ANALYSIS, Part One: Oklahoma’s Budget Blues outline in Gov. Fallin’s State of the State

OKLAHOMA CITY – The Sooner State faces an historic budget crunch, and Governor Mary Fallin minced no words in describing the problem in her State of the State speech , which opened the 2016 legislation session on Monday (February 1).

She told lawmakers and a packed gallery, during a joint session of the state House and Senate,”We’ve seen a 70 percent drop in oil prices in less than two years, which has a tremendous impact on our revenue. There is an excess supply of oil and natural gas in the marketplace, and instability in worldwide markets doesn’t help.

“The oil price collapse and decades-old structural problems with the budget have caused almost a billion dollar budget hole. How we respond will define our future more than anything else.”

Using visual aids (with red, yellow and green columns), she pointed out what will happen (red for “stop”) “if we take no action. If we don’t change the way we apportion and collect revenues, most state agencies will be faced with a 13.5 percent appropriation cut for the upcoming 2017 fiscal year – or a total cut of 16.5 percent since July 1, when considering December’s revenue failure.”

She said there was a “quick and easy shortcut – often used in the past – that withdraws every penny available from the Rainy Day Fund to reduce agency cuts to 10 percent.” That was the yellow column, that would means “a $244 million cut to public education that we can all agree is not acceptable.”

Then there was the budget option she deemed “green”, a spending plan to “takes control of the challenges we face today and puts us on far better footing for the future.” That plan, asserted, “uses zero one-time revenue. You heard me right: There is no one-time money in this budget.”

The chief executive continued, “While we can’t control the price of oil, we can control our budget. … My budget addresses structural imbalances, fixes problematic tax policies, prioritizes spending and puts recurring, stable revenue on the table. …

“Most agencies will see an appropriation reduction of 6 percent. That’s not pleasant, but it’s a far better position than 13.5 percent or 10 percent across the board and depleting our savings account.”

The governor then turned to what many call revenue “enhancement,” but some deem “overdue adjustments.”

Fallin’s budget ideas are designed to capture “$910 million of recurring revenues for appropriations that will help fund core services next year and every year in the future. Of that $910 million, my budget proposes $181.6 million from a personal consumption tax on cigarettes.”

She wants the Legislature to approve capturing $125 million from non-appropriated agency revenue sharing, “$19.7 million annually by eliminating non-statutory, non-critical pass-through appropriations,” $125 million from “automating reconciliation of some agency revolving funds,” and $40 million “by reallocating apportionments back to the General Revenue Fund that currently go to noble but noncritical functions.”

All of that is rather bold – the most dramatic steps to re-structure government during her tenure – but the attention-getting section of Monday’s speech was to secure “$200 million a year by modernizing our state sales and use tax exemptions.”

To drive the point home, Fallin said, “We can start with taking a look at the $8 billion – that’s billion, with a B – in annual sales tax exemptions. … We’ve asked around and nobody can remember any of these ever getting repealed, let alone reviewed. Surely some of that $8 billion can be revisited. Just 1 percent would net $80 million to core government services.”

She proposed to eliminate what she called “outdated” sales tax exemptions “and looking at areas other states apply sales tax to that aren’t subject to sales tax in Oklahoma. The Texas sales tax covers roughly 60 more categories than Oklahoma’s. New Mexico’s sales tax covers 130 more categories than Oklahoma’s.

“The services component of the economy has for decades been the fastest growing segment of the U.S. economy and our tax code does not reflect that. If we don’t adjust our tax structure to reflect this change in commerce, there will be increasing pressure to raise government revenue in less palatable ways. If structured properly, this approach could present an opportunity to reduce the state sales tax rate, which is currently the sixth-highest in the nation.”

Fallin asked for help from local government officials: “We all need to call on Congress to level the field for small businesses and Oklahoma retailers by implementing a fair system for online sales tax. We have to help our local communities keep local businesses healthy and fund core services.”

NOTE: This is the first in a series parsing key elements of the governor’s State of the State speech, using as often as possible her own words.