Ken Miller, PhD, is the Oklahoma State Treasurer and an economics professor at Oklahoma Christian University. This post originally appeared as an article in the November 2015 Oklahoma Economic Report and is reprinted with permission.
The billion dollar question that has persisted for months around the state Capitol is soon to be answered. On December 21, fiscal policymakers will have their first official estimate of funds available for fiscal 2017 appropriations. Until November revenues are baked into the projection, no one is certain of the estimate – but we do know it will be less than last year and that much of the problem is self-inflicted.
Throughout the Great Recession, suboptimal financial practices, like using one-time revenue sources, had to be employed to deliver cores services to our citizens. Unfortunately, reliance on nonrecurring revenue to balance the budget did not subside when the economy recovered to full employment. In fact, the appetite has only grown, resulting in state budgets that are constitutionally balanced, yet structurally imbalanced.
The state budget has become dependent on using one-time funds in both good times and bad. Oklahoma’s economy has expanded for the last several years, yet more than $1 billion in nonrecurring revenues have been tapped during that period to spend more than the certified amount.
Using such large amounts of alternative revenues to prop up the state budget is de facto admittance by policymakers that there is insufficient revenue to fund their desired level of government spending.
Outside of government, it is well accepted that nonrecurring revenues should not be used for ongoing expenditures and that recurring revenue streams should not be cut when current costs exceed them. Yet under the Capitol dome that has become standard operating procedure, and changes shouldn’t be expected next session given the expected severity of the shortfall.
“Common sense dictates that until the state proves it can live within its means, it really should stop reducing them, yet some “thinkers” continue to advocate eliminating the state income tax.”
Rather than focus solely on lowering the income tax, Oklahoma should modernize our entire outdated tax structure, which was built for an economy that no longer exists. The ideal tax structure would broadly apply low rates to generate a stable and diversified revenue stream that does not unfairly burden property owners, discourage consumption, or reward idleness and retains the profit motive that drives entrepreneurship.
More immediately, any additional tax cuts should be revenue neutral. If policymakers want to further reduce the income tax, they must adopt a “pay-as-we-go” approach by eliminating one dollar of spending or credits for every dollar cut in taxes.
Improvements have been made, but even greater prioritization and operating efficiencies can be found. Those left on the table will require hard-fought battles against an entrenched status quo.
Just as fiscal stewards did by correcting suboptimal pension practices, with increased realization of the structural budgeting problems, policymakers can begin the difficult process of weaning our state off its dependency.
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