oklahoma's fiscal outlook: moving from crisis to stability (february 2013)
TRANSCRIPT
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Ok lahom as Fisc a l Out look :Moving from Cr is is t o St abi l i t y
February 2013
David B la t t
[email protected](918) 794-3944
mailto:[email protected]:[email protected] -
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Ok lahom as Pat h t o Prosper it y
What does Ok lahom a need t obe a prosperous s ta t e?
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Ok lahom as Pat h t o Prosper it y
What Prosper i t y Looks L ike Good-paying jobs
Well-educated, well-trained workforce -
Quality education system from early childhood to
post-secondary More college graduates
Well-functioning infrastructure
Healthy communities -
Access to timely and affordable care
Public health
Safe streets and neighborhoods
Stable safety net for those in need
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Ok lahom as Pat h t o Prosper it y
Were In T his Toget her Successful outcomes for our families, businesses and
communities depend on effective public structures andsystems
Government is among our means of achieving our
common goals as a state working with privatebusinesses, non-profits, philanthropies, faith groups,and families
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Ok lahom as Pat h t o Prosper it y
We Lag Behind We fall short in many of our common goals:
Students in bottom third in reading and math proficiency (2009)
43rd in share of population with a college degree (22.2 percent,2008)
43rd in overall health; in the bottom 10 states for rates ofsmoking, obesity, diabetes, physical fitness, preterm births,preventable hospitalizations, premature deaths, days lost tomental and physical illness, and other health indicators (2012)
1 in 6 Oklahomans (17.2 percent) and nearly 1 in 4 children(23.0 percent) live in poverty (2011)
4th in total prisoners per capita and 1st in female incarcerationrates (2009)
9th worst road conditions
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Ok lahom as Pat h t o Prosper it y
We Already Lag Behind Oklahoma invests less than most states in ourpublic structures.
-$1,000
$1,000
$3,000
$5,000
$7,000
$9,000
Spending
perPerson
State and Local Spending per Person by Function, 2007-08
Oklahoma
US Average
Source: U.S. Bureauof the Census
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Ok lahom as Pat h t o Prosper it y
We Already Lag Behind Four years of budget cuts or flat funding andgrowing obligations threaten to corrode our publicstructures and weaken our prosperity
Can we provide a quality education for all
students and produce the skilled workforcethat businesses need?
Can we fix our crumbling infrastructure?
Can we improve our physical health and
well-being? Can we ensure the safety of vulnerable
children and seniors left in our care?
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Budget Trends: FY 10 FY 13
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Budget Trends : FY 10 FY 13
The Recession Hit in Late 2008 Oklahoma experienced six straight quarters of negative growth
(declining state personal income) in late 2008 2009
Economy has mostly grown faster than the nations since start of2010
-8.0%
-3.0%
2.0%
7.0%
2007.4 2008.2 2008.4 2009.2 2009.4 2010.2 2010.4 2011.2 2011.4 2012.2
% Change from Prior
QuarterQuarterly Change in Personal Income,
Oklahoma and National,
4th Quarter 2007 to 3rd Quarter 2012
National Oklahoma
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Budget Trends : FY 10 FY 13
The Recession Hit in Late 2008 Oklahomas unemployment rate rose quickly from under 4 percent to
around 7 percent between Sept 2008 and June 2009
Unemployment was less severe, recovered more quickly than the nation
10.1%9.8%
7.8%
7.2%
5.1%
2.5
3.5
4.5
5.5
6.5
7.5
8.5
9.5
10.5
J an-08 J ul-08 J an-09 J ul-09 J an-10 J ul-10 J an-11 J ul-11 J an-12 J ul-12
Monthly Unemployment Rate, National and Oklahoma, January 2008 to December 2012(seasonally adjusted)
National Oklahoma
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Budget Trends: FY 10 FY 13
State Budgets Hammered
All but four states faced budget shortfalls in FY 11.
