Now that the Oklahoma Supreme Court has thrown out a key part of the budget passed by lawmakers earlier this year, it’s clear the lawmakers must return to the Capitol for a special legislative session to fix the problem. Oklahoma faces a major crisis if lawmakers don’t replace the cigarette fee revenues thrown out by the court that provided more than $200 million to cover basic health care and protections for vulnerable children, seniors, and people with severe disabilities. The court has also not yet announced their decision on whether partially removing a sales tax exemption for auto sales was constitutional; if they rule that it wasn’t, another $100 million plus will disappear from the budget.
Some lawmakers and anti-tax activists have suggested that we can wait until the regular session in February to fix the problem. That’s a bad mistake for a few reasons. First, even if agencies can get by without cuts until then (which is not at all a sure thing), it would create huge uncertainty and fear among those Oklahomans who depend on the three agencies most affected by the loss of the cigarette fee. That means foster families and children, low-income seniors who rely on state nutrition sites, and people with mental illness would be living with months of anxiety over whether their services will survive.
In addition, the longer that lawmakers wait to pass new revenue options, the fewer options they will have to meaningfully improve the current budget. Making up a $215 million budget hole becomes enormously more difficult if lawmakers procrastinate on finding solutions until the fiscal year is almost finished. For example, the tobacco fee was supposed to go into effect in late-August. Every month that goes by without restoring it as a tax works out to roughly $21.5 million in lost revenues. Even if lawmakers can approve it as a tax in February, it cannot take effect for another 90 days. The current budget year would be nearly over by the time the tax even begins, so it will generate very little money to help fill the budget hole. The same applies to many other revenues they might consider, such increasing the gas tax, increasing the alcohol tax, or ending sales tax exemptions.
When it comes to income taxes, the options would be even more limited in February. It’s likely that any changes to the income tax code to increase revenue would not be able to go into effect until the next tax year. In special session, lawmakers could pass changes that go into effect in January 2018, but waiting until February means the new laws wouldn’t become effective until 2019 and thus would be useless for the current budget. Promising reforms like removing the capital gains tax break, capping itemized deductions, or creating a high-income surcharge would all be off the table for FY 2017.
For every week that goes by without a solution, the problem becomes even harder to fix. Waiting until regular session to balance the budget would mean that lawmakers will have to rely solely on even deeper cuts to fix the hole they created. And even before the cigarette fee was thrown out, state leaders admitted that the budget they had passed was not nearly enough to fund the services that Oklahomans expect.
Lawmakers are constitutionally obligated to pass a balanced budget each year. Now that the court has ruled, we know that this year they haven’t finished their job. If lawmakers don’t return in special session to balance the budget and protect core services, they will have failed in one of the most basic things that we elected them to do. Unfortunately, it’s regular Oklahomans who will pay the price.