Moments after explaining how another state revenue failure will require millions of dollars of mid-year budget cuts, Secretary of Finance Preston Doerflinger issued a warning to lawmakers and top state officials.
“I don’t know how much more I can emphasize that the time for action is now,” he said at last week’s Board of Equalization meeting, at which the group also certified revenue figures that show an $878 million shortfall for next year. “It’s not a game. We need new revenue.”
In response to the state’s budget hole, Gov. Mary Fallin and Doerflinger are pushing a nearly $1 billion revenue-raising plan that increases taxes on gasoline, cigarettes and 164 types of services, including utilities, haircuts and car repairs.
They argue these politically unpopular decisions are needed to fix what Doerflinger called a “dire” budget picture. He went on to say the Legislature can no longer rely on budget “tricks and gimmicks” to avoid major cuts to education, health and public safety programs.
But Republican legislative leaders have downplayed the threat that that they must raise taxes or slash core government services.
“In the face of another budget shortfall, the Senate understands all options are on the table to deal with these challenges,” said Senate Pro Tempore Mike Schulz, R-Altus. “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.”
The Public’s Perspective
This divide isn’t just at the Capitol.
Polling data and interviews with advocates and constituents who have lobbied their representatives during the early weeks of the session also illustrate the split in attitudes on whether tax increases should be on the table.
A SoonerPoll survey of 400 likely voters from Feb. 15 to Feb. 21 found that 87.2 percent of those sampled felt the state has a spending problem, while far fewer – 68 percent – felt the state has a revenue problem. Although this shows some believe the state has both revenue and spending problems, many more think the state should look at cuts.
In addition, 87 percent of respondents felt more efficiencies can be found in state spending while support for any of the tax-raising proposals – except for the cigarette tax increase and extending sales taxes to tattoos – fell well below 50 percent.
House Majority Leader Mike Sanders, R-Kingfisher, said many of the tax-raising proposals have caused “heartburn” with his caucus. And although he said he’s received a mix of emails and in-person visits from constituents upset or concerned about the budget or issues like teacher raises, he stressed it’s not time to panic.
“It’s early in the process and we may not have all the answers at this point,” he said. “But I am confident when it’s all said and done, we’ll have a balanced budget, as is mandated by law, and we are going to fulfill what we were sent here to do.”
Rep. Claudia Griffith, D-Norman, on the other hand, said she’s received many calls, emails and texts from constituents worried about the budget. Some have asked her to do whatever it takes to raise revenue, including increasing the cigarette tax and other fees.
“When you can’t meet core services, that’s a concern,” Griffith said
Last year, Andy Moore’s concerns over the state budget drove him to start Let’s Fix This, a nonprofit geared toward boosting civic engagement at the Capitol. The revenue shortfall has left Moore with lingering concerns.
“In some ways, it’s worse, because … we’re facing cuts now that are on top of cuts we had last year and cuts the year before that,” Moore said. “It’s a compounding issue, and next year’s (revenue is) going to be even lower.”
Norman resident Brian Pelts, a supporter of Let’s Fix This, isn’t taking anything for granted. He’s frustrated with the Legislature’s pursuit of “morality bills” as the state faces another revenue shortfall.
“To me, the budget’s the most important thing, because every program and plank in a platform begins and ends with funding,” Pelts said.
Why 2017 Could Be Different
So the question is, are wholescale revenue changes needed this year?
Similar budget warnings were cited last year when lawmakers were up against a record $1.3 billion shortfall.
Entering the 2016 session, officials warned that a failure to act on Fallin’s budget proposal, which also called for a cigarette tax hike and a smaller-scale broadening of the sales tax base, could lead to rural hospitals failing, the closing of nursing homes across the state and mass teacher layoffs.
But in the final days of the session, Fallin and lawmakers found a way to close the budget gap without raising taxes or deeply cutting agency budgets.
The deal wasn’t perfect. It didn’t include money for teacher raises and largely depended on one-time revenue fixes, including taking out $200 million in bonds.
There are indications that a similar budget fix could happen again. Although they have been tight-lipped on specifics, legislative leaders have offered assurances that even without a major tax increase, there are enough options available to balance the budget without significant cuts.
“It will be a budget that certainly won’t make everyone happy,” Schulz said. “But we will get our work done.”
But there are also signals that pulling this off could be a tougher challenge despite the $878 million shortfall being less than last year’s $1.3 billion budget hole.
Lawmakers will again be able to use some one-time funding sources, including the “Rainy Day Fund,” bonds and agency revolving funds. But falling back on these options carries risks.
An October report from Moody’s Investor Services warned that “continued use of one-time revenues to address future budget gaps” and a “depletion of state’s financial reserves” were two factors that could lead to a downgrade of the state’s credit rating. This could lead to higher interest rates that would make borrowing more difficult and costly.
(UPDATE: Standard & Poor's downgraded Oklahoma credit rating on Thursday, March 1 after Oklahoma Watch published this article. The ratings agency downgraded the state's general obligation bond debt rating from AA+ to AA. S&P also downgraded Oklahoma's appropriation debt from AA to AA-.)
State agencies also have less room to absorb more cuts – something many GOP lawmakers say is still on the table – after the latest round of budget reductions that were triggered by last week’s revenue failure.
Department of Corrections Director Joe Allbaugh, for example, said last week that his agency is “already cut to the bone financially.” He said further cuts carry public safety risks if actions, such as the newly announced agency hiring freeze, are prolonged.
And underscoring the seriousness of the issue, Fallin took the rare step last week of threatening to veto the budget bill if lawmakers cut too deeply.
“We have to decide as a state what we want to fund and what type of services do we want to have,” she said. “We can deliver services, but they might not be good.”