OKPOLICY.ORG
The Oklahoma Education Association last week called on the Legislature to support an ambitious proposal to increase funding for public education and state services. The association, which represents nearly 40,000 teachers and school employees across the state, warned that “If the Legislature cannot fund education and core state services by the legal deadline of April 1, we are prepared to close schools and stay at the Capitol until it gets done.” The Oklahoma Public Employees Association, which is the largest group representing state employees, has announced that their members would join the teachers’ walkout on April 2nd unless lawmakers pass a significant state employee pay raise.
Oklahoma’s tax and budget policies have led to the current crisis
The threatened actions by the two associations follow years of budget cuts that have left teachers and state employees severely underpaid and the schools and agencies they work for desperately ill-equipped to do their jobs. To cite just a few examples, Oklahoma teachers have not seen an increase in the minimum salary schedule in a decade and our teachers are now the third-lowest paid in the nation. State funding for school operations is $180 million less than a decade ago, and Oklahoma schools have absorbed by far the deepest cuts in per pupil general state funding in the nation. Most state employees have gone eight to ten years without a raise; during this time, average salaries for state employees have fallen to 24 percent below the competitive labor market. State employee turnover has reached 20.5 percent, which is a nearly 40 percent increase from a decade earlier.
The state’s severe and chronic budget shortfalls are closely tied to policies that lawmakers have approved over the past ten to fifteen years to cut taxes and shrink Oklahoma’s revenue base. Since the mid-2000s, tax cuts have cost the state an estimated $1.5 billion in recurring revenue, with lost revenue from cuts to the top income tax rate alone costing more than $1 billion a year. Meanwhile, the cost of tax breaks granted to an assortment of businesses and individuals have ballooned by hundreds of millions. Over this period, state and local taxes as a share of personal income have fallen by 24 percent, leaving Oklahoma near the very bottom of all states in taxes collected relative to the state economy.
The OEA plan and how to pay for it
To help address the state’s funding crisis, the OEA budget plan includes five components:
- An immediate $6,000 raise for teachers in FY 2019, followed by additional $2,000 raises in FY 2020 and FY 2021;
- An immediate $2,500 raise for school support staff in FY 2019, followed by additional $1,250 raises in FY 2020 and 2021;
- An additional $75 million for the next two years and $50 million in FY 20201 to undo cuts to public school funding;
- An additional $71 million each year for three years to provide raises to state employees;
- An additional $235 million in FY 2019 and $21 million more in FY 2020 to fund health care services.
Together, the plan would require $812 million in additional funding in FY 2019 and $1.409 billion by FY 2021.
Paying for OEA’s funding package would require substantial new recurring revenue. The association did not endorse a specific set of revenue measures, noting that “the legislature has seen several plans over the last two years that have included dozens of options.” Indeed, just in the past fifteen months, comprehensive revenue packages have been proposed by the Save Our State coalition and the Step Up coalition, with additional measures supported by Governor Fallin, the House Democratic caucus, and others. All of these proposals have been rooted in a recognition that the state needs more revenues to pay for the basic services that Oklahomans expect.
The following are among the most substantial revenue measures that lawmakers should consider:
- Restore the gross production tax: Oklahoma’s reduced 2 percent gross production tax rate for new oil and gas wells is well below taxes in peer energy-producing states. Compared to Oklahoma’s traditional 7 percent rate, this tax break is projected to cost the state $333 million in FY 2019. If the initial tax rate was set at 5 percent, it would generate an additional $200 million, while a 4.5 percent rate would generate $166 million;
- Reverse income tax cuts: Oklahoma has cut its top income tax rate from 6.65 percent in 2004 to 5.0 percent, which has reduced annual revenues by more than $1 billion. Oklahoma could generate an additional $200 million by restoring a rate of 6 percent on income over $200,000 ($100,000 for single individuals) and 7 percent on income over $400,000 ($200,000 on singles). Only 3 percent of households would be affected by new rates. If the former 5.25 percent bracket was restored along with the preceding high-income surcharge, it could generate $300 million, according to estimates from the Institute for Taxation and Economic Policy.
