Challenges Persist After Fallin’s Budget Veto
Lawmakers will likely return to the State Capitol sooner than expected in light of Gov. Mary Fallin’s shocking veto of most of a budget bill approved by the Legislature only hours earlier Friday.
The nearly two-month-long special session appeared to come to a close after the state Senate sent Fallin a proposal that largely relies on one-time revenue and broad budget cuts to close the state’s $215 million shortfall.
But Fallin announced late Friday that she vetoed most of the bill with the exception of temporary funding for the Department of Mental Health and Substance Abuse Services, the Department of Human Services and the Oklahoma Health Care Authority.
The move was a surprise to GOP legislative leaders who claimed the governor had signaled she would support the budget agreement before Friday’s vote.
“The governor could have simply kept her word and stabilized the current situation for Oklahoma by signing the bill that she promised to sign, and then she could have called the Legislature back for her second special session,” Speaker Charles McCall, R-Atoka, said in a statement. “Instead, the governor has chosen to make the pursuit of her own priorities superior to the those of the people of Oklahoma.”
The governor’s office didn’t immediately respond to a media inquiry on whether Fallin had promised to sign the bill. During the session, she had repeatedly said she would veto a bill that used too much in one-time funds or made “draconian cuts” to state agencies. On Tuesday, her spokesman, Michael McNutt, said Fallin’s office had no comment on GOP leaders’ criticism of the veto except to say, “She’s looking forward to working with legislators developing a plan moving forward.”
After the House passed the budget bill on Nov. 15, she released a statement expressing her disappointment, saying she “will need to review any additions or changes to what has previously been discussed with our leaders” before deciding whether to sign it.
Fallin said she next will call a second special session to force lawmakers back in an attempt to find new budget solutions. The Legislature could also override her veto if lawmakers can secure the needed two-thirds vote in both chambers.
In explaining her move, the governor said it was unacceptable that the Legislature cut about $60 million while using much of the state’s remaining reserves and revolving funds.
Had Fallin not vetoed the budget, she said, she was concerned the Legislature would have returned to the Capitol in less than three months for the 2018 regular session facing many the same problems that plagued them this year: a multi-hundred-million budget shortfall and narrowing options to balance the budget.
The governor’s office estimates if she had signed the law, the state was looking at a more than $600 million shortfall for the fiscal year that begins next July. That’s because the state has been operating under a structural deficit and lawmakers have passed few recurring revenue measures in recent years.
The budget deal lawmakers approved in the special session continued this trend, as the Legislature plugged the hole using $23 million in rainy-day funds, $23 million in carryover funds from last year’s budget and $60 million in agency revolving funds.
The only new revenue measure approved in the session increases the gross production tax on a limited number of old wells. The bill would bring in an estimated $50 million for this fiscal year an $100 million for next year’s budget, but will generate little new revenue afterward.
Credit-rating agencies have chided the state for relying so heavily on one-time funds. Even if lawmakers ignore the warnings, fewer savings would have been available because the rainy-day balance would have fallen from nearly $600 million in 2009 to $70 million.
Republican lawmakers have said the state’s structural deficit should soften if and when the economy picks up. But Finance Secretary Preston Doerflinger said no sign of that is evident in October’s tax collections.
“As we look ahead to the 2018 regular session with a structural deficit likely over $650 million, anyone who thinks we can somehow overcome that before the December Board of Equalization meeting is mistaken,” he said in a statement. “No one at 23rd and Lincoln should take their foot off the gas in looking for solutions to funding core services.”
Lawmakers also would have faced calls again next year to find tens or hundreds of millions of dollars to give teachers and state employees a pay raise – two things Fallin urged legislators to address when she called them into special session.
Whether lawmakers try to find new revenue in another special session or next year’s general session, they will still face the high hurdle of a three-fourths majority vote required in both the House and Senate to pass tax increases.
The special session bore out this obstacle. A measure that would have raised more than $450 million a year by hiking taxes on tobacco, low-point beer, fuel and new oil and gas wells failed even with strong bipartisan support.
Making solutions more difficult next year will be that all House seats and half of the Senate are up for election. In announcing her veto, Fallin repeated her concern that this year remains the most likely time for lawmakers to find new revenue.
“Some legislative leaders have stated that revenue measures will be taken up in February when lawmakers return in regular session,” Fallin said in a statement. “But I am very skeptical because next year is an election year and the pressure not to do anything will be greater.
That means lawmakers could again be forced to look at budget cuts.
Jonathan Small, president of the right-leaning think tank Oklahoma Council of Public Affairs, advocated this approach in a statement Friday.
He said the financial problems at the state Health Department are evidence that lawmakers need to look at spending instead of trying to find new revenue.
“It is incumbent upon lawmakers to pump the brakes on any more tax increases until performance audits and true reforms can be completed,” he said.
But the Legislature’s budget deal would have left less room for lawmakers to cut. It would have left some agencies flat, including the Department of Corrections and K-12 funding. But it cuts spending for most agencies by 2.4 percent.
For many state agencies, this is the latest in several rounds of budget cuts over the years. An analysis from the Oklahoma Policy Institute found that state agency appropriations have dropped by 3.3 percent since 2009.
The study found that spending in several areas, including the Supreme Court, Bureau of Investigation and the Department of Veterans Affairs, has been cut by 25 percent or more in the past decade.
Sen. Kim David, R-Porter, who chairs the Senate Budget and Appropriations Committee, was among 29 senators who voted to approve the budget bill Friday. But she said lawmakers will need to eventually shed the cost-cutting mentality and find new revenue.
“People love to say we have a spending problem, not a revenue problem,” she said. “I’m sorry, but you’re wrong.”
During Friday’s debate, David also joined a growing number of lawmakers saying State Question 640, which set a constitutional requirement requiring the three-fourths majorities, should be revisited. But that would require a vote of the people and wouldn’t take effect until at least 2019.
The debate over whether Oklahoma should increase its gross production tax on new wells is also unlikely to go away. An effort is underway to get a state question to that effect on the 2018 ballot. It would raise the rate to 7 percent on all wells.
Whether that effort moves forward during the coming months could hinge on whether lawmakers again take up the gross production tax debate during the new special session.
Another revenue-raising approach that could emerge this year or next is changes to the state’s income tax rates.
House Budget and Appropriations Chairman Rep. Kevin Wallace, R-Wellstone, said before Fallin vetoed most of the budget bill that this was of the options that lawmakers would explore for the 2018 regular session.
Lawmakers could also reconsider all or parts the failed revenue package, which included raising taxes on fuel, cigarette and beer along with increasing the oil and gas gross production rates from 2 to 4 months for the first 36 months of a well’s production, that won wide approval in the Senate and fell just five votes shy of passing in the House.
But even Fallin acknowledged that finding a new budget solution will be a difficult task.
“As difficult as it might be to return to the state Capitol, we must do so,” Fallin said in her statement announcing the veto. “As governor, I pledge, as I have done throughout this difficult period, to work with the Legislature.”