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• OK Policy Advocacy Alert: Tell lawmakers to oppose tax cuts that benefit the wealthy and risk critical services
With seven weeks remaining before mandatory sine die adjournment on May 30, appropriations committee members and leadership are now focusing on the Fiscal Year 2026 budget, which starts July 1, 2025. Senate Appropriations Chair Chuck Hall, R-Perry, said recently that appropriators are considering a withdrawal from the Rainy Day Fund to shore up FY26 appropriations.
The current balance of the Rainy Day Fund is $1.3 billion, and three-eighths of it is available for appropriation as provided in the Oklahoma Constitution because the General Revenue Fund is projected to decline by $38 million from the current fiscal year. Earlier in the session, Senate Appropriations Subcommittees recommended $443 million in new spending for FY26.
New spending for the upcoming year is needed for several reasons. First, things that have increased in costs, such as the teachers’ flexible benefit allowance payments and the ad valorem tax exemption reimbursement for counties must be funded just to stay even with statutory obligations. It also appears the state will be required to pick up about $125 million in Medicaid expenses due to economic factors that have changed the ratio of federal/state sharing of Medicaid costs.
Also, there are other agency expenses that were funded in FY25 with cash or “one-time” funding that now must be moved into the agencies’ base budgets. In addition, there are programs and initiatives being phased in over several years, or were funded for only part of the year, and new funding is required to continue the programs or complete the phase-in. Finally, there are new programs, like Gov. Stitt’s business court proposal, that must be funded if they are to happen.
The legislature basically sequestered over $3 billion in unspent revenues over the past several years in addition to the $1.3 billion in the Rainy Day Fund, for total cash on hand in various accounts of $4.4 billion. It makes sense that, in a year with a shortfall due primarily to elimination of the state sales tax on groceries and the projected additional costs of the private school voucher program, some of the surplus funds should be used to keep our state government moving in a positive direction. If not now, when?
On another fiscal note, headed in the opposite direction, the Senate last week passed House Bill 1539 that would phase out the state income tax and sent the bill back to the House for acceptance or rejection of amendments. HB 1539 would trigger an income tax cut any year the state saw a “qualifying cumulative revenue growth” of $300 million or more, eventually phasing out the income tax.
The individual income tax is the largest single source of state revenue, accounting for 41 percent of the revenue. Having seen the effect on this year’s budget of a large tax cut last year, it will be interesting to see where the legislature finally lands on further eroding the state’s revenue base.
