The Oklahoma state budget is facing a crisis. Legislators face a $1.3 billion shortfall in the upcoming fiscal year that will result in cuts to agencies. At the same time, several state leaders have floated proposals to fund a pay raise for Oklahoma teachers.
A roundtable discussion at the Oklahoma Policy Institute tackled the state’s budget crisis on January 28, 2016. The panel included state auditor Gary Jones, Republican senator Clark Jolley, Mickey Hepner from the UCO School of Business, Secretary Chuck Hoskin, Jr. of the Cherokee Nation, House Democratic minority leader Scott Inman, and Norman mayor Cindy Rosenthal. Damario Solomon-Simmons served as the moderator.
“The quarter cent tax cut that was implemented recently didn’t cause the problem we’re in,” auditor Jones said. “Cutting the severage tax from 7 percent to 2 percent didn’t cause it. The real cause is because of the downfall in oil prices and it created a hole.”
Even though the tax cuts did not create the hole, Jones said they dug the hole deeper.
“We are at the point where we’re not willing to afford all the government that we have,” Jones said. “The revenues necessary to run the government we have don’t sustain it.”
Jones said the state needs to set priorities. Across-the-board cuts are not the same as priority-setting, he said, and the state will have to eliminate some things that it does.
Senator Jolley said there’s no single cause of the budget crisis.
“It’s a combination of multiple factors and it’s going to take multiple solutions to get us out of here,” Jolley said. “We are not going to solve this problem by raising taxes. We are not going to solve this problem by doing budget cuts.”
Jolley said it will take “a multi-faceted approach” to get out of the current budget crisis because “it was a multi-faceted approach that got us here.”
Jolley recommends the legislature look at off-the-top funding, such a roads program that uses $470 million that does not go through the appropriations process. He added that the Oklahoma state budget is not $7.1 billion. It is closer to $24 or $25 billion when off-the-top money is taken into consideration.
“When you look at the total combined budget, we really see that government spending has never been higher in Oklahoma than it is currently. The difference is that the appropriated budget has been flat for the past several years. And I don’t care if it’s education or health care or whatever segment you want to talk about, we’ve seen an increase in population that is demanding service,” Jolley said.
Mickey Hepner said technological advances , an increase in supply, geopolitical forces, an increase in the amount of oil on the world market and economic crises in China and Europe that have increased the value of the dollar have all come together to push energy prices in a downward direction.
“The full impact of that decline has not been felt yet. The full impact on state budget, the full impact on the labor market, the full impact on the state economy is still to come. The next 18 to 24 months are going to be much tougher than what we’ve seen and it’s that kind of alarming to me,” Hepner said.
“If we focus just on what’s happened recently, if we focus just on what’s happening right now, we miss the bigger picture,” Hepner said. “We miss the picture that for a decade, we’ve neglected that this crisis is coming.”
Hepner said the state did not set aside enough money for a foreseeable decline in energy revenue, and enacted permanent tax cuts during a time of temporary surpluses.
“The train wreck is coming,” Hepner said. “All the levers we could use to stop it aren’t available to us.”
Secretary Chuck Hoskin, Jr. of the Cherokee Nation said spending money in common and higher education is a good investment.
“There’s a little school in one of the poorest parts of the Cherokee Nation [in] Adair County, Cave Springs Schools, that saw a 28 percent cut in its state appropriations from 2008 during the recession to the present time,” Hoskin said. “Those kids didn’t deserve 28 percent less education. Those kids deserve more and they got less and we’ve balanced the budget on their backs.”
Democratic House minority leader Scott Inman said it’s easy to blame the budget problems on $30 per barrel oil. The bigger question is why the the governor and Republican leaders in the legislature cut state agencies when oil was at $100 per barrel.
“We’ve cut a billion dollars worth of income taxes. We’ve seen an explosion in tax credits and exemptions. In the legislature’s infinite wisdom, they decided that the wealthiest industry in the entire world, which does great things in Oklahoma in terms of creating jobs - I’m not here knocking the oil and gas industry, per se - but they decided to give them to the lowest gross production tax basically in the country,” Inman said.
Inman compared Oklahoma to other energy states. He said Texas has a 7 percent gross production tax and Texan counties can levy gross production taxes. North Dakota has an 11 percent production tax.
“While we were cutting education budgets and health care budgets and had the 7,000 people on the DDSD (Developmental Disabilities Services Division) waiting list, and had nursing home reimbursement rate cuts, and one in five of our citizens were without any health care,” Inman said. “While we were doing that North Dakota and Texas and others were … not only improving funding for their education and all those other programs, but they were also storing money away for this eventuality. We didn’t do that.”
Senator Jolley responded by saying both parties, Republican and Democrat, were touting tax cuts.
Norman mayor Cindy Rosenthal said municipalities are suffering from decisions made at the state capitol. Sales tax exemptions hurt local governments, which depend solely on sales taxes. Rosenthal wants the legislature to give municipalities the ability to broaden their base.
“Whether that’s allowing school districts, by a vote of the people, to go above the ad valorem tax cap or local governments to look at other sources of revenue such as ad valorem to do operators. We’ve got to give local government the tools,” Rosenthal said.