In building next year’s budget, legislative leaders and Governor Mary Fallin faced the challenge of starting with nearly $200 million less revenue than this year. Ultimately, the FY 2015 budget ended up at nearly the same amount as this year. In order to get the numbers to balance, the budget agreement scrounged together nearly $300 million in one-time revenue from nearly 30 different funds, including cash reserves, agency revolving funds and other state funds (see the full list here).
The use of one-time revenues to fund ongoing budgetary obligations has drawn concern from OK Policy, Treasurer Ken Miller, and others, particularly for building automatic holes into future year budgets. There has been less attention paid to whether the use of these one-time revenues for general appropriations was legal or constitutional.
One especially problematic provision of the budget has gone largely undetected until now — the diversion of nearly $8 million from the Oklahoma Higher Learning Access Program (OHLAP), also known as Oklahoma’s Promise scholarships. This diversion could cause a popular pathway to college to run out of money for low- and moderate income students. It also seems to rest on very shaky legal footing.
OHLAP is the scholarship program that provides free college tuition to Oklahoma students with family income under $50,000 a year who achieve a certain high school GPA and meet various other criteria. The program currently serves some 19,000 students at a total annual cost of just over $60 million.
OHLAP is funded differently than any other state government program. To ensure that the program is fully funded, the legislature in 2007 guaranteed OHLAP “off-the-top” state income tax collections. Under statute (Title 62-34.87.2), each December, the Board of Equalization certifies how much money will be required next year for OHLAP scholarships based on estimates provided by the Regents for Higher Education. The certified amount is then deducted from income tax revenues available for the General Revenue Fund and deposited in the program’s Trust Fund. This year, the Board of Equalization approved the Regents’ request for $57 million in income tax revenue from the GR fund.
This year as part of the General Appropriations bill (Section 144), the Legislature directed the State Board of Equalization to reduce the amount of income tax revenues going to the Trust Fund in FY 2015 by $7.9 million, instead “requiring that the Oklahoma Higher Learning Access Trust Fund be used for any additional monies to fund the Oklahoma Higher Learning Access Program for fiscal year 2015.” Of the total reduction, $7.5 million became part of the total funds appropriated in the budget bill. (1)
This maneuver is highly problematic in several respects. First, reducing OHLAP funding by $7.9 million in FY 2015 is expected to leave the program short of funding needed to meet its obligations to students before the end of next year, according to staff with the Regents for Higher Education. The Regents were not consulted in this decision. Although the size and timing of the shortfall isn’t yet known, the Regents expect to need a supplemental appropriation to avoid breaking the promise made to recipients of Oklahoma’s Promise.
Secondly, this maneuver subverts the precise intent of the 2007 law, which was to keep the Legislature out of the annual funding process for OHLAP. If this precedent stands, the Legislature could make it an annual practice to adjust the amount of funds allocated to the program based on other needs and priorities.
Finally, it is not clear that the Legislature has the authority, in a non-codified appropriations bill, to instruct the Board of Equalization to take a given action. The Board of Equalization is a constitutionally-created board composed of six elected officials and the Secretary of Agriculture. The Legislature grants the Board various responsibilities, including the responsibility to certify funds available for appropriation. The Legislature by its actions during session can affect how much revenue the Board will certify, but instructing the Board to adjust the amount of funding, as in SB 2127, appears to be an unprecedented and legally questionable expansion of legislative power.
Even in a difficult budget year, the Legislature had options to generate additional revenue to meet critical budget needs. Tampering with a trust fund and leaving the state’s premiere college scholarship program short of money was about the worst possible approach.
The Board of Equalization will meet on June 16th to make a final FY 2015 certification based on legislative changes enacted during this past session.
(1) Technical Note: Since the money comes from the General Revenue fund, the legislature can only appropriate 95 percent of certified revenue. Hence, $7,894,737 was diverted from the Trust Fund to GR to allow for $7,500,000 in additional funding.