Revenue options still on the table could avert budget catastrophe

With less than two weeks until the end of the Legislative session, there’s still no agreement on the state budget. The stakes are exceptionally high: unless legislators agree on ways to close the budget gap, deep cuts are certain to have a devastating impact on health care, education, public safety, and other critical services. As Finance Secretary Preston Doerflinger recently said, “Cuts to core services will be untenable and take years to recover from if recurring revenues are not enacted this year.”

The good news is that, even with $1.3 billion less certified revenue for the upcoming fiscal year than what was initially appropriated for this year, deeper cuts are not inevitable. Last month, Governor Fallin released a revised FY 2017 budget that included some $1.285 billion in additional revenue from a variety of sources. This new revenue led to total appropriations for FY 2017 of $6.990 billion, which is just 2 percent smaller than this year’s initial budget and 2.7 percent greater than this year’s revised budget after mid-year cuts and supplementals.

The Legislature has not embraced all the Governor’s ideas, but many of her proposals are being actively considered in budget and tax bills that have been introduced in recent days and weeks. The Legislature is also considering several revenue measures that were not part of the Governor’s plan.

Here is a list of the revenue proposals that are either in bills moving through the process or that have been discussed publicly but not yet embedded in legislation:

Revenue Proposals in Bills Under Consideration (minimum $1 million impact):

• Increase the cigarette tax by $1.50-per-package: $158.4 million (HB 3210) Because it is a tax increase, the legislation requires a three-quarters supermajority and must pass prior to the final five days of session
• End the rebate of gross production tax on at-risk wells: $132.9 million (SB 1577). The rebate could end up being capped at $25 million, which would lower the revenue gain to $107.9 M
• Certify money from the Cash Flow Reserve Fund as recurring revenue: $125 million (HB 3206)
• End the “double deduction” of state income tax: $97.3 million (SB 1606)
• Enhance Oklahoma Tax Commission collection efforts: $53.9 million (SB 1579)
• End refundability of the Earned Income Tax Credit: $28.9 million (SB 1604)
• Temporary $5 increase in motor vehicle tags: $20.5 million (HB 3208)
• Limit the Investment/New Jobs tax credit: $14.0 million (SB 1584)
• Transfer a portion of Grand River Dam Authority revenues: $9.5 million (HB 3207)
• Limit time period for filing sales tax refunds: $8.8 million (HB 3205)
• Limit tax credit for clean-burning motor fuel equipment: $5.8 million (SB 1581)
• Reduce the credit for coal producers: $1.0 million (SB 1614)

Together, these bills, if approved in their current form, would boost revenues by some $655 million.

Additional Revenue Proposals being Considered

• Issue bonds to fund transportation projects: $150 – $300 million
• Tap the Rainy Day Fund: $144 million
• Transfer balances from agency revolving funds: $85 – $125 million
• Defer scheduled increase to the ROADS Fund and suspend funding for passenger rail: $61.7 million
• Cap gasoline, diesel, motor vehicle and cigarette tax apportionments at FY 13 levels: $40 million
• Transfer money from the Unclaimed Property Fund: $35 million

Together, these proposals could generate $515 million to $705 million. If these were enacted along with all the proposals contained in bills that have already been introduced, there could be as much as $1.35 billion in added revenue for the FY 2017 budget beyond the February certification.

[pullquote]With all the proposals being considered or that have already been introduced, there could be as much as $1.35 billion in added revenue for the FY 2017 budget.[/pullquote]

Of course, these proposals may not all pass. In particular, the cigarette tax proposal is being fought vigorously by the tobacco industry, convenience store owners, and anti-tax activists, while there remains vigorous debate between the House, Senate and Governor on the appropriate amount of transportation bonds to issue. This week, several revenue measures, including ones to limit the tax credit for wind production, cap the credit for affordable housing, and change the tax structure on low-point beer, failed in House and Senate committees, while legislation to temporarily increase motor vehicle fees and limit the time period for claiming sales tax refunds narrowly won passage in the full House.

This list of revenue options on the table is still far from ideal. The most glaring omission is that Republican leadership continues to refuse to consider rolling back this year’s $147 million income tax cut, which largely benefits upper-income Oklahomans, at the same time as it prepares to chop the Earned Income Tax Credit, which will take away up to $300 from low-income working families with children while only adding $29 million for the budget. Still, as we enter the final stretch, there are reasons to be cautiously optimistic that lawmakers may yet reach a budget that avoids the most disastrous cuts.