TRANSCRIPT
Announcer: Capitol Insider sponsored by the Oklahoma State Medical Association, physicians dedicated to providing and increasing access to health care for all Oklahomans. More on the vision and mission of OSMA at okmed.org.
Dick Pryor: This is Capitol Insider- taking you inside politics, policy, and government in Oklahoma. I'm Dick Pryor with Quorum Call publisher, Shawn Ashley. And our guest is Dr. Robert Dauffenbach, Professor Emeritus at the Price College of Business at the University of Oklahoma. There's a lot to talk about. Bob, it's always good to have you with us.
Dr. Robert Dauffenbach: Glad to be here.
Shawn Ashley: Dr. Dauffenbach, the State Board of Equalization meets to certify funds available for appropriation during the legislative session. This is a little-known part of state government, but very important. What are the state's constitutional roots of the Board of Equalization, its authority and membership?
Dr. Robert Dauffenbach: The BOE is a unique and powerful body in state government. It's rooted in the Constitution, as you said. It oversees equalization of real and personal property valuations in the several counties. It estimates revenue and mandates that the legislature cannot spend more than 95 percent of the revenue certified by the board. And it certifies triggers for state income tax cuts that are in the law. A recent trigger to lower the state income tax rate. At the top level to 4.5%, from 4.75%. That's a 5% reduction in the state income tax, $1.20, gone forever, other things equal.
The seven-member board is chaired by the governor, with membership consisting of elected officials like the state treasurer, the attorney general, the state auditor, the superintendent for public instruction. So, these elected officials, it's a very democratic body, giving Oklahomans a conservative approach to budgeting that they clearly want.
Dick Pryor: As you look at state finances, what are the principal sources of state government tax receipts and their trends, especially after adjusting for inflation?
Dr. Robert Dauffenbach: I have 25 years of detailed state government revenue. The income tax represents 44% averaging over those 25 years. Oil and gas severance about 10%, but as high as 17%, as low as 6% and 7%, so highly volatile and probably a reason why the state Rainy Day Fund was instituted. Sales and use taxes represent 40% of state collections and other about 5%. So, we're looking at 84% income tax and sales and use taxes in the state, so a very huge proportion of tax revenues in those two sources.
After adjusting for inflation, I find out surprisingly that the state is collecting the same amount of revenue in FY25 that it collected in FY01. So that's about $13.5 billion. But Oklahoma's population has grown by 19% over those 25 years, and thus real estate collections have fallen from $4,000 to $3,300. Then as a share of total personal income in the state, collections have fallen from 7% to 5.6%. So, the burden of state tax collections is clearly lower by multiple measures.
Shawn Ashley: Not all states have a property tax, but Oklahoma does. However, it really isn't a significant source of state revenue.
Dr. Robert Dauffenbach: Exactly. Property taxes in Oklahoma are strictly local taxes, and this is pretty unique among state governments. And of course, Texas is extremely dependent on property taxes for financing state and local government. In the year 2000, we collected $1.3 billion. In 2026, $4.3 billion so that's 3.3 times higher, clearly well ahead of inflation. Sixty-five percent goes to K-12 education, 12% to Career Tech, 15% to county operations, and the remaining to special districts. So, a lot of dependency on property taxes in the state.
Dick Pryor: Oklahoma is often compared to Texas. How does Oklahoma look in relation to Texas in terms of per capita tax receipts?
Dr. Robert Dauffenbach: The Tax Foundation, this is a national conservative think tank, tracks quite well state and local collections. Oklahoma beats Texas in total collections per capita at $5,038 compared to $5,469, so a little better than a $400 difference per capita. But as a percent of income, Texas with its higher per capita personal income, is ahead at 8.6% versus 9% for Oklahoma. So, differences, but not all dramatic as a lot of people think.
Shawn Ashley: State government has a number of what could be considered savings accounts. What is the status of these various accounts today?
Dr. Robert Dauffenbach: Well, various savings accounts or fund balances total $3.2 billion with $1.33 billion in Rainy Day funds leading the way. Several revolving funds, and these are funds that don't have to come up for authorization each year, have their own savings accounts and also have significant balances. This puts the state in pretty good position with rising administrative costs of running government programs. Now it turns out that the feds are only going to pay for 25% instead of 50% of administrative costs, and this is a result of the One Big Beautiful Bill Act.
Dick Pryor: What is the economic impact of the federal One Big Beautiful Bill Act in Oklahoma?
Dr. Robert Dauffenbach: Well, from less support for administrative costs and penalties for errors in providing benefits that those who didn't really qualify, the cost is estimated at nearly a half a billion dollars.
Shawn Ashley: So how much revenue does Oklahoma state government receive from the federal government? And what are the most important categories of those receipts?
Dr. Robert Dauffenbach: Well, in FY26, it was $15.5 billion, a considerable sum. Federal funds are the single largest source for the state health care, infrastructure, and social safety net programs. Health care, particularly for rural hospitals, is a definite challenge owing to federal changes. A lot of rural hospitals are going to be in desperate need of continuing support if they are going to continue to exist. That's a that's a subject for another day.
Dick Pryor: Looking ahead, what concerns you most about Oklahoma's future state finances?
Dr. Robert Dauffenbach: I'm not so much concerned about revenues, as I think Oklahoma and its major metro areas will continue their growth. We have Oklahoma City as the 20th largest city in the U.S., and as I said, the metro areas are growing strong. Nationally, the economy is doing pretty well. There are signs on the plus side, signs on minus side. We had a good employment report, 130,000 increase in jobs. And, uh... I'm pulling rates stayed at 4.3%. So, we have the savings I think to deal with the One Big Beautiful Bill.
I'm very concerned about challenges that we face from AI and how that may bring distinct problems to employment growth in the long term. Nobody knows how this is going to turn out, but we will certainly find out and we may be surprised.
I call for greater coordination of educational expenditures to meet the workforce development needs for present and future generations. The variance in school performance as we presently measure it in various statistics is astounding. And it's just not good in many respects. Only 21% of students score proficient or better in reading and math in the state. And that just won't do in this future world.
It's time that we look much harder at education and training in Oklahoma. It's time we look at other states - the 50 experimental stations that we have in the other states - and see who's doing well and how we might adopt what they're doing. It's been 36 years since passage of House Bill 1017. The last time we had such an intensive focus, and I think we need it again.
Dick Pryor: Bob, thank you for the economic overview and setting us up for the year ahead.
Dr. Robert Dauffenbach: You're quite welcome.
Dick Pryor: That's Dr. Robert Dauffenbach, Professor Emeritus at the Price College of Business at the University of Oklahoma. For more information, go to quorumcall.online. You can find video of Capitol Insider segments on the KGOU YouTube channel. Audio and transcripts are at kgou.org, and look for Capitol Insider where you get podcasts.
And Shawn and I will be at Full Circle Bookstore in Oklahoma City at 6.30 p.m. on February 26th for a Capitol Insider Conversation about this year's legislative session. RSVP and submit questions at kgou.org. Until next time, with Shawn Ashley, I'm Dick Pryor.
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