For cash-strapped agencies, another surprise spending cut
For the third time in two years, Oklahoma’s weakened economy has forced statewide agency budget cuts as officials scramble for ways to balance the budget.
The new spending cuts will total $34.6 million.
Estimates announced Tuesday projected that through June, tax revenue will only reach 94.3 percent of what was budgeted to fund state government operations.
Lawmakers already build a 5 percent cushion into each year’s budget, so the revenue failure was triggered when anticipated collections fell below that benchmark.
State officials have to balance the budget, so Finance Secretary Preston Doerflinger will order a 0.7 percent, acrossthe-board spending reduction for appropriated state agencies. The $34.6 million cut will be in effect until the next budget year begins July 1, but Doerflinger warned there could be more cuts before then if revenue doesn’t improve.
In a news conference, Gov. Mary Fallin placed much of the blame on legislators who have not adopted her cost-cutting and revenue-boosting measures in the past and continue to criticize her ideas to raise revenue next year. Along with other proposals to raise cigarette and motor fuel taxes, she defended her two-week-old plan that would levy sales taxes on 164 services that are not currently taxed.
“I’m perfectly aware that my budget is not a popular thing to do, but I had to find $868 million at that time to be able to fill the budget gap,” Fallin said.
If lawmakers adopt all of Fallin’s proposed sales tax increases, the entire shortfall expected in next year’s budget could be nearly wiped out. A state panel certified the final estimated budget shortfall on Tuesday at $878 million, slightly higher than the figure cited in December when the last estimate was released. Fallin’s sales tax plan
would bring in approximately $840 million.
Fallin said that if the tax base is expanded by taxing the 164 services in her proposal, lawmakers could then lower the state’s 4.5 percent sales tax rate.
“There are many different options we could look at if we broaden that base,” she said. “But 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.”
Veto threat
Fallin threatened to veto the budget if the Oklahoma House and Senate send her a budget without filling the shortfall.
Almost a year ago, lawmakers approved a $6.9 billion budget. Now they’ll have just $6 billion to work with as they consider budget priorities this legislative session.
“If (lawmakers) just say, let’s just cut $900 million, which they could, that gives me some options of what I can do,” Fallin said concerning a possible veto.
Officials could be months away from coming to an agreement on next year’s budget, however, primarily because lawmakers disagree about how to raise revenue. On Tuesday, 27 GOP House and Senate members announced their opposition to the service tax hike.
Democrats have said they will support a cigarette tax increase if Republicans also reverse cuts to income and energy production taxes.
Glen Cosper, who was at the Capitol on Tuesday with other Realtors from across the state, criticized Fallin’s tax proposal because of how it would affect consumers.
He referenced a hypothetical situation where a 70-year-old woman has to handle the estate of her mother. Everything from funeral expenses to dry cleaning to the final real estate transaction could be newly taxed under Fallin’s plan, he said.
However, Cosper agrees that the state has to find revenue somewhere.
“They have to look at some of these other things. What about tax credits?” said Cosper, who serves as government relations chairman for the Oklahoma City Metropolitan Association of Realtors. “Do you want to tax the 70-yearold lady 16 times, or do you want to adjust the wind (production) credit where it should be?”
Spending cut twice last year
This is the second consecutive state budget affected by a revenue failure.
Midway through last year’s budget cycle, state agencies were hit twice by midyear spending cuts. Agencies were told to trim 3 percent from planned expenditures, but months of poor revenue exacerbated the problem enough that Doerflinger ordered a second round of cuts. A portion of the second cut was later restored.
The budget cuts this year will go into effect March 1. According to Doerflinger’s office, the cuts will cost the Education Department more than $11 million and will force a $4.2 million spending cut at the Department of Human Services.
The Oklahoma Health Care Authority, which oversees Medicaid payments to medical providers, will have to trim $4.65 million from its operations for the next four months.
And because of the way Oklahoma diverts cash to education, schools will also lose an additional $39.1 million in dedicated funds before the end of the fiscal year because of lower-than-expected revenue.
Doerflinger said he will monitor the revenue situation each month.
“If current trends continue, and I’m as much an optimist as anyone, but if they continue we could likely see further reductions by the end of this fiscal year,” he said. “I hope that’s not the case.”
In an emailed statement, House Speaker Charles McCall expressed cautious optimism that lawmakers could agree on ways to fund the government. Senate President Pro Tem Mike Schulz wrote that it’s important to consider reforms on tax incentives, apportionment and agency efficiency.
House Democratic Leader Scott Inman, D-Del City, said the revenue failure is selfinflicted. His caucus has proposed increasing the income tax and linking the tax paid on oil and gas production to the price per barrel.