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Budget Trends: FY 10 FY 13
Its a Revenue Problem Five consecutive quarters of worsening collections
Revenue dropped more than twice as steeply as in theprevious downturn
Revenues recovering from late 2010 thru 2012 but have
weakened in past four quarters
16.1%
-3.2%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Q1
FY
'02
Q3
FY
'02
Q1
FY
'03
Q3
FY
'03
Q1
FY
'04
Q3
FY
'04
Q1
FY
'05
Q3
FY
'05
Q1
FY
'06
Q3
FY
'06
Q1
FY
'07
Q3
FY
'07
Q1
FY
'08
Q3
FY
'08
Q1
FY
'09
Q3
FY
'09
Q1
FY
'10
Q3
FY
'10
Q1
FY
'11
Q3
FY
11
Q1
FY
12
Q3
FY
12
Q1
FY
13
Quarterly Year-over-Year Change in General Revenue
Collections, FY '02 - FY '13
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Budget Trends: FY 10 FY 13
Its a Revenue Problem FY 10 General Revenue 23 percent below FY 08 pre-downturn
levels
Revenues increased by 10.5 percent in FY 11 and by 8.3 percent inFY 12 but remain below pre-downturn levels
$4,717$4,408
$4,174$4,616
$4,966
$5,701$5,935$5,953
$5,544
$4,621$5,138
$5,565$5,601
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
FY '0 1 FY '0 2 FY '0 3 FY '0 4 FY '0 5 FY '0 6 FY '0 7 FY '0 8 FY '0 9 FY '1 0 FY '1 1 FY '1 2
(proj .)
FY '13
(est.)
Annual Genera l Revenue Co l lec t ions,FY '00 - FY '13
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Budget Trends: FY 10 FY 13
Its a Revenue ProblemTax Cuts Had a Long-Term Impact
Tax cuts were large, permanent, and back-loaded
Tax cuts were stretched out over several years; full impact willnot be felt until FY 13
Major cuts were almost all to the personal income tax
Lost Revenues from Select Tax Cuts Enacted 2004 - 2006
FY'05 through FY'10 (in $ millions)
$18.7$144.8
$333.3
$561.8$651.1
$776.9
$0.0
$200.0
$400.0
$600.0
$800.0
FY'05 FY'06 FY'07 FY'08 FY'09 FY'10source: Oklahoma Tax Commission
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Budget Trends : FY 10 FY 13
Tax Collections Are at Historic Lows
In FY 11 tax co l lec t ions equa led 5 .6 percent o f s t a teper sonal inc om e, c om pared t o 7.2 perc ent in FY 01
Tax c o l lec t ions have no t kep t pace w i th persona l inc ome s inc e FY 06
Sources: State personal income from Bureau of Economic Analysis; Taxcollections from Annual Executive Budget
Its a Revenue Problem
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
S
t
a
t
e
T
a
x
e
s
(
i
n
0
00
0
s)
Oklahom a Stat e Taxe s, Tota l and as Share of Persona l Inc om e, FY '82 - FY '11
St at e T ax Co ll ec t io ns T ax Co ll ec t io ns a s % o f St at e Pe rs on al I nc om e
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Budget Trends: FY 10 FY 13
Budgeting Through the Crisis Three consecutive years of declining appropriations (FY 10
FY 12) followed by modest increases (FY 13)
FY 13 appropriations of $6,855.8 million:
$253 million, 3.8 percent, above FY 12
$269 million, 3.8 percent, below FY 09
See FY 13 Budget Highlights at:http://okpolicy.org/files/FY13Highlights.pdf
$6,217
$6,760
$7,043
$7,095
$5,897 $5,938
$6,404
$6,856$30
$838$554
99
$224
$273$100
$4,000
$4,500
$5,000
$5,500
$6,000
$6,500
$7,000
$7,500
FY'06 FY'07 FY'08 FY'09 FY '10 FY '11 FY '12 FY '13
State Appropriations, FY '06- FY '13
(in $ Millions, includes supplementals, excludes Rainy Day "spillover" funds)
State Revenues Federal Relief Rainy Day Fund
Total=
$6,603
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Budget Trends: FY 10 FY 13
Budgeting Through the Crisis Just under 90 percent of appropriations consistently goes to 10agencies that provide core services
Over 65 agencies share remaining funding
Common Ed.; $2,347 ;34.2%
Higher Ed.; $955 ;13.9%
OHCA (Medicaid); $934; 13.6% DHS; $587 ; 8.3%Corrections; $464 ;6.8%
Transportation; $206 ;3.0%Mental Health; $311 ;4.5%Career Tech; $135 ;2.0%
Juv. Affairs; $96 ; 1.4%Public Safety; $90 ;1.3%All OtherAgencies;$731 ;10.7%
FY '13 Appropr iat ion s: Total and 10 Largest Agenc ies (in $mi l l ions)
Tota l Appropr ia t ions:$6,855.7 m i l l ion
Tota l TenLarges t :$6,125M;89.3%
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Budget Trends: FY 10 FY 13
Budgeting Through the Crisis Budgets for three straight years (FY 10, FY 11 & FY 12)involved variations on a theme:
Large shortfalls in projected revenues
Fear of devastating budget cuts