- End the capital gains deduction: Oklahoma allows residents to pay no income tax on capital gains from the sale of investment property or stock of a company located in Oklahoma. In 2014, nearly two-thirds (64 percent) of the benefit went just 824 households with incomes of more than $1 million. Taxing capital gains the same as other income would generate $120 million, according to an Oklahoma Tax Commission fiscal estimate.
- Limiting itemized deductions: Less than 30 percent of Oklahoma households itemize deductions on their state tax return, and most of these households are high-income. Capping itemized deductions at $17,000 while excluding charitable contributions from the cap would generate $102 million, according to an Oklahoma Tax Commission fiscal estimate.
- Raising the cigarette tax: Increasing the cigarette tax by $1.50-per-package would lead to fewer people smoking and would provide significant funding to support health services. The $257 million in added health care funding that is part of the OEA plan is based on the Tax Commission’s revenue estimate for a $1.50-per-package cigarette tax.
- Raise the motor fuel tax: Oklahoma has the second lowest fuel taxes in the nation, and our fuel tax has lost nearly half its value to inflation since 1987. Over 40 percent of the revenue from the fuel tax would be paid by out-of-state drivers. A $0.06-per-gallon increase in the tax on gas and diesel would generate $170.4 million, according to the Step Up plan.
In addition, there are many other revenue options that have been proposed as part of the Step Up plan, Save our State plan, and in other discussions. These include taxing little cigars and chewing tobacco ($13 million), gaming modernization ($22 million), taxing services that are routinely taxed by other states ($120 million) or taxing luxury services ($48 million), ending the net operating loss carryback provision ($19 million), eliminating the wind manufacturer sales tax exemption ($20 million), and adopting combined corporate reporting ($71 million). Most recently, Senate Republicans have proposed a 1-cent increase in the sales tax combined with the elimination of the sales tax on groceries, which together could raise some $314.8 million, according to projections by the Institute on Taxation and Economic Policy.
You can come up with your own solution using this updated budget simulator tool from Together Oklahoma.
Altogether, these revenue increases could generate some $1.9 billion in new recurring revenue, which is substantially more than the cost of the OEA package. Clearly, not all these revenue options can be expected to pass the Legislature, and it will be important to ensure that a revenue package does not tilt heavily towards taxes that hit low- and middle-income taxpayers hardest. It’s also important to keep in mind that, as long as the economy is doing well, regular growth in revenue collections will cover some or all of the added cost of the three-year funding plan past the first year.
The bottom line
The fact is that the OEA plan can be fully paid for through a balanced and sustainable mix of new, ongoing revenues. Together these options would ask all Oklahoma households and businesses to contribute their fair share without putting too much of the cost on any one group, and they would be a huge step towards solving the crisis Oklahoma faces as a result of years of budget cuts and underfunding.
Restore funding to education! 30 plus in classes is too big, certified teachers are a must!!
Thank you!!
You seem to have forgotten retired teachers and state employees. We haven’t had a raise in ten years either.
OEA’s plan includes state employees and they’re a part of the blog post. Retired teachers are also part of the plan but there are no funds appropriated for their increase so we did not include that component. OREA may be able to offer more information.
How much revenue can Oklahoma produce by legalizing medical marijuana? A lot I’m sure. If they will do that (without passing 1120) they can afford to fund education. Marijuana is not near as bad as alcohol and has the potential to help so many people.
The cap gains deal won’t happen, you read it here first
Teachers and State Employees deserve raises, but doing away with sales tax on groceries will have an adverse affect on communities throughout Oklahoma that rely on sales tax to fund local government. With dwindling sales tax numbers across the board and higher numbers of online purchases from businesses that don’t remit tax (unlike Amazon now) this idea would only exacerbate killing our local economies. Let’s not encourage a measure that would certainly have unattended consequences to local government (or maybe it is intended).
