in both states said Tuesday. Last week a judge threw out Missouri’s analysis of a petition aimed at putting an income-for-sales tax swap on the November ballot, a potentially fatal blow for that effort. And in Kansas, lawmakers say the tax reform package they’ll consider next week almost certainly will fall far short of the no-income-tax goal. Ending the income tax turned out to be “a big elephant to swallow,” said Travis Brown, a political consultant who has worked with anti-income tax forces in both states. Last year those forces were optimistic that Kansas and Missouri would top the list of states pursuing such a trade, in which taxpayers would see their income taxes eliminated but sales taxes increased and broadened to bring in revenue.

Read more from the Kansas City Star.

Senate passes measure to cut state income tax rate to 4.95 percent immediately, eliminate it with triggers

The Oklahoma Senate passed a measure Tuesday that would reduce the state’s top income tax rate to 4.95 percent from 5.25 percent. Additional reductions of 0.25 percentage points would be made if the state experienced 5 percent revenue growth in sales, use, motor vehicle and corporate income taxes. The trigger would lower the tax rate until it is eventually eliminated. The floor substitute for House Bill 3038 now returns to the House and then will go to a conference committee, said Sen. Clark Jolley, R-Edmond, the bill’s Senate author. Rep. Leslie Osborn, R-Mustang, is the House author. The measure would cost the state about $56 million in fiscal year 2013 and $144 million in fiscal year 2014. The bill passed the Senate by a vote of 31-15.

Read more from The Tulsa World.

Guest Blog (Steve Ellis): Evidence and Ideology: Beyond ECON 101

The debate about the degree to which economics supports drastic reductions in income tax rates in Oklahoma has gone through three stages. The latest move in this debate reflects an unfortunate misunderstanding of the role theory plays in the discipline of economics. Basic economic reasoning – ECON 101, if you will – is an elegantly systematized and formalized version of common sense, one that is extremely useful in framing and thinking through problems concerning human behavior. While it is arguably an indispensable tool for social scientists, it doesn’t follow that we can forget empirical evidence. By itself, ECON 101 doesn’t tell us what we want to know about proposals to decrease income tax rates. Granting that incentives matter, it isn’t clear whether anything on the table will provide net increases in incentives. As critics have pointed out, other taxes are likely to go up, especially at the local level.

Read more from the OK Policy Blog.

Attempt to override Gov. Fallin’s veto fails in House

In a they were for the bill before they were against it situation, dozens of GOP representatives switch positions to sustain the governor’s veto Oklahoma Speaker of the House Kris Steele On March 15, there was no debate. Not even a question was asked when a bill granting liability exemptions for trailer-park owners passed without a single nay vote. One month and a governor’s veto later, the same bill was debated for 90 minutes, ending in defeat. Speaker of the House Kris Steele, R-Shawnee, mustered up enough votes to block the override attempt and sustain Gov. Mary Fallin’s veto of House Bill 2296. It took a switch of 46 Republicans to prevent what might have been a political embarrassment for the Republican governor. The final tally was 47-50 to defeat the override. It was the first attempt by the Legislature to override a Fallin veto, and took at least two caucus meetings to shore up the votes.

Read more from OKLegalNews.

Personhood Act sees 22 Amendments before House vote

At least 22 House floor amendments have been filed to Senate Bill 1433, better known as the Personhood Act. Fifteen of the proposed 22 amendments to SB 1433 were filed by Republicans, including 13 by Rep. Doug Cox, a Grove physician. Cox’s amendments all deal with contraception, medical procedures and the administration of drugs, including the so-called morning-after pill. Rep. Jeannie McDaniel, D-Tulsa, filed three amendments, including one requiring the state to make available health insurance to mother and embryo from conception through the resulting child’s first year of life. McDaniel said the coverage should be offered through the state’s high-risk pool, which now covers children from birth to 1. Rep. Ed Cannaday, D-Porum, is offering an amendment that would require doctors to issue “certificates of conception” to women once pregnancy is confirmed. Cannaday said the certificates will be necessary to verify the existence of a person in order to protect its rights. Cannaday acknowledges his amendment is somewhat tongue in cheek, but he says it raises valid questions – how is the moment of conception defined and exactly to what “rights, privileges and immunities” is an embryo entitled.

Read more from The Tulsa World.

The new Oklahoman energy beat is off to a good start

Last March, the Oklahoman announced it was creating a new energy beat “to provide deeper and more insightful coverage of one of the state’s largest industries.” At the time, we cautiously took the Oklahoman for their word. Maybe the expanded coverage really would lead to less PR fluff and better reporting on the industry that drives and controls our state’s economy. So far, the results have been pretty good. Just check out this deep and insightful story in Friday’s paper about the first anniversary of, an industry created website where companies must disclose the fluids used in fracking…  We’re just kidding. That article didn’t appear in the Oklahoman. It’s actually an excerpt from an article about fracking that appeared in the March issue of the Texas Observer. The Oklahoman would never publish something like that.

Read more from The Lost Ogle.

Plight of the poor due serious consideration in Oklahoma Legislature

The polarization and the stigmatization that characterize public discourse in our time complicate our ability to think of ourselves as one people, equally citizens in our society. An example before the state Senate is House Bill 2388, which would require that every Temporary Assistance for Needy Families (welfare) applicant produce a drug screen with a negative result as a condition precedent to receiving benefits. I believe we all hope that people will only seek public assistance if they are desperate. Desperate people typically are trying to keep utilities on, gas in the car or bus tokens and food on the table. Many needs compete for the last $30, the alleged cost of the drug test. Even TANF is only a stopgap remedy with a work acquisition requirement and five-year lifetime limit. It’s not life on the dole. Care for the poor is one of the most supreme ethical duties set forth in the Bible. For that reason, some faith groups are concerned that the plight of the poor be given serious consideration at the Capitol. The poor don’t have lobbyists as such. They don’t represent the potential for significant campaign contributions. Many probably don’t vote; some can’t.

Read more from NewsOK.

Quote of the Day

This has got to be one of the more worrisome trends in state and local finance. If this gains acceptance, it’s an experiment in state and local finance at a very vulnerable time.
-Chris Mier, chief municipal strategist at Loop Capital Markets LLC, on tax cut plans in Oklahoma and Kansas that would imperil the states’ creditworthiness

Number of the Day

4,973 feet

Number of feet above sea level of the highest point in Oklahoma, the Black Mesa, located in the panhandle in northwestern Cimarron County.

Source: Oklahoma Tourism & Recreation Department

See previous Numbers of the Day here.

Policy Note

It’s not about broccoli!: The false case against health care

The more fundamental problem with the challengers’ method is that it asks judges to impose new constitutional limits based on their own policy preferences about how to treat various hypotheticals. This method is even worse than directly asking judges to create new limits based on their policy preferences, because it never confronts the question of whether the health insurance mandate itself is so clearly a bad policy. Instead, it invites the justices to create a new limit based on their policy preferences about hypothetical other laws like the broccoli mandate–laws that Congress is likely to never enact–and then applies that limit to laws like the health insurance mandate that are far less silly as a policy matter. The deepest problem with the challengers’ method is thus the parade of horrible judicial decisions that would be unleashed by allowing judges to create new constitutional limits unsupported by constitutional text, history, or precedent in order to preclude imaginary laws no one wants to enact.

Read more from The Atlantic.

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Gene Perry worked for OK Policy from 2011 to 2019. He is a native Oklahoman and a citizen of the Cherokee Nation. He graduated from the University of Oklahoma with a B.A. in history and an M.A. in journalism.

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