Use of non-recurring revenues to partly bridge the budget gap
Budget cuts across state government but less severe for coreeducation, health, human services, and public safety agencies
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Budget Trends: FY 10 FY 13
Budgeting Through the Crisis: FY 10 FY 12 Governors Henry and Fallin and the Legislature used variousrevenue enhancements to bridge budget shortfalls and reduce theseverity of cuts:
Revenue enhancements totaled close to $3 billion over 3 years
Half from federal stimulus bills; remainder divided between
Rainy Day Fund, cash transfers, enhanced tax compliance, andsuspending and deferring tax credits
Most new revenues were one-time/non-recurring
Budget cuts for almost all agencies for 3 consecutive years
Some 40 agencies more than half of all appropriated agencies
absorbed cuts of greater than 20 percent Cuts to some key health, human services, education, and publicsafety agencies were less severe
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Budget Trends: FY 10 FY 13
Budgeting Through the Crisis: FY 13 Total appropriations increased by $253 million (3.8 percent) fromFY 12
Most agencies received flat funding in FY 13
46 of 78 appropriated agencies will receive the same amount or less
Several agencies received funding increases for targeted
priorities, including:
DHS for the child welfare reform plan
Transportation to fill budget holes after end of bond issues
Health Care Authority for Medicaid expenditure growth
Mental Health and Corrections for criminal justice reforms
Education agencies received no additional funding or very smallincreases
Support for public schools through the state aid formula kept flat
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Budget Trends: FY 10 FY 13
Impact of Cuts State appropriated spending reached its lowest level inat least 30 years in FY 12
Budget cuts and funding shortfalls continue to affectOklahoma students, teachers, public employees, non-profit organizations and private sector businesses
Sources: State personal income from Bureau of Economic Analysis;Appropriations from various sources
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Stat e Appropr ia t ions as Share o f Sta t e Personal
Inc om e, FY '80 - FY '12
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Budget Trends: FY 10 FY 13
Impact of Cuts: Education Per pupil funding in Oklahoma down by 20 percent since 2008
(inflation-adjusted)
Third steepest cuts in the nation
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Budget Trends: FY 10 FY 13
Impact of Cuts: Education State aid funding has declined by $214 million since FY 2008
while public school enrollment has increased by over 31,000students.
641,721 644,777
654,542659,615
666,150673,190$2,050 $2,037
$1,924$1,894
$1,815 $1,816
$1,600
$1,700
$1,800
$1,900
$2,000
$2,100
580,000
600,000
620,000
640,000
660,000
680,000
FY '08 FY '09 FY '10 FY '11 FY '12 FY '13
Publ ic School Enro l lment and Stat e For mula
Fundin g, 2008 - 2013
Publ ic School Enro l lment (Oct ober) State Formula Funding ( in Mi l l ions)
Note : Sta te Fund ing exc ludes money a l l ocated fo r t ex t books
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Budget Trends: FY 10 FY 13
Impact of Cuts: Education Almost 1,000 fewer teachers than in 2008, leading to larger
class sizes and reduced class offerings.
Department of Education eliminated funding for adulteducation, alternative education, research-based teachertraining programs, evaluation contracts, and other programs.
Despite new testing requirements, funding reduced for ACEremediation and eliminated for Reading Sufficiency in FY 13.
Common education has fallen to lowest share of stateappropriations since at least FY 00.
Funding for higher education down 8.1 percent since FY 09 and
down 14.6 percent for Career Tech
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Budget Trends: FY 10 FY 13
Impact of Cuts: State Government Agencies have not been funded for four years to cover risingoperating and employee benefit costs
State government workforce has shrunk by 9.8 percent comparedto FY 09 and is 4.4 percent smaller than in FY 01
Staffing cuts have been especially severe for correctional
facilities
Many state workers have not received a pay increase in 6 years.
