The Oklahoma Board of Equalization declared a revenue failure for the current fiscal year, which will result in mid-year appropriations cuts to state agencies.
State agencies will receive across board cuts of 0.7 percent between March and June of this year. In total, agencies will be cut by $34.6 million.
Preston Doerflinger, the Director and Secretary of Finance, Administration and Information Technology, said the situation is dire and more revenue is needed.
“I need you, members, I beg you to have an appreciation for the seriousness of the situation we have before us,” Doerflinger told the board members. The Board of Equalization includes the governor, lieutenant governor, treasurer, attorney general, state auditor and president of the board of agriculture.
The state faced two revenue failures last year. The state declares a revenue failure when it doesn’t receive as much money as is projected for its fiscal budget.
Governor Mary Fallin continued to make the case for her budget proposal that includes new sales taxes on more than 150 services that currently aren’t taxed, and higher cigarette and motor fuel taxes.
“We have to do something, and standing in the middle of the road and doing nothing is not an option. It is not working. Our budget is broke and we’ve got to fix it,” Fallin said.
The current revenue failure was largely fueled by a decrease in the corporate income tax, which was 69.1 percent below the original projections. Fallin has called for the elimination of that tax. Sales tax collection were 5 percent below projections, and individual income tax collection were 2.3 percent below. Gross production taxes on gas were 5.1 percent above projections.
Fallin is challenging lawmakers to commit funds to preserve state services in the upcoming fiscal year.
“If our legislature isn’t willing to solve some of these problems and prioritize our service, invest in some of our services, there may just come a time at the end of session where I just veto the appropriations until we get a deal worked that works for the state of Oklahoma,” Fallin said.
The latest figures project the upcoming fiscal year will have a budget shortfall of $878 million dollars, an increase of ten million dollars over what was previously anticipated.
In the short term, public schools will cut their budget by $11.1 million between March and June. Other cuts to large state government agencies include $4.65 million to the Oklahoma Health Care Authority, $4.6 million to the State Regents of Higher Education, $4.2 million to the Department of Human Services, $3 million the Department of Corrections and $2.1 million the Department of Mental Health and Substance Abuse.
In addition, officials are projecting a $39 million shortfall to the 1017 fund, which goes to common education.
Lt. Gov. Todd Lamb announced last week he would leave the governor’s cabinet because he disagreed with Fallin’s proposal to expand the sales tax base. On Tuesday, he said the new revenue projections did not change his mind, and he would prefer to streamline government and examine tax credits and incentives.
“I think it’s very healthy to have a comprehensive review of all tax credits and incentives,” Lamb said. “And we’ve done that. We’ve tried that. We’ve attempted that and we’ve done that in some respects in recent year. But I don’t know if we have done it thoroughly enough.”
House Speaker Charles McCall, in a written statement, said House Republicans expected the Board of Equalization’s revenue failure announcement.
“We have been preparing to deal with another budget gap since the end of the 2016 legislative session and started discussing possible solutions months ago,” McCall said. “The revenue failure reflects an actual revenue shortfall of 0.7 percent of last year’s estimate and will require state agencies to adjust their current budgets accordingly. These situations evolve, and it would be unproductive to rush to conclusions. Last year, overly cautious cuts based on declarations of revenue failure resulted in $140.8 million in excess funds that were returned to our state agencies.”
Democratic House Minority Leader Scott Inman labeled the revenue failure as “self-inflicted.” He blamed income tax cuts and the reduction in the gross production tax.
“Without a doubt, without any question, the revenue failure the state of Oklahoma faces today is due in part to the leadership failure that currently exists under the dome here at 23rd and Lincoln,” Inman said.
Inman says House Democrats are working with Republican leadership in the House to help pass Fallin’s $1.50 tax increase on cigarettes if the GOP agrees to raise the gross production tax on oil and gas from 2 percent to 4 percent.
Inman is less interested in Fallin’s proposal to expand the sales tax base to include more services, including residential utilities, barber shops and dental visits.
“Education hadn’t been cut deeper than any other state in the nation in Oklahoma because 86 year old grandmothers don’t pay sales taxes when they get a haircut. Hospitals aren’t going bankrupt in Oklahoma because working moms don’t paying sales taxes when they send their kids to the dentist,” Inman said. “But apparently that’s what Preston Doerflinger and the governor believe is the way to get out of this problem.”
In a written statement, Senate president pro-tem Mike Shulz said the revenue failure announcement did not improve the budget picture.
“That’s not all that surprising considering the lingering effects of huge slumps in the energy sector and agriculture sector – the two main drivers of Oklahoma’s economy. We already knew crafting a balanced budget this year would be tough and that didn’t change with the news that the budget shortfall has grown,” Shulz wrote. “In the face of another budget shortfall, the Senate understands all options are on the table to deal with these challenges. However, it’s important to make sure we don’t overlook solutions like tax incentive reform, apportionment reform, and pursuing agency efficiencies that when combined will provide short-term relief and long-term budget stability.”