The bill to exempt groceries would have applied only to the state portion of the sales tax – cities and counties would continue to tax groceries. (But the sales tax proposal has been abandoned at this point)
I say you gotta give to get , sounds like a lot of money to me , but congress is not willing to compromise. that’s how deals are made , tax payers want something in return. and of course they would abandon, its a all steal state . take take and take. nothing in return .
Please give State Employees a Raise.
I have been working for the State for 25 years. I have not had a Raise in over 10 years. I have to choose between groceries or much needed medicine all the time.
Thank You.
Support personnel get all the benefits of State employee EXCEPT any kind of RAISES!!! 19 years and I’m OUT!!!
David Blatt , Brad Bates , then what do you suggest ? tax payers are over whelmed with taxes , this state takes and takes and takes , their like a bunch of thieves and they never give back or compromise, we want something in return for our money . that’s how deals are made. the education department is the biggest thieves of all .litterer sucking the life out of this state , a system they they refuse to change , and reform, while the rest of us pay for it . college and its administration and the way in which the system is set up will be this states demise. the whole state is screaming. while our k-12 never gets funding , they get the crumbs of whats left . Oklahoma has been bought and sold by its own leaders , who go their for wealth and not the common good of its people . we are not broke , we are one of the third wealthiest states in the union because of oil and gas and soon to be clean energy . yet all our citizens are screaming because this wealth is not being passed down, but deliberately being diverted . I dont know what the answers are , but those in office do , and with no compromise, we are at a stale mate.you cant keep stealing from the very few, left to pay these taxes .
Did not see anything mentioned that all but 2 of those sources of revenue require a 3/4 vote in both house and senate and that hasn’t been accomplished for any tax increase.
That’s a good point, Dana. While we did note that “not all these measures can be expected to pass the Legislature”, we’re leaving aside the question of how to meet the supermajority hurdle to emphasize that there are good options IF there’s enough will to get this done.
How would this cigarette tax differ from the last? You know, the one that was passed and then went to the Supreme Court where it was ruled unconstitutional? I’m at a loss as to why the government keeps passing these unconstitutional laws which wastes even more money when they are taken to court.
Penny , I want this said revenue directed to our kids , not a dime for the funding of colleges. that’s our problem in this state . they wish to feed the higher branches of education and its obsessed administrations , while lower education gets the crumbs . I want this directed at k-12 and not one penny for higher education , when the money is broken down our kids end up with penny’s on the dollar , while colleges walk away with the rest . this must stop ! as for higher taxes , what are they giving back in return , for placing this burden on all of us ? over spending , mismanagement , DHS fraud , and their spending habits , I can name you 6 that spent tax payer funds on trips and outing and much more one such person 26,000 dollars , how many others have their hands in the kitty pool ? education needs restructuring, as how many of them have their hands in diversion ? a department that has over whelmed this state , while higher ups grab the money and leave teachers and workers and the rest in this state to pay the bills , which we already do. Yes, oklahoma has a problem, and that problem is the way in which monies are being diverted . I want schools districts to run their own schools and give the power back to the people, along with it’s revenue. this system must change , if not we are headed for broke and more debt , this state and its education is already in the red , we now hold a 57 million liability in education , one one must ask why ? when 6.7 billion go’s their ? and is allocated. the state of Oklahoma is a small state , but when I see numbers such as 1, trillion in debt , I must ask where did the money go , that such a small state as ours and third, largest oil and gas producers in the united state , and we have this kind of debt ? yes something is wrong , and it starts with our legislators and our government , after all they control the money flow , so where is it ?
as a retired public school teacher administrator… I am so proud of the stand that is taking place. I have read statistics that make me question the K-8 Districts across the state of Oklahoma. We have so many school districts. The small school districts (less than 500) Pay many thousands in salaries to administrators. I’m fairly sure this is state wide. It appears this could be a savings to our state ???
Misty , its the same bill , merry-go-round type bill , and either way , its heaping another tax off of tax payers. into a account that cant be used. and the only way it brings in revenue , is bye the interest it draws just sitting their , so if their saying it brings in x amount of dollars , its because of the interest payed on this said account . which in reality is not revenue , its interest earned . and I must then question , where is this money?