37,139 37,486 37,684 36,723 37,40338,231 38,834 38,924
39,35038,154
36,081 35,504
20,000
25,000
30,000
35,000
40,000
FY-01 FY-02 FY-03 FY-04 FY-05 FY-06 FY-07 FY-08 FY-09 FY-10 FY-11 FY-12
State Employee FTE Count by Fiscal Year Average, FY 01 - FY '12(excluding Higher Education; FY '12 YTD Apr)
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Budget Trends: FY 10 FY 13
Impact of Cuts: Public Safety The Department of Corrections remains critically understaffed.
Staffed positions are just over 60 percent of recommended levels,while facilities are consistently at 98 percent to 99 percent ofinmate capacity
Stress from being required to work frequent double-shiftsand low pay is leading to high staff turnover. Often just oneofficer may be on duty in a dining hall of 160 inmates
Juvenile justice facilities are overcrowded and understaffed forhighest-level offenders
The number of state troopers on Oklahoma highways is at itslowest level in 22 years
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Budget Trends: FY 10 FY 13
Impact of Cuts: Health and Human Services In the past four years, the Health Department has been cut by 18
percent, forcing layoffs for at least 300 employees
Health Department eliminated 17 child guidance centers servingpre-school children with developmental delays
Department of Mental Health and Substance Abuse Servicesreduced beds and closed centers for childrens mental health andadult substance abuse, cut contracts to all providers
Over 6,000 families on waiting list for developmentally-disabledhome and community based waiver program
Significant reductions in counseling programs for abused womenand children and prenatal education for low-income mothers
Office of Juvenile Affairs cancelled youth detention and gangprevention programs
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Budget Trends: FY 10 FY 13
Impact of CutsOklahomans expect state government to:
educate our children
train our workforce
maintain our infrastructure
protect our communities
aid our most vulnerable family members and neighbors
Have years of underfunding and the extended period of flatfunding and cuts shrunk state government to where it can no
longer perform these core functions?
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T he Chal lenges We Fac e
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The Chal lenges We Fac e
An Incomplete RecoverySubstant ia l demands on scarc e resources
Short -Ter m In a ho le
Need to restore cuts and pay for ongoing costs of state government
Strengthen our child welfare system in accordance with settlementagreement
Serve thousands with developmental disabilities and mental illnesson waiting lists for services
Add back more teachers and provide raises to teachers & stateworkers
Long-Term St ruc t ura l def ic i t
Hazardous physical infrastructure roads, bridges, state buildings
Water infrastructure needs - $80 billion over next 50 years
Unfunded pension liabilities still exceed $10 billion
Aging population will require increased health care, social servicesspending
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The Chal lenges We Fac e
Projected Annual Budget Surpluses and Deficits
Be for e and Af t er 200 4 -2006 Tax Cut s ( 200 7 t o 203 5 )
(2,500)
(2,000)
(1,500)
(1,000)
(500)
0
500
1,000
2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035Y e a r
Mio$ B e f o r e T a x C u t s
A f t e r T a x C u t s
Growing Long-Term Obligations
Oklahoma faces a st r uc t u ra l de f i c i t Norm al g rowt h o f revenues is insu f f ic ien t t o f inance the norm al
cos t o f ser v ices year a fte r year.
