Gov. Mary Fallin’s 2017 State of the State speech featured a proposal of “bold reforms” to Oklahoma’s tax code in an effort to increase revenue. She said her proposed changes would broaden the state’s sales tax base while eliminating state sales tax on groceries. It would also eliminate the corporate income tax.
“Oklahoma will continue to struggle if we don’t fix the structural deficits of our budget,” Fallin said in her prepared speech. “Let’s focus on the reality of our state budget deficit. To start, for decades, we have attempted to balance our budget for too long with the use of one-time resources. We cannot afford to pass another budget using a large amount of non-recurring revenue.”
In her words, Fallin listed three “fundamental state services” that she said need more stable revenue:
- Educating our children
- Ensuring the health and public safety of our people
- Preserving and improving our infrastructure
Fallin’s executive budget (below) offers some insight into how projected revenue might change under her proposed tax reforms, but it provides few details about exactly how the state’s sales tax would be modified under her proposal.
Presser after presser after presser …
To that end, reporters rushed around the State Capitol for two hours following the governor’s speech.
Staggered media availabilities for Senate President Pro Tempore Mike Schulz (R-Altus), Senate Minority Leader John Sparks (D-Norman), House Minority Leader Scott Inman (D-Del City) and Oklahoma Secretary of Finance Preston Doerflinger resulted in similar questions being asked of competing bodies.
Schulz said the governor laid out a “bold vision.”
“It’s important to remember this is the first day of session. This is the governor’s first attempt to reach out to us and say, ‘Here is what I would like to do,'” Schulz said. “Now we spend the next four months working together, holding hands, singing kumbaya and trying to work through our issues and resolve all of this.”
Republicans outnumber Democrats at the Capitol substantially, but Monday’s hectic press conference schedule partially revealed the various divisions that already exist in the Legislature. Sometimes they are drawn along party lines, and sometimes they are not, but any budget that would attempt to restructure the state’s tax base will need broad support.
“The governor and her team, as we developed this executive budget, very much this year are optimistic that there’s an opportunity for a so-called ‘grand bargain,'” Doerflinger said during his press conference. “That is going to mean the Democrats — as the governor said — are going to have to stop playing politics and start putting the people first. Locking up on votes as a caucus isn’t helpful. It’s not leadership, and I will tell you I don’t believe it worked too well for them the last election.”
Minutes earlier, Inman had offered a competing criticism: that the budget proposed by Fallin and Doerflinger would be “fundamentally immoral.”
“Shifting tax burdens from the wealthiest Oklahomans to the poorest of Oklahomans and to middle-class families is not the way to prosperity and growth,” Inman said. “What you’ll see our caucus do this session is to push back and ask Gov. Fallin to fix the mistakes of the past.”
Those mistakes, in Inman’s eyes, include failing to establish a higher gross production tax on energy production, maintaining some tax credits and allowing an income tax cut that many have criticized for its disproportionate benefit to the wealthy. (Even Doerflinger nodded along to that premise Monday when asked a question by Associated Press reporter Sean Murphy.)
“I am optimistic that we can actually strike a grand bargain, because finally the governor and the Republican majority are desperate to balance the budget,” Inman said. “They’re tired of budget cut after budget cut after budget cut to core agencies like DHS and health care and public safety.”
‘We drive further and take it more seriously’
While Inman sought to thread a needle wherein Democrats would be seen as both advocates for a better-funded government and defenders against middle-class tax increases, Fallin may have another group of legislators with complex values to appease: Republicans. This year, 37 GOP legislators are new to office, and many campaigned on promises of small government and low taxes.
Rep. Kevin Calvey (R-OKC) is anything but new to the Legislature, and he wasted no time announcing his opposition to the governor’s revenue proposals.
“The taxpayers just voted down tax increases for education because they perceive that our schools are not run efficiently. Why should legislators now vote for tax increases after the voters rejected tax increases?” Calvey asked in a press release sent just after 5 p.m. Monday.
Since the passage of State Question 640 in 1992, any tax increase requires a vote of the people or a three-fourths supermajority of votes in the Legislature.
Doerflinger noted his office’s belief that repealing sales tax exemptions would not require such a supermajority, but other efforts likely would.
And some of those efforts may particularly rankle the hackles of Republicans from rural districts.
“We have a duty to all citizens of this state to make sure they are fairly represented,” Schulz said near the start of his press conference. “Those in urban areas and rural areas as well.”
Asked to elaborate on what issues in the governor’s proposed budget may be viewed cautiously by rural lawmakers like himself, Schulz pointed to the fuel tax increase and the sales tax elimination on groceries.
“Any time that the state ends a sales tax, that means that the local municipalities can’t collect it,” Schulz said, appearing to refer to Section 1357 of Title 68 in Oklahoma Statutes. “I think that is something we have to work through and discuss, especially when you get into rural Oklahoma. A lot of our smaller towns and communities, the only sales tax base they have in the community is that sales tax on groceries.”
But an hour later, Doerflinger countered that exempting groceries from sales tax could be done in a different way.
“This does not take away cities’ and towns’ ability to continue to collect sales tax on groceries. I think that should alleviate some of the Pro Tempore’s concerns,” Doerflinger said. “What I will tell you is (…) the upside for cities and counties for what we’re proposing to broaden the sales tax base is huge.”
Schulz offered one of the day’s most lighthearted moments when discussing potential rural apprehension to the governor’s proposed increase to the state’s fuel tax, which would also be specifically directed to fund roads and bridges under her budget.
“Certainly in rural Oklahoma, we drive greater distances to access goods and services, to go to our kids’ ballgames, to go to church, just to do the things we do,” Schulz said.
Senate Majority Floor Leader Greg Treat (R-OKC) chimed in playfully: “We go to church in urban Oklahoma, too.”
Schulz quipped back: “We drive further and take it more seriously.”
While intended to be humorous, the exchange highlights the competing considerations that legislators from different parts of the state may have when viewing revenue proposals, even if they are in the same caucus.
Schulz said the next four months would be spent seeking compromise on such proposals.
“The governor outlined it. We are one of the lowest states in the country on fuel taxes,” Schulz said. “It is something we’ve talked about, and it is something that this caucus has long held — that fuel tax dollars should go to repair roads and bridges.”
‘Senate Republicans lost their spine’
One other major tax proposal on the table in 2017 will be an increase to Oklahoma’s tax on tobacco. Doerflinger noted that a $1.50 increase is proposed in the governor’s budget, but that number could change one way or another as session takes form.
Fallin proposed a tobacco tax increase last year as well, and one nearly came to pass, but House Democrats dropped their support for it after House GOP leadership backed off its attempt to use the revenue to expand health insurance coverage for lower-income Oklahomans through what had been called “Medicaid Rebalancing.”
Inman rehashed that saga Monday in explaining how his caucus could support any “grand bargain” on revenue this year.
“The governor and her staff have reached out to me already to say they are wanting to strike a grand bargain. We’ll see how serious they are,” Inman said. “Last year, we came as close as we’ve ever been to bringing $900 million of Medicaid home, and then the Senate Republicans lost their spine, to be very honest with you and put a point on it, when OCPA and Tom Coburn told them they better not vote for an Insure Oklahoma plan, which is what the governor supported and House Republicans supported.”
Inman said he hoped negotiations would exhibit more success this year.
“If they choose to keep their head in the sand and think they can continue to cut their way to prosperity — just cut budgets and cut taxes like they have the last six years — then we’ll be right back here next year, and the people of Oklahoma will be none the better for it,” he said.