OKPOLICY.ORG
Another step toward Gov. Kevin Stitt’s goal of eliminating the state income tax largely went unnoticed this session. Although more complicated than his earlier flat-budget mantra, this move is, in my view, just as damaging.
At the beginning of the legislative session, Stitt called for a “state sovereign wealth fund,” apparently patterned after Alaska’s “Alaska Permanent Fund” and North Dakota’s “Legacy Fund.” The Legislature accommodated this at the end of session by passing House Bill 4072, creating the “Taxpayer Endowment Trust Fund.”
The bill declares that it is “the intent of the Legislature to create a trust fund that produces a significant and sustainable revenue stream, preserves and protects its principal, and over time, provides taxpayer relief by replacing income tax revenue through the power of recurring investment and compounding interest.”
Legislators appropriated $200 million of previously unspent revenue to “seed” the fund. They also redirected a portion of the oil and gas gross production tax and the corporate income tax revenues to the trust fund in the future. The bill restricts distributions from the fund for at least ten years or until the fund exceeds $1 billion, whichever occurs first.
Alaska and North Dakota are intriguing states to model Oklahoma policy after. Both are small states with less than 800,000 people, while Oklahoma has a population over 4 million.
Alaska’s oil boom began in the late 1960s with the discovery of oil at Prudhoe Bay. In the 1970s, the Trans-Alaska Pipeline System was built to transport the oil. To preserve the extraordinary wealth produced relative to the state’s population, Alaska created the Permanent Fund in 1976. The state has no state income, sales, or property tax, and residents receive an annual Permanent Fund Dividend funded by oil and gas revenue.
The governor also mentioned Texas in connection with the Taxpayer Endowment Trust Fund, but the state’s history, size, and population put it in a class of its own. The Texas Constitution created the Permanent School Fund in 1845 as a permanent endowment for Texas public schools. It appears to operate much like Oklahoma’s School Land Commission, also constitutional, but on a larger scale. The fund provides annual distributions to Texas public schools for educational costs, including instructional materials and technology, and guarantees eligible school district bonds by using its AAA credit rating to reduce borrowing costs.
In 1876, well before the first major Texas oil discovery, a Texas constitutional amendment created the Permanent University Fund and set aside 2.1 million acres in West Texas to support the University of Texas and Texas A&M systems. The land is leased to oil and gas companies, whose wells generate revenue for the fund. It is also leased for grazing, wind farms, and other revenue-generating uses. Texas describes the Permanent University Fund as one of the state’s most distinctive, important, and enduring competitive advantages.
A Rainy-Day Fund to guard against economic downturns — and put aside some savings for major or unexpected expenses and opportunities — is a good idea. But Oklahomans might question the wisdom of asking today’s residents to accept underfunded public education, health care, mental health services, social services, childcare, and infrastructure so that future generations can live without paying income taxes.