Source: Projections conducted in 2007 by Dr. Kent Olson, Professor ofEconomics, Oklahoma State University
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Growing Long-Term ObligationsFederal Deficit Reduction Will Compound State Problems
Budget Control Act established caps on discretionaryspending though 2021 to reduce federal deficits by $917B
Sequestration: Failure of Super Committee to agree ondeficit reduction measures triggered automatic procedures to
reduce spending by additional $1.2 trillion beginning in 2013.Deferred two months by 2012s fiscal cliff agreement
Exempts Medicaid, mandatory programs
Half the cuts would be from defense budget
Discretionary programs facing 9 percent cuts
Includes all education and worker training fundingstreams, many social services and health grants,agriculture, environment, others
Effective March 2013
The Chal l enges We Fac e
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The Chal l enges We Fac e
An Incomplete Recovery 2010 mid 2012: Monthly General Revenue collections
came in above the same month for the prior year for 25 of27 months
Since June 2012, collections have been flat
-8%
-22%-19%
-21%
-28%-30%
-26%
-32%-30%
-24%
-31%-29%
-17%
-7%
1.6%
0%
6%
2%
10%
5%6%3%
9%13%
20%
12%9%
13%10%
16%
5%
18%15%
6%
23%19%
7%
15%
-1%
6%4%
-8%
2%
-7%
3%
8%
-13%
-4%
10%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13
Change in Monthly General Revenue Collections,
Compared to Same Month Prior Year, Jan '09 - Jan '13
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The Chal l enges We Fac e
An Incomplete Recovery This years revenues virtually unchanged from last year
FY 13 revenue collections through January up 23 percentfrom FY 10 but still 5 percent below FY 07
Revenues still below nominal levels of 6 years ago
$3,225$3,410 $3,382
$3,574
$2,610$2,855
$3,223 $3,226
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
FY '06 FY '07 FY '08 FY '09 FY '10 FY '11 FY '12 FY '13
Cumulat ive General Revenue Col lect ions,Jul y-Jan uar y, FY '06 - FY '13 ( in $m i l l ions)
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The Chal l enges We Fac e
An Incomplete Recovery Income tax and sales tax growth has been offset by plunging
gross production tax revenues
Low natural gas prices, growing cost of tax breaks forhorizontal and deep well drilling have eroded GPT revenues
+10.1%
-83.1%
+7.0%
-1.4%
+11.0%
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
Net Income Tax Gross Production Tax Sales Tax Motor Vehicle Tax Other Sources
Year-to-Date General Revenue Collections by Tax,
July - January, FY '11 -FY '13 (in $millions)
FY '11 FY '12 FY '13
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The Chal l enges We Fac e
FY 14: Looking Ahead Board of Equalization certified $7.045 billion as available for
appropriation in FY 14
$189 million (2.8 percent) more than total FY13appropriations
Several agencies are seeking FY 13 supplemental
appropriations
$6,856
$7,045
FY 13 FY 14
FY '13 Total Appropr iat ions and FY '14
Avai lable for Appropr iat ions, in $ m i l l ions
(Feb. cert i f icat ion)
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The Chal l enges We Fac e
FY 14: Looking Ahead Governors FY 14 budget proposes total funding increases of
$106 million
Largest increases for DHS, Health Care Authority, MentalHealth & Substance Abuse Services
Funding virtually flat for education, corrections
No pay increase for state employees or teachers
$6,760
$7,043
$7,125
$6,959
$6,765 $6,803
$6,845
$6,951
$6,500
$6,600
$6,700
$6,800
$6,900
$7,000
$7,100
$7,200
FY'07 FY'08 FY'09 FY '10 FY '11 FY '12 FY '13 FY '14 (Gov.
budget )
State Appropriat ions, FY 07 FY 14 ( in $mil l ions, inc ludes ac tual andproposed supplem ent als; FY 1 3 & 1 4 are Go vs Budget
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The Chal lenges We Fac e
A Fiscally Responsible Course
You have to be sure you're right before cutting tax rates or
shrinking the tax base. The Legislature and the governor
cannot say in following years, Oops, we made a mistake.
- Larkin Warner, OSU Regents Professor of Economics, Nov. 2011
Whatever our tax structure is in Oklahoma, its doing a good
job of not holding us back, and on the other hand we dont
want to do anything to mess it up. And thats what you
always have to be careful of when you start getting political
solutions to problems that may not really exist.
- Scott Meacham, Former State Treasurer, April 2012
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The Chal lenges We Fac e
A Fiscally Responsible CoursePreserve the Income Tax
The essential cornerstone of a balanced tax system
Single largest state revenue source:
$2.2 billion in FY 10 - 32.1 percent of total collections.
Personal
Income Tax,
$2,224.8
32.1%
Corporate
Income Tax,
$216.4
3.1%
Sales Tax,
$1,815.3
26.2%
Gross
Production Tax,
$732.2
10.6%
Motor Vehicle
Taxes,
$579.3
8.4%
Other,
$1,353.6
19.6%
Total State Tax Collections, FY '10
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The Chal lenges We Fac e
A Fiscally Responsible CoursePreserve the Income Tax
Largest funding source for state services
Based on the share of agency appropriations funded with incometax revenues, elimination of the personal income tax would leaveus unable to pay for:
Salary and benefits for 17,000 classroom teachers; AND
Health insurance coverage for 430,000 low-income children; AND
Incarceration of 9,300 inmates; AND
Tuition for 19,000 Oklahomas Promise students; AND
The ROADS transportation improvement plan; AND Many other services and programs across state government.
