Lawmakers are a few weeks away from wrapping up the legislative session, but among the tasks remaining at hand before we adjourn, we will be making some significant decisions regarding the budget.
As you know, Oklahoma is facing a $611 million budget hole and we’ve already spent a considerable amount of time meeting with the state’s largest agencies over the past three months to weigh the funding available against the needs of each agency. As expected, not only is the budget not enough to cover each agency’s proposed budget, but many agencies require funding increases simply to maintain services at current levels.
The budget shortfall is a combined result of the struggling oil and gas industry and past policy choices that have weakened revenue collection. Facing a crippling budget hole, lawmakers will consider all options as we make final decisions on fiscal allocations. If we want to bolster and build up Oklahoma’s fiscal outlook not only for next year, but also over the long term, one of the most obvious solutions is to cancel the income tax cut for the top income tax rate and eliminate the deduction for state income taxes. This isn’t likely to happen, but the tax cut approved last year is expected to cost $57 million in lost revenue in FY 2016 and approximately $147 million in FY 2017. Broken down per household, the median household will receive just $31 in income tax relief, while 40% of households will get nothing at all. The benefit of the tax cut to the individual taxpayer is minimal, while the effect on state programs that help thousands of Oklahomans is significant.
Meanwhile, Oklahoma is also one of only six states that still allow taxpayers who claim itemized deductions on their federal tax return to also claim the deduction for state income taxes on their state return. This is in an unintentional oversight of the law, but by eliminating this “double deduction”, Oklahoma would gain almost another $100 million in additional revenue.
Oklahoma could also boost corporate tax collections by $40-$80 million by adopting combined corporate reporting. Many states with a corporate income tax have adopted combined corporate reporting, which essentially stops this corporate tax avoidance tactic and ensures that multi-state corporations contribute their fair share of taxes, just as local businesses do.
While these options would be better choices to help keep the state fiscally healthy over the long run, there are also a few things legislators will likely consider that would provide short term solutions to get Oklahoma through this year’s rough patch. The Rainy Day Fund currently has $535 million, and of that amount, $192 million could be appropriated by a simply legislative majority. An additional $134 million could be appropriated by an emergency declaration of the Governor and a 2/3 majority vote of the Legislature. While it’s not advisable to drain the entire available amount of the Rainy Day Fund, some should be tapped to offset the budget hole and ensure agencies can continue to provide essential services and function appropriately.
Another short-term solution is to opt to use cash reserves and revolving funds to balance this year’s budget. Last year, lawmakers used over $400 million from these resources to prop up the shortfall, but revolving funds aren’t intended to be used each year because the use of one time funds is unsustainable over the long term. Eventually the money will run out if used year after year to cover repeated shortfalls.
The budget remains one of our top priorities and it’s my hope that legislators can unite to find sustainable and logical solutions in meeting the needs of Oklahoma. Our teachers need raises, our prisons need to be adequately staffed and the essential services of Oklahoma state agencies need to be appropriately funded in order to serve the people of Oklahoma. Those issues are some of the top concerns, but there are many other needs across state agencies. As legislators, ensuring a balanced and productive budget should always be one of our highest priorities.
As always, I welcome your comments and concerns about state government. Please feel free to contact me by writing to Senator Charles Wyrick at the State Capitol, Room 523, Oklahoma City, OK, 73105 or you can call me at (405) 521-5561.
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