As you probably know by now, the state of Oklahoma declared a revenue failure again this week.
For the second time in two fiscal years, the state of Oklahoma has declared a revenue failure, meaning tax collections are below the estimates used to pass the state budget last session.
“Our revenues are difficult at best, and maybe they fall into the category of pathetic,” Secretary of Finance Preston Doerflinger told a packed room of elected officials, bureaucrats and media this morning. “Our situation is dire. I beg you to have an appreciation for the situation we have before us.”
What this means is that state agencies will receive a reduction in funding from what was budgeted at the beginning of the fiscal year, which runs from July 1 to June 30. For public education, that’s over $46 million in mid-year cuts.
Doerflinger could not emphasize enough how critical this situation is.
Doerflinger also alerted the board to an even larger budget hole for Fiscal Year 2018 than had been anticipated: $878 million, up from $868 million. He more than subtly urged the board — and legislators — to consider Fallin’s bold revenue ideas.
“I don’t know how much more I can emphasize that the time for action is now,” Doerflinger said. “It’s not a game. We need new revenues.”
Doerflinger spoke at a podium directly in front of Fallin and Lamb, who stepped down from Fallin’s cabinet last week because he said he could not support the governor’s proposal for sales tax to be implemented on a variety of services.
“The governor is a pragmatic person, a reasonable person,” Doerflinger said to a silent, crowded room. “She has put forward a bold proposal. I know she and I look forward to specific plans to be revealed by other people involved in this process.”
Fallin’s bold proposal includes eliminating the grocery sales tax and corporate income tax. She would replace them with a menu of taxes on services, such as tattoos, oil changes, and haircuts.They also want to increase the cigarette tax.
The governor’s estimates (which are Doerflinger’s estimates) are huge. I question whether they’re reliable. These are the same people who have worked with legislative leaders to “balance” the state budget each of the last three years, leading to massive shortfalls every time.
According to Fallin’s estimates, applying sales tax to services would bring in $1,703,879,742 (that’s 1.7 Billion dollars with a B) to government coffers. Of that, the state government would receive $934,247,035, county governments would get $648,274,017, and cities would collect $121,358,690.
This is essentially a 10% tax hike on small businesses and consumers across the state, as the cost of doing business and obtaining services will go up about 10%.
Fallin lists 164 different categories she wants taxed. This includes all manner of construction-related contracting services, cable TV, pet grooming, carpet cleaning, business and legal services, utilities for residential use, funeral services, medical services… the list is very long, and you can view it here.
It’s not a very good plan, but at least it’s a plan.
I’ve been pretty quiet the last few weeks. I’ve seen lots of revenue plans (such as nearly tripling the beer tax) and teacher pay raise bills. What I haven’t seen is any momentum behind a solid idea to fix the fundamental problems in this state.
For three years, we’ve listened to state leaders blame the budget hole on low oil and gas prices. In her State of the State address this year, Fallin even blamed online shopping for contributing to lower state revenues.
These things contribute, but not as much as the tax cuts our state has passed during the last ten years. And yes, I know that dates back into Brad Henry’s second term as governor.
The Oklahoma Policy Institute estimates the annual cost of these tax cuts at more than $1 billion. You and I have barely felt those cuts. Most are large cuts for the wealthy and cuts for oil and gas. Other states that rely on fossil fuels for revenue haven’t been hit this hard. They also haven’t decimated their own tax base to intentionally starve the beast of core state services.
Repeating the gravity of the situation, Doerflinger spoke Friday to a Republican group in Tulsa. You can watch clips of his remarks at the Tulsa World website. I’ve transcribed a few sections:
0:25 At some point, we have to determine what type of state we want. Do we want to invest in things like common education or not, and if not, and if we’re not, then we should just tell teachers – and I have friends that are teachers, I have friends that are corrections workers, I have friends that are child welfare workers – at some point we just need to tell those people that we don’t care, or we need to decide that we need to invest in those areas. And I’m telling you, that there are still areas and places we can improve from an efficiency standpoint.
