OKPOLICY.ORG
On March 6, 2020, Oklahoma reported its first confirmed case of COVID-19 and declared a statewide emergency 10 days later. As the pandemic now enters its third year, Oklahomans continue grappling with the impact of lives lost and the immense disruptions it has created. OK Policy will be reflecting on the COVID-19 pandemic’s impacts and challenges. Our hope is that this will highlight opportunities for collaborative decision-making, future improvements, and prosperity for all Oklahomans.
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Oklahoma is in a unique position this year to make a downpayment on the future of our state. Through public investments and targeted tax relief for low-income Oklahomans, state leaders can use this year’s larger-than-usual state budget to make long-lasting, positive change. Premature tax cuts will set the state up to fail; investments will allow us to thrive.
Oklahoma’s fiscal outlook is rosy — for now.
The state Board of Equalization met in February to certify Oklahoma’s revenue estimates for the fiscal year beginning July 1, 2022. Legislators will have nearly $10.5 billion to spend this session. About $1.2 billion of that is from “carryover and special cash” and the cash flow reserve fund, leaving about $9.2 billion in recurring revenue. The state also has an additional $1.87 billion in federal funding from the American Rescue Plan Act (ARPA) that isn’t a part of the typical state budget. These funds will be distributed outside of the normal budget process, so legislators have created the Joint Committee on Pandemic Relief Funding to recommend uses for the funds which will ultimately be approved by the governor.
In nominal dollars, this is the largest state budget in history — but that doesn’t tell the whole story. To get a more accurate picture of the state budget’s capacity to provide public services, the Oklahoma Policy Institute adjusts for inflation and for population growth. Despite pandemic-related influxes, this year’s state budget is the largest since 2010, but it remains smaller than the budget of fiscal year 2000 when accounting for inflation and population growth.
Oklahoma leaders must remember that we can’t expect this high level of revenue to last forever, despite relatively high state revenues and the influx of federal ARPA dollars. The increase in state revenue primarily stems from federal stimulus payments, massive increases in unemployment claims, and inflation driving up sales tax collections. The state will likely return to normal revenue levels in coming years, as pandemic-related spending slows. The state’s ongoing structural deficit means that we cannot afford to cut taxes now.
Tax cuts won’t help the economy.
Though cutting taxes is often politically popular, history has shown that it is not good policy. Since 1997, Oklahoma has cut taxes by nearly 12 percent, without much to show for it. As shown in the graph below, the state’s total economic output has grown faster than our surrounding region and the nation, but that has more to do with oil and gas than it does with tax cuts. The oil and gas industry is historically volatile. If this industry is removed from the calculations, Oklahoma’s economic growth has been substantially lower than that of the surrounding region and the nation. Concurrently, Oklahoma has also seen comparatively less employment growth.
State leaders have overseen the shrinkage of the state budget, due in large part to tax cuts and growing tax expenditures. A smaller budget has had negative impacts on Oklahomans, particularly through smaller agency budgets, when adjusted for inflation. For example, since 2009, higher education has seen 41 percent fewer state dollars. The Office of Disability Concerns has seen a 43 percent cut. This race to the bottom won’t serve anyone. Rather, more tax cuts will continue to erode agency budgets, which will have detrimental effects on every Oklahoman.
Further, State Question 640’s supermajority requirements make it easy to cut taxes and almost impossible to raise them again. In order to raise taxes, Oklahoma’s constitution requires a three-fourths majority of both legislative chambers — which has happened exactly once since SQ 640’s passage — or a majority vote of the people. Cutting taxes now will tie the hands of future lawmakers and hamstring their ability to respond to the needs of future Oklahomans through fiscal policy.
Don’t cut taxes — invest public dollars.
The pandemic recovery has not yet reached everyone. Despite high state revenues and rising job numbers, low-income Oklahomans continue to struggle to get by. In particular, Black women and single mothers still face hardships in the labor market, and countless Oklahomans continue to have trouble paying rent and putting food on the table.
State leaders can combat these hardships and help speed up the economic recovery for everyone by investing public dollars. Expanding tax credits that directly benefit low-income Oklahomans will help ease this burden while simultaneously putting money directly back into local economies across the state. An expansion of Oklahoma’s Sales Tax Relief Credit is long overdue and would provide targeted tax relief to make groceries more affordable. Oklahoma’s Earned Income Tax Credit should be increased and re-tied to the federal credit, as it reduces poverty and improves health outcomes for working Oklahomans. Creating a renters’ credit would also make our tax system fairer. Investing in our fellow Oklahomans through tax credits is the fiscally sound approach to providing tax relief. The use of tax credits also protects future state budgets, as raising revenue by adjusting tax credits can be done without meeting SQ 640’s supermajority requirements.
The temporary surge in state revenue can have a positive impact on Oklahoma’ economy — if investments are equitable.
The state budget is larger than usual this year, but it won’t last forever. The choices that state leaders make this year will have long-lasting impacts. They must protect state revenue to ensure that future generations of Oklahomans will have access to robust public services upon which every resident relies. Lawmakers should think thoughtfully about how this year’s increased state revenue can support low- and middle-class Oklahomans now, while positioning Oklahoma for future success.
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On March 6, 2020, Oklahoma reported its first confirmed case of COVID-19 and declared a statewide emergency 10 days later. As the pandemic now enters its third year, Oklahomans continue grappling with the impact of lives lost and the immense disruptions it has created. OK Policy will be reflecting on the COVID-19 pandemic’s impacts and challenges. Our hope is that this will highlight opportunities for collaborative decision-making, future improvements, and prosperity for all Oklahomans.