See: What the Income Tax Pays For at http://okpolicy.org/tax-reform-information
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The Chal lenges We Fac e
A Fiscally Responsible CoursePreserve the Income Tax
Income tax cuts will not make Oklahoma more competitive
If our ability to educate and train employees for a 21st centuryeconomy is damaged through lack of funding, if we cant maintain
our roads and bridges, strong health care system, robust researchand technology infrastructure, safe streets, etc., then the benefits ofa reduction in the income tax rates may be limited.
-Tulsa Metro Chamber Vice President & Former House Speaker Chris Benge,Oct. 2011
I can't sit here and say having no income tax, having low propertytax, whatever, is going to make a big difference We have to havea state that's known for excellence.
-Ardmore Chamber of Commerce Pres. Wes Stucky, Oct. 2011
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The Chal lenges We Fac e
A Fiscally Responsible CoursePreserve the Income Tax
Oklahoma is already doing better than most states,including those without an income tax
Third best job growth, #1 best manufacturing job growth (2011)
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The Chal lenges We Fac e
A Fiscally Responsible Course
The income tax is essential to tax fairness
Low and middle-incomeOklahomans pay moreof their income in state& local taxes than dowealthy households
Income tax partlyoffsets the regressivityof sales and propertytaxes
Broad-based taxpreferences help low-income seniors andfamilies with children
Preserve the Income Tax
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The Chal l enges We Fac e
The 2012 Tax Debate Various tax cut proposals under consideration
All would lower the top income tax rate, at least partlyoffset lost revenue by eliminating various income taxcredits, deductions and exemptions
Plan differed as to: Fiscal impact (revenue-neutral vs. revenue
reduction)
Which tax preferences were eliminated
Reduction or elimination of income tax
Triggers for future tax cuts
See OK Policys Summary and Comparison at:http://okpolicy.org/files/TaxPlanComparison.pdf
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The Chal lenges We Fac e
The 2012 Tax DebateThe Final Agreement/Disagreement
Governor, Speaker, Pro Tem announced tax cut deal just prior tofinal week of session:
Top rate reduced immediately from 5.25 to 4.8 percent
Trigger to reduce rate to 4.5 percent based on revenue growth
Revenue losses partially offset by limiting eligibility forpersonal exemption (to families below $70,000, individualsbelow $35,000); limiting itemized deductions, eliminatingsome business tax incentives
Fiscal impact of $33 million in FY 13, $102 million in FY 14
Tax increase for 24 percent of filers House leadership refused to let bill get heard by full House
Senate rejected last-minute House plan
Governor acknowledged defeat
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The Chal lenges We Fac e
The 2013 Tax Debate Governor Fallin proposes cutting the top rate from 5.25 to 5.0
percent
Revenue impact of $40.7 million in FY 14, $106 million in FY15
Does not pay for the bill with offsetting revenues
42 percent of households would get no benefit 73 percent of total benefit would go to 20 percent with highest
incomes
Of households getting a tax cut, the median household wouldreceive $38
Wealthiest 1 percent of households would enjoy tax cut of
$1,870
Senate Republican tax bill (SB 585) takes top rate down to 4.75percent, eliminates various income tax credits to limit fiscal impact
Other proposals would cut top rate lower, phase down top rate overseveral years
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The Chal lenges We Fac e
A Fiscally Responsible CourseHow do we create a revenue structure that meets our obligations?
