Taking a little off the top

Photo by Mark Fischer / CC BY-SA 2.0
Photo by Mark Fischer / CC BY-SA 2.0

This past session, as Oklahoma grappled with a $611 million budget shortfall, a lot was heard about off-the-top apportionments, or tax revenues that are allocated directly to various funds without legislative appropriation. In this year’s State of the State address, Gov. Fallin contended that the reason Oklahoma currently faces substantial budget challenges “is because the General Revenue Fund… is growing smaller. It is shrinking, both in dollars and as a percentage of overall collections, due to the increasing cost of mandatory off-the-top apportionments.”

As state leaders worked to bridge the budget gap, they considered various proposals to curb off-the-top allocations. Ultimately, only modest changes were adopted directing more revenue to the General Revenue Fund, and it remains unlikely that shuffling more money around can ever by itself fix Oklahoma’s chronic budget problems.

In her address to the Legislature, the Governor displayed a set of charts showing that of all revenues collected by the state, the share going to the General Revenue Fund (GRF) shrank from 55.2 percent in 2007 to 46.7 percent in 2014, and is projected to fall to 43.8 percent by 2017 based on current policies. She said:

Slowly but surely, elected representatives are losing the ability to guide state priorities and the flexibility they need to respond to changing circumstances. My challenge to all of us is to reverse that trend and use this session to really unpack the way the state is spending its money.

On closer inspection, “off-the-top apportionments” turns out to encompass a broad and diverse array of budgeting practices. The Table below shows the main categories of apportionments, based on figures supplied by the Office of Management Enterprise Services and included in the FY 2015 Executive Budget. (These figures include taxes collected by the state for other levels of government, which were excluded from the chart displayed by the Governor in her speech). Between 2006 and 2014, total revenues collected by the state increased by $2.3 billion, or 20.3 percent, but revenues to the GRF declined by $173 million, or 3.2 percent.

Off-the-top_FY06-14There is no clear or simple explanation of what accounts for the declining share of money going to the General Revenue Fund. The only substantial policy shift involves Transportation Funds, which grew by $628 million from 2016 to 2014, reflecting legislation that significantly increased the amounts going to various funds for state and country roads and bridges. The largest growth, $660 million, is in the “Other” category, which aggregates dozens of small taxes and fees, such as the aircraft excise tax or waste tire recycling fee, that are collected by the Tax Commission and go directly to a state agency. The ten largest taxes and fees in the ‘Other’ category amounted to just $140 million in 2014 and no one has provided a clear explanation for why the total has increased so substantially. Collections of various taxes by the state for local governments, such as the sales tax, have grown by a total of $742 million, while tax refunds have grown $224 million. 

This year’s budget agreement included several changes to off-the-top apportionments. The largest, contained in HB 2244,  involved how motor vehicles taxes are apportioned. Beginning in FY 2016, motor vehicle tax allocations to counties, school boards, cities and towns, and various funds were capped at either a set dollar amount or at their FY 2015 levels, with collections above the cap going to the General Revenue Fund. Of these adjustments, the only one expected to have an immediate revenue impact was a $120 million cap on revenues apportioned to the County Improvement for Roads and Bridges (CIRB) Fund; without the cap, this fund was expected to collect over $140 million in FY 2016. The Legislature also transferred $50 million from the CIRB Fund in the General Appropriations bill.

Other changes included:

  • Portions of sales and use taxes dedicated for funds in the Tourism Department and the Historical Society were capped in HB 2243. The caps on the Tourism funds are expected to increase General Revenue collections by $7.8 million in FY 2016;
  • Revenue to the Aeronautics Commission from the aircraft excise tax was capped at $4.5 million in HB 2241, with amounts above the cap going to General Revenue. This was not expected to have a fiscal impact in FY 2016.
  • HB 2238 made multiple changes to the apportionment of assessments paid by insurance companies and self-insured employers as part of the workers’ compensation system. By doing away with rebates to insurance carriers and eliminating some off-the-top allocations to several agencies, the bill increases collections to the Multi-Injury Trust Fund and is expected to provide $21 million more to General Revenue.

In total, the legislative changes to off-the-top apportionments are projected to increase General Revenue collections by about $51 million in FY 2016. This amount could increase in future years due to the various new apportionment caps. Yet the Legislature opted not to touch the off-the-top allocation to the ROADS fund, which is set to grow by an additional $158 million between 2015 and 2018.

For some, the growth of off-the-top apportionments was seen as a prime cause not only of this year’s budget shortfall, but of the state’s growing structural deficit, where available revenues consistently fall short of meeting budgetary needs. While closer scrutiny should be given to off-the-top apportionments, we should not expect these efforts to provide the silver bullet for our structural budget deficit. As long as we continue to narrow our tax base and underfund most public services, limiting off-the-top apportionments that are now going primarily to education, health, infrastructure, and other core services will do little more than shift money between pile A and pile B. They may be the most politically convenient target for blame, but off-the-top diversions of revenue are not the whole story behind Oklahoma’s chronic budget shortfalls. 

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Former Executive Director David Blatt joined OK Policy in 2008 and served as its Executive Director from 2010 to 2019. He previously served as Director of Public Policy for Community Action Project of Tulsa County and as a budget analyst for the Oklahoma State Senate. He has a Ph.D. in political science from Cornell University and a B.A. from the University of Alberta. David has been selected as Political Scientist of the Year by the Oklahoma Political Science Association, Local Social Justice Champion by the Dan Allen Center for Social Justice, and Public Citizen of the Year by the National Association of Social Workers.

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