Based on the last few years, I’m reluctant to say what kind of state his audience envisions. Fallin is still governor. We keep digging deeper holes in our budget. An actual plan to raise teacher salaries by $5,000 was defeated at the polls in November. Like it or not, this is the Oklahoma standard right now.
1:50 And agencies have peddled doubt and fear for so long that it’s hard for you to believe me whenever I stand up in front of you and try to make an argument for the fact that these agencies have taken serious cuts over many years and if we’re going to hit them this year with the Draconian-style cuts that I think some people would have us hit them with, then we’re at risk at this point of doing real harm. Some of these people that we’re talking about, if they sustain these type of cuts – and I’m not a dramatic person – people die. We’re putting our corrections workers at risk. We’re putting child welfare workers at risk. And then again, if you care about teachers and the teacher pay raise, I don’t know how you fund that without looking at some types of new revenue.
If stating directly what ongoing cuts mean to those we serve means we have peddled doubt and fear, then I don’t know what to tell you. Then again, he’s not a dramatic person, and he thinks people are going to die if we don’t do something different.
2:40 If the agency known as the State Department of Education and if the Education Establishment in general would start coming with more solutions to the problem versus just the answer being solely we need more money, because there are opportunities to realize efficiencies within the common education universe. The problem is that the Education Establishment really is fixated on just maintaining the status quo, which is sick and really disgusting and it doesn’t benefit the children in this state, so enough of that already.
That’s some weird phrasing: the agency known as the State Department of Education. How else would they be known? And of course, there’s the red meat for his base: the Education Establishment.
I can’t speak for anyone else, but I’m fixated on improving the education my district provides our 14,300 students. Cutting $5,000,000 from our budget last year and over 100 support, teaching, and administrative positions doesn’t make that easy. Losing almost $1.3 million in the second half of this fiscal year doesn’t either. School funding is being held hostage by someone who shows no evidence that he can reverse trend behavior.
And that is really disgusting.
3:20 What we are doing is not sustainable. It’s not, and we need to figure out – the collective we – how we want to approach that. I – again, if anybody things the budget that I pushed out this year is the budget that I wanted to push out – it’s just not true, but it was the reality that we faced in order to try to invest in our state and try to avoid doing real harm in areas where – I can tell you, it was a guiding principle. The governor has told me, the last two years for sure, please try to protect areas, Preston, where people die, or real harm occurs, and that’s what I’ve tried to do.
This entire scenario reminds me of a scene in The Hunt for Red October. A Russian admiral, played by Sean Connery, wants to defect to America and bring his big, bad new submarine with him. He’s being chased by another Russian submarine, which fires a torpedo. Connery’s sub outmaneuvers the other one, and the torpedo tracks towards the one that fired it.
One of the Russians turns to the ship’s captain and says, “You arrogant ass; you’ve killed us!”
As with the torpedo movie, we’ve taken the safety features off our budget. We’ve all but eliminated taxes on horizontal drilling. We give money away by the bucket to corporations that fail to invest it back into our state. We keep cutting taxes and then desperately trying to steer out of the way of disaster.
And every time we do this, someone in the Education Establishment will say how grateful we are that we were held flat, as opposed to facing more cuts.
I’m over that.
And if you want a list of some of the suggestions we’ve made over the years, check out Rob Miller’s blog post from today. He’s not thrilled with Mr. Doerflinger either.
During a speech to the Tulsa Republican Club Friday, State Finance Secretary Preston Doerflinger remarked that the Oklahoma state government cannot continue to function at anything close to current levels without new revenue, calling the state’s current budgeting path “not sustainable.”
Duh, ya think!
Thank you, Preston Obvious.
Rob discusses several funding and policy solutions we have proposed for years. We’re not beholden to the status quo. I would love to change many things about how we pay for education and how we provide it.
What the Education Establishment can’t do is fix the state budget. Hopefully someone can.