Review and reduce tax credit programs:
Income tax, gross production tax credits
Adopt combined corporate reporting
Modernize the sales tax:
Expand sales tax base to some additional services
Pursue collection of online sales through click-through/affiliate programs
Target any tax relief towards those in greatest need:
Increase the personal exemption
Stretch and index tax brackets
Expand the grocery tax credit or earned income tax credit
Adopt pay-go requirement for tax cuts and new spending
See: Action Items for Oklahoma: Tax Reform athttp://okpolicy.org/action-items-for-oklahoma-tax-reform
C
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A Fiscally Responsible CourseLimit Tax Credit Programs
Tax credits should adhere to the following standards:
Formal eligibility process for businesses applying for credits
Clear performance standards regarding investment and/or
job creation, with consequences for failing to meet targets
Full disclosure of how credits are allocated
Sunset provisions, with reauthorization tied to aperformance review
Limit state liability through caps on amounts that can be
claimed subject to annual legislative authority
Gross production tax credits should be limited or eliminated
The Chal lenges We Fac e
Th Ch l l W F
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A Fiscally Responsible CourseAdopt Combined Corporate Reporting
Combines a l l p ro f i t o f paren t and subs id ia ry com pan iesw i th in a s ing le cor pora t ion
Combats t ax dodg ing s t ra teg ies by mul t i -s ta te cor pora t ionstha t sh i f t p ro f i t s to subs id iar ies in s ta tes w here they areun taxed
23 s ta tes , inc lud ing al l Western s t a tes except New Mex ico ,have adopted com bined repor t ing
Recom mended by t he Tax Refor m Task Force
The Chal lenges We Fac e
Th Ch l l W F
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A Fiscally Responsible CourseLimit Itemized Income Tax Deductions
Itemized deductions mostly benefit upper-income households
Several options could be considered:
Repeal itemized deductions while increasing the standard
deduction available to all families, OR
Cap the total value of itemized deductions, OR
Convert deductions to a credit as a set amount of selectedfederal deductions, OR
Do away with the deduction for state income tax payments
Could generate $100 million to $115 million in new revenue
Additional state tax liability would be partly offset by reducedfederal tax liability
The Chal lenges We Fac e
Th Ch l l W F
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A Fiscally Responsible CourseModernize the Sales Tax
Expand the sales tax base to cover selected services
Oklahoma currently taxes only 32 of 168 potentiallytaxable services
Taxing services is needed to maintain the long-termadequacy of the sales tax and make the sales tax moreeconomically fair and rational
Should be careful to exclude services consumed primarilyby businesses to avoid pyramiding
Do away with sales tax exemptions benefitting favoredindustries
Pursue collection of online sales through click-through/affiliate programs
Combine these measures with ending the sales tax on groceries
The Chal lenges We Fac e
Th Ch l l W F
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A Fiscally Responsible CourseProvide Broad-Based Income Tax Cuts
If tax cuts are on the table, increasing the personal exemptionand stretching income tax brackets would assist morehouseholds and distribute benefits more broadly than furthercuts to the top rate
Personal exemption has remained unchanged at $1,000 perperson since 1982
Failure for decades to index income tax brackets:
Seven brackets all narrowly squeezed together
Bracket creep56 percent of taxpayers now reach the
top bracket; a much greater share of income is taxedat the highest level
The Chal lenges We Fac e
Th Ch l l W F
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A Fiscally Responsible CourseAdopt Pay-Go Requirement
Ensure that fiscal balance is maintained by requiring that taxcuts be fully offset with:
New revenues
Elimination of tax breaks
Identified spending cuts
New spending obligations would have to be paid for withadditional revenues or cuts to other services
Current services budget and long-term budget forecasting would
also help policymakers make sustainable budget choices
The Chal lenges We Fac e
Th Ch l l W F
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A Fiscally Responsible Course Make smarter expenditure decisions:
Consolidate duplicative agencies and streamline services
Prioritize prevention and surveillance
Ensure adequate funding of public pensions
Give control for making decisions about revenues and spendingback to our elected representatives
The Chal lenges We Fac e
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Look ing Ahead
The odds of our elected officials doingthe right thing are zero unless YOU tellthem what needs to be done.
A hopeful note?
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Together Oklahoma is a grassroots,
nonpartisan coalition of citizens, communitygroups, and businesses working together toensure important public investments thatsupport a robust economy and quality of life.
Website: www.togetherok.orgFollow on Twitter: @togetherokLike on Facebook:TogetherOklahoma
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F M I f t i
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For More In for m at ion
Updated Budget Information okpolicy.org/current-budget-information
Tax Policy Information
http://okpolicy.org/tax-reform-information
Stay informed and get engaged
http://okpolicy.org/take-action Join the Together OK group on Facebook
St C t d
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