David Blatt, Oklahoma Policy Institute press revenue options to avoid agency cuts
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Published: 12-Apr-2011

Over recent weeks, Oklahoma Governor Mary Fallin has asked for ideas on avoiding further budget cuts for state agencies. Oklahoma Policy Institute, a “think tank” based in Tulsa, has responded with a list of proposals certain to provoke interest. 

 OK Policy’s 7-page brief, “Protecting Core Services: Revenue Options for a Balanced Budget,” includes a combination of budgeting measures, income tax revisions, suspension of the scheduled reduction in the state’s top income tax rate, tightening or eliminating “unnecessary exemptions,” and mandating that online sales taxes be collected. 

 In comments provided today (Tuesday, April 12) to CapitolBeatOK, OK Policy’s David Blatt said, “With Oklahomans already more reliant on public services in the economic downturn, deeper cuts may seriously harm the well-being of schoolchildren, seniors, persons with disabilities and mental illness, correctional and public safety officers, and other members of our communities. 

“We hope this report will aid lawmakers in finding a more balanced approach to the state budget that does not rely only on cuts.”

 Blatt and Gene Perry, a policy analyst for the group, will formally release the “issue brief” tomorrow. Blatt said the paper was prepared in part as a response to reports from CapitolBeatOK and from other news organizations about ongoing budget talks, and different emphasis on cuts versus savings in the comments of some key players. 

Legislative leaders -- Senate President Pro Tem Brian Bingman of Sapulpa and House Speaker Kris Steele of Shawnee – have continued to project budget trims of 5 to 7 percent. Governor Fallin wants to keep reductions in appropriations to the 3 to 5 percent range. 

 All involved have indicated they want to keep education, public safety and health care comparatively protected. However, legislators have said cuts for some agencies could be as high as 10 percent in some cases. 

 In his prepared statement, Blatt reflected, “We know that none of these options will be politically easy to adopt. But compared to the real harm that steep cuts would inflict on Oklahoma, they deserve serious consideration in the remaining weeks of the legislative session.”

 In the brief, Blatt and Perry write, “Next year’s certified revenue of $6.2 billion is over $500 million less than current years appropriations and $900 million, or 12.6 percent, less than FY ’09.”

 Concerning budgeting measures that could reduce the funding stress, the pair pointed to steps already envisioned in the governor’s executive budget issued at the start of the legislation session. That document, in the OK Policy summary, envisioned “$200 million by issuing $100 million in transportation bonds through the Oklahoma Capitol Investment Authority and $100 million in bonds for information technology capital projects. Other possible budgeting measures include appropriating a portion of the 5 percent funds and transferring revolving fund balances.”

 Concerning the 5 percent money, Blatt and Perry wrote, “Under the state Constitution, the Legislature may only appropriate up to 95 percent of estimated collections for the upcoming year for certified revenue funds. If actual collections to the General Revenue (GR) Fund come in above 95 percent by the end of the year, the ‘5 percent money gets deposited to the GR Fund at the beginning of the next fiscal year and is then available for appropriation in the following year (General Revenue above 100 percent of the estimate goes to the Rainy Day Fund).

 “So far through the first nine months of FY ’11, actual General Revenue collections are at 104.2 percent of the certified estimate. If revenues remain above 100 percent of the certified estimate …, this would make $244 million in 5 percent revenue available at the beginning of FY ’12.”

 Some state officials have said “at least a portion of the FY ’11 5 percent money be used to offset cuts in the FY ‘12 budget. Critics of this approach will note that the state has never before budgeted current year 5 percent money for the upcoming budget year, and doing so is likely to require special statutory authority. There will certainly be concern from legislators about building 5 percent money into the base budget that would then have to be replaced in subsequent years, along with other non-recurring money in the FY ‟12 budget. This also creates a precedent that could get the state into trouble in years when revenues fall short of projections.”

 Despite the summary of concerns over use of the 5 percent money, Blatt and Perry contend, “compared to other solutions that could generate substantial additional revenue, using a portion of the 5 percent funds may face the least opposition.”

 Comments from some state officials have indicated that revolving fund balances in agencies, colleges, and universities – a total of more than 500 such funds exist funded by fees or other dedicated revenue – cold be accessed. 

 Blatt and Perry report, “it is clear that some fund balances have grown considerably over the past two years. Although it is very hard to know which funds may have been allowed to build up “too large” of a balance without careful research into each particular fund’s purpose and history, it seems more than likely that there is revenue sitting in various agency revolving funds that could properly be substituted for state agency’s appropriations or transferred to General Revenue to help fund other areas of government.”

 Both Republican leaders at the Legislature have told CapitolBeatOK and other reporters that revolving funds are “on the table” in budget negotiations.

 Both men have also said they do not support delaying or suspending the income tax rate “trigger” that will result in a .25 reduction in income tax rates. However, OK Policy says leaders should consider “stopping further cuts to the top personal income tax rate.” 

 Blatt and Perry noted that last year Governor Brad Henry and the Legislature agreed “to suspend and defer payment for two years on a wide range of income tax credits that subsidize various forms of economic activity. Suspending and deferring income tax credits had a revenue impact of some $60 million” for the past two years. Further, “Rebate payments for gross production taxes on horizontal and deep well drilling were also deferred for two years.”

 The pair say other measures could be considered: “limiting itemized deductions; eliminating the state tax deduction for state income taxes; and suspending other state tax deductions.”

 OK Policy encourages the state government to adopt “combined corporate reporting” as a means to “ensure multi-state corporations pay their fair share of taxes.” The change would require multi-state corporations to “add together the profits of all their subsidiaries into one total the state then taxes a share of that combined income based on a formula that takes into account the corporate group’s level of activity in the state as compared to its activity in other states.”

 The OK Policy brief also observes that many sales tax exemptions have strong economic or social justification. However, taken as a whole, the exemptions give “the appearance of a hodge-podge of favors and privileges for various industries, sectors and populations” without consistent rationale. 

 Blatt and Perry also encourage lawmakers to consider eliminating exemptions for online programs, and enforcement of use taxes for Internet sales. 

 The OK Policy paper concludes, “With the significant budget cuts of previous years already disrupting many important public services, the evidence suggests that we have gone far beyond simply eliminating waste. In addition, several revenue measures discussed above can make Oklahoma more stable and secure over the long term, while ending arbitrary and inefficient subsidies to special interests. If the legislature and governor want to show responsible leadership, these options need to be on the table.”

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