Changing Processes to Address the Fiscal Gap

The fiscal gap is a long-term issue that can only be solved over many years. Before closing the fiscal gap, we will have to understand it and then stop it from getting worse. This can involve several relatively simple and low-cost steps.

• Long-term outlook. We could require the Governor’s executive to include a long-term forecast of revenues, expenditures and deficits. According to the National Association of State Budget Officers, 36 states include revenue forecasts in their annual budgets, of whom 15 forecast four or more years into the future.
• Retirement transparency. Publicizing and compiling summaries of annual reports of the employee retirement systems can allow the state’s governmental leaders and the public to better understand the long-term financial commitment needed to maintain these programs and to be sure we are fiscally able to keep our promises to those who have dedicated their lives to public service.
• Tax expenditure reporting. While Oklahoma has made great strides in estimating costs of tax credits and exemptions and in disclosing who takes advantage of tax expenditures, the system does not yet extend to all tax preferences and does not provide comparative information over time. Most importantly, the state does not estimate the cost of exempting most services from the sales tax (see the 2017-18 Tax Expenditure Report prepared by the Oklahoma Tax Commission).
• Protecting the revenue base. Maintaining current income tax rates and not allowing more exemptions to any taxes can increase our ability to fund needed public services. Tax cuts enacted since the mid-2000s have now cost the state over $1.5 billion annually in lost revenue, but demands for service have not fallen.
• Pay-as-you-go.A requirement that tax cuts and new programs be allowed only if they pay for themselves through other tax or spending actions has been adopted from time to time at the federal level to push Congress to control the fiscal gap. Similar mechanisms should be considered at the state level.
• Fiscal impact forecasts. Requiring five-year (at least) fiscal impact forecasts of all fiscal actions being considered by the Legislature, and requiring a super-majority vote for high-impact bills, could reduce long-term costs of legislative actions.
• Revise the supermajority requirement of State Question 640. SQ 640 requires a 3/4 vote of both legislative chambers, or a vote of the people at the time of the next general election, to raise taxes. This supermajority requirement, the most stringent in the nation, severely constrains the ability of the Legislature to respond both to short-term budget crises and to the longer-term obligations to align revenues with spending. If current super-majority requirements are maintained, they should apply equally to tax reductions.
• Fund local mandates. Requiring that all laws that reduce revenue to or impose costs on local government include fiscal impact statements covering at least five years and provide funding to reimburse local governments for lost revenue or added costs beyond a threshold amount would help reduce local government fiscal gaps. According to the National Association of State Budget Officers, 16 states fund the costs of mandates they impose and 31 estimate the costs.

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