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Gov. Fallin addresses budget crisis, one-time revenue sources in ‘State of the State’

Mary Fallin

OKLAHOMA CITY – On the first day of the legislative session, Oklahoma lawmakers are already facing a nearly $900 million budget shortfall.

On Monday, Oklahoma Gov. Mary Fallin addressed lawmakers in her annual ‘State of the State’ address and focused on the budget crisis.

She says sales tax revenue lost from online shopping and a drop in the energy industry has greatly affected Oklahoma’s economy.

“Oklahoma will continue to struggle if we don’t fix our structural deficits in our budget,” Fallin said.

She encouraged lawmakers to focus on reality, adding that Oklahoma has spent too long trying to balance the budget on one-time revenue sources.

Fallin said that she is proposing ‘bold’ reforms to modernize Oklahoma’s tax laws. One of those proposals would eliminate the state sales tax on groceries, which would save the average family hundreds of dollars each year.

Fallin is also proposing doing away with the corporate income tax. In exchange, she says her plan would expand the sales tax base.

However, her speech did not go into detail about those plans.

Fallin proposed raising diesel and gasoline taxes, and using those fuel taxes for roads and bridges.

“I am proposing a new revenue stream by increasing our gas and diesel taxes to the regional state average, but still below the national average,” Fallin said.

She also asked lawmakers to raise the cigarette tax, adding that smoking claims the lives of Oklahomans and costs the state $1.62 billion in healthcare related expenses.

Fallin also said that a prosperous economy must rely on a skilled, educated workforce.

“That starts with good teachers in the classrooms providing our children a quality education five days a week,” Fallin said, calling for a permanent pay raise for teachers.

It is an issue that has been on the minds of lawmakers for years, but has yet to actually come to fruition. Last legislative session, lawmakers faced a $1.3 billion budget shortfall- which led to cuts to many state agencies, including the Department of Education.

As a result of those cuts, many districts across Oklahoma considered moving to a four-day school week to help save money.

Fallin said that she is creating a task force to review the state education formula, evaluate funding sources, and analyze the K-12 system footprint.

Gov. Fallin also spoke about how the budget crisis affected public safety last year.

She cited the case of accused murderer Michael Vance, Jr., who led law enforcement officers on a manhunt across Oklahoma.

The Vance case put the spotlight on the budget crisis surrounding public safety. Officials say Vance was a threat to society, and forced troopers to travel hundreds of miles in order to stop him.

One month later, the Department of Public Safety announced that in order to stay on budget, troopers would have to stick to a daily 100-mile restriction.

“Approximately 26 percent of our current Highway Patrol troopers are eligible for retirement. We must prepare for the future and fund a trooper academy. While we’re at it, no trooper should be furloughed or restricted to driving 100 miles a day because of lack of funding,” Fallin said.

She also brought up the state’s prison population, which was also a subject in last year’s ‘State of the State’ address.

“It’s no secret our prison population is in a crisis with over 61,000 people under the jurisdiction of corrections. Our prisons are way over capacity, and our prison population is expected to grow by 25 percent in the next 10 years,” Fallin said.

In November, Oklahoma voters passed a criminal justice reform in our state, which will reclassify some criminal offenses, like drug possession and property crimes, to misdemeanors instead of felonies. Those measures were expected to lighten the burden on Oklahoma’s Department of Corrections by reducing the number of people in prison.

In December, Oklahoma Department of Corrections Director Joe Allbaugh said that he is concerned about the safety of the public and his officers every day due to the state of department’s budget.

“We are beyond the tipping point,” Allbaugh said at the time. “The staff and the public are at risk every day when we operate at this capacity. We are critically understaffed in facilities that weren’t built to house inmates. Some of these places are over a century old, causing the agency to hemorrhage money. Statewide, our prisons are in need of more than $2 billion in infrastructure repairs.”

“We have individuals working in the agency who qualify for food stamps and an astronomical turnover rate close to 40 percent, which is leading to money spent on perpetual officer academies and training for new employees,” he continued. “The inefficient practices inundating the agency for decades must end.”

Allbaugh also requested a $1.6 billion budget for the 2018 fiscal year, which is nearly $1.2 billion more than the 2017 appropriation.

Fallin says her budget proposal includes a $50 million bond issue to build wings on a men’s and women’s prison for substance abuse offenders and rehabilitation.

It is a similar concept to a state question that was approved in November. State Question 781, which was approved by voters in November, would use money not spent on sending people to prison to pay for treatment programs.

During her address, Fallin also called on lawmakers to fix the Real ID issue.

The Department of Homeland Security gave lawmakers until June to come up with a plan to become compliant, or an Oklahoma driver’s license won’t be enough to get you into federal buildings, onto military bases or commercial aircraft.

Fallin says that if something isn’t done to fix the budget, all agencies may face drastic cuts and the Rainy Day fund may need to be drained.

However, she says her budget plan basically mirrors the plan for 2003 and would stabilize the budget’s structural challenges.

Last month, Oklahoma Secretary of Finance Preston Doerflinger announced that December’s revenue missed the mark by more than 12 percent.

Lawmakers say they are already preparing for an $870 million budget shortfall. Experts say that amount could grow if collections across the state do not increase.

Oklahoma Policy Institute Executive Director David Blatt released the following statement:

“I applaud Governor Fallin’s call to fix Oklahoma’s structural budget deficits and reverse years of funding cuts that are damaging the health and prosperity of our entire state. The Legislature must heed the governor’s calls to reduce incarceration, fund a teacher pay raise, and restore the 5-day school week. Oklahoma knows how to address these problems, and we have no excuse not to do something this year.
Governor Fallin’s tax reform proposals, whch include ending the corporate income tax and the sales tax on groceries while expanding the sales tax base in other ways, has potential to reduce revenue volatility and end one of the most regressive aspects of our tax system. However, these reforms must be carefully assessed for how they would affect families, the economy, and state revenues. Oklahoma’s budget hole grew from years of tax cuts and tax breaks passed without consideration for what they would cost. Going forward, tax reforms need to stick to a more realistic assessment of what our state needs to do its job.
A grand bargain on tax reform should also include other policies to end loopholes, improve funding for the services Oklahomans need most, and make our tax system work for regular families – policies like rolling back cuts to Oklahoma’s Earned Income Tax Credit, restoring a higher income tax rate for very high incomes, and ending the capital gains tax break. Together these reforms would stabilize revenues and provide a strong foundation for all Oklahoma families to build a prosperous future.”