Last week, lawmakers’ attempt to address the state budget crisis in special session collapsed. They rejected proposals that would have filled the entire budget hole and averted imminent and catastrophic cuts to the three health care and social service agencies — the Department of Mental Health and Substance Abuse Services , Oklahoma Health Care Authority, and Department of Human Services — that lost $214 million in funding when the State Supreme Court found a cigarette fee passed earlier this year unconstitutional.
At this point (barring further surprises), special session is likely to conclude with a new budget that averts the doomsday scenario facing the three health and social services agencies but does not address Oklahoma’s chronic budget problems. It would also impose a new round of cuts on most or all state agencies. In the meantime, with each new day that passes without an agreement, the hundreds of thousands of Oklahomans served by the three agencies must grapple with rising anxieties that the crisis won’t be resolved and that they will lose the services that their health, and even their lives, depend on.
Recapping last week
The initial plan unveiled by Republican leaders last Monday included a $1.50-per-pack tobacco tax and a 6-cent-per-gallon increase in motor fuel taxes, along with various minor revenue modifications. It also provided raises for teachers and state employees beginning in 2018 and restored the refundable portion of the state Earned Income Tax Credit. Democrats — whose votes were needed to meet the three-quarters supermajority required of revenue bills under State Question 640 — unanimously opposed the plan because it relied entirely on more regressive taxes and left out increases in the gross production tax or income tax that they had insisted on to get their votes on the other revenues. The main revenue bill (HB 1035) passed out of committee but fell 21 votes short of mustering three-quarters support in the House, with all Democrats and 18 Republicans voting against.
On Thursday, the Senate passed a bipartisan resolution calling on the House to increase gross production taxes on new wells from the current 2 percent to 4 percent for the first 36 months of drilling. This increase was still too little for most Democrats and too much for many Republicans. On Friday, a new version of the omnibus revenue bill, HB 1054, failed on a 11-11 vote in the House JCAB committee, with all but one Democrat joining 5 Republicans in rejecting the measure, and several other Republicans declining to vote.
Where we are now: Cash and cuts and maybe more revenue
The repeated failure to find agreement on a revenue package capable of securing 76 votes in the House leaves little hope of a bipartisan agreement that could fill the entire budget hole with recurring revenues. Instead, the likeliest scenario, which is being called “Plan B” or “cash and cuts”, involves additional revenue from the following two sources:
- $23.3 million is available from the Rainy Day Fund. Lawmakers can appropriate up to one-quarter of the Rainy Day Fund upon declaration of an emergency by the Governor and a two-thirds vote of both chambers. The remainder of the Rainy Day Fund — $70 million — cannot be used at this time.
- $83.5 million is available from last year’s General Revenue that came in above the appropriated amount.
Several bills to appropriate the $106.8 million in carryover funds and Rainy Day Funds to the three health agencies have been approved by the full House and now await action in the Senate.
In addition to these measures, numerous proposals for additional revenue have been floated by legislative leaders. Under HB 1085, the gross production tax on horizontal wells drilled between January 2014 and June 2015 would increase from 4 percent to 7 percent. This would generate an additional $51 million in FY 2018. Other revenue measures that are less likely to pass include partially removing the sales tax exemption on motor fuels (SB 23) that would generate $58 million in FY 2018, and expanding the range of permitted games in tribal casinos (HB 1087), projected to raise $8.3 million in FY 2018.
While agreement on these or other revenue ideas remains possible, at this point the likeliest scenario is for the Legislature to appropriate just the carryover cash and Rainy Day fund money totaling $106.8 million. This would leave a shortfall of $107.2 million, which would need to be cut from agency budgets. Rather than leave the three health and human service agencies on the hook for the entire shortfall, it is likelier that the Legislature will pass a new budget that spreads the cuts more broadly across state agencies. (Speaker McCall has suggested that if the three health agencies are appropriated enough money in special session to fill part of their hole, they should defer making cuts until April and allow the Legislature to address the problem in regular session. Finance Secretary Preston Doerflinger has responded that this would be unconstitutional because agencies must maintain a balanced budget throughout the year). No new budget has yet been released.
If a $107.2 million shortfall is allocated evenly, it will amount to a 1.6 percent cut to every agency. However, by the time a new budget is passed, agencies will have already received five months worth of FY 2018 appropriations, so their monthly allocations for the remaining months would be cut by about 2.7 percent. This spreadsheet shows OK Policy’s calculation of the impact on each agency of a $107.2 million total cut spread across-the-board.
Cuts have consequences
A 1.6 percent cut to every agency would be less catastrophic than the doomsday scenarios faced by the three health and human services agencies if the Legislature does nothing. However, we should not forget that the initial budget approved by the Legislature in May was already “massively underfunded,” in the words of the then-House Appropriations chair Leslie Osborn. Many agencies have already absorbed cuts of 20 percent or more over the past decade, severely weakening their ability to fulfill their core responsibilities and leaving no good options for dealing with more cuts.
“Whenever the Legislature reaches a solution and whatever it looks like, those who need state services for their continued health have already been put under terrible stress and fear.”
Common education, which would be hit with a $37 million cut, is already receiving some $180 million less in state aid support than in 2008 while enrollment has increased by over 50,000 students. It is likely that the Oklahoma Health Care Authority, which would lose $16 million, DHS, which would lose $11 million, and the Department of Mental Health and Substance Abuse Services, which would lose $5 million, will still have to cut rates paid to providers and services for vulnerable populations.
In addition, while filling the budget hole with one-time revenues would avert the doomsday scenario, it only deepens the problem of Oklahoma’s structural budget deficit. That means we will find ourselves with an even larger budget hole — and fewer options for dealing with it — when lawmakers come back for regular session in just a few months.
In the meantime, in the absence of an agreement, the Department of Mental Health and Substance Abuse Services, Oklahoma Health Care Authority and Department of Human Services have no choice but to move ahead with the administrative process for making cuts that would eliminate services for the state’s most vulnerable populations within the next month. For example, DHS this week sent out notices to seniors and individuals with disabilities that the waiver programs that allow them to receive in-home care will terminate December 1st. We must not forget that, whenever the Legislature reaches a solution and whatever it looks like, those who need state services for their continued health have already been put under terrible stress and fear.