The fact that state revenues in April were down more than 11 percent than projected is one more reason to stop the income tax cut scheduled to take effect this coming January.
State officials recently announced revenues for April dropped by $87 million or 11.4 percent below the projection and $17.2 million below last year’s collections. Overall, revenues were at $673.3 million.
The worldwide oil and natural gas glut, which has reduced production and drilling in Oklahoma and thus lowered gross production tax collections, was blamed for the steep drop.
Meanwhile, the state faces a $611 million budget shortfall for this coming fiscal year, which begins in July.
Given the bleak scene the state currently faces, it only makes sense to stop the income tax cut from 5.25 to 5 percent, which was triggered by a rosier revenue forecast in December 2014. The legislature must pass legislation to stop the tax cut, but the Republican-dominated Oklahoma House, along partisan lines, already voted against a proposal to halt it. That was before this latest information surfaced, however.
No cuts are expected this fiscal year because of a budget cushion, but that could change. What’s less sure is what this new information means for budget forecasts for next fiscal year. Oil prices have begun to rise to around $60 a barrel after dropping to below $50 a barrel. That’s down from more than $100 a barrel last summer. But some analysts still believe oil will eventually drop again to the $40 a barrel range.
Oklahoma’s state budget is always affected by the collection of gross production taxes and part of the state’s boom-and-bust cycle, but that’s not the only pressure on the budget. Tax cuts in recent years, combined with dedicated funding in certain areas, have left the state scrambling to fund core services. Even when oil prices were high last year, the state still found it difficult to balance the budget, according to the Oklahoma Policy Institute.
As I mentioned in my last post and in several posts over the last two years or so, Oklahoma has cut education funding more than any other state since the Great Recession began in 2007. From fiscal years 2008 to 2015, the state cut education 23.6 percent, according to the Center on Budget and Policy Priorities.
The tax cut scheduled to take place in January will deplete the budget by $50 million and then $100 million annually after that. It is estimated by OK Policy that the average tax cut will be $31 for middle-class households. Only the wealthiest Oklahomans will truly benefit from it.
This latest news about April revenues shows again that the prudent action would be to stop the tax cut.
I’ve yet to weigh in on the irresponsible tax cut that will reduce state revenues by $50 million over the next fiscal year because it seems almost futile to do so.
But here’s the basic information. The state faces a $611 million budget shortfall. The income tax cut from 5.25 to 5 percent was triggered by revenue projections for fiscal year 2016 made back in December 2014. Those projections were rosier than they are now due in part to the oil glut that has reduced gross production tax collections here. The tax cut would be implemented in January 2016, costing the state $50 million for the remainder of the fiscal year. Once fully implemented it will cost $100 million annually.
The only thing that can stop the tax cut at this point would be legislation, and that seems unlikely to pass. Democrats tried to get such a bill passed in March but it was voted down in 72-28 partisan vote. Some businesses and institutions have also tried to put pressure on lawmakers to stop the cut.
Read about the finer points of this issue here in an Oklahoma Policy Institute post. The entire tax-cut trigger concept, as I’ve argued before, is deeply flawed and disingenuous. It doesn’t allow for flexibility and is based on a forecast that could rapidly change as it did this year. It isn’t based on “real” money, only speculation.
I would be opposed to any measure that would reduce state revenue right now, but if Republicans want to cut taxes they should do so upfront and make the necessary corresponding budget cuts. The fact they won’t do so shows they’re not entirely sold on the idea that tax cuts pay for themselves through additional economic activity. Isn’t that the mantra among conservatives? We’ve seen the disaster that idea has created in Kansas in recent years.
The argument has been made that the $50 million isn’t really that much anyway, but anything will help given the $611 million shortfall. As usual, only the wealthiest Oklahomans will see any real benefit from the tax cut. The average cut is $31 a year, according to OK Policy.
Oklahoma, it has been noted, has cut school spending the most of any state since the economic downturn that started in 2007. This is a dubious distinction on many levels. Now, its Republican-dominated legislature wants to give rich oil company executives and other wealthy people here a tax cut based on an outdated economic forecast and while the state faces a sizable budget shortfall. That’s the bottom line, and it’s just plain wrong and short-sighted.
Let’s be clear that the unfinished American Indian Cultural Center and Museum in Oklahoma expresses two gigantic negative symbols in the state that will be remembered for years.
First, it symbolizes the continuation of racial abuse by government officials of indigenous people here and elsewhere that really begins with the western European colonization of what became the United States. People will accuse me of hyperbole, but it’s difficult to imagine an unfinished oil baron museum in Oklahoma or an unfinished “settlers” museum, isn’t it?
Second, it symbolizes the failure of state government—and in particular Republicans here—to govern effectively. Finishing the AICCM has been an issue for the last several years at the state Capitol, but lawmakers have failed to act. Construction stopped on the project in 2012. The state needs to come up with $40 million that will be matched by private donations. It hasn’t done so. It’s the Republican-dominated government that has failed on this issue.
I weigh in on the issue once more because the state’s two largest newspapers published editorials about the issue this week.
The Tulsa World is adamant. “For some time,” the newspaper snorts in pompous and unidentified journalistic “we” language, “we have maintained that the state should not spend another penny on the cultural center, especially not in bond debt.” (We, we, we, all the way to wrong as you can get.) There’s not a lot of ambiguity here, folks. I guess we must allow for the Tulsa and Oklahoma City rivalry here, and the unfinished AICCM IS in Oklahoma City. But the editorial fails to note the importance of the center and its relationship to native people here. Instead, it bellows: “We urge the Legislature to use what money is available for what really matters — schools, roads, public safety and mental health . . .” Of course these things matter greatly, but so does the AICCM, which is directly related to schools and education. Imagine all the field trips, the research, the scholarly activity and the critical inquiry that will be created by the AICCM.
The Oklahoman has actually supported the AICCM project and continues to do so. “A bond issue should be considered for this project,” according to the newspaper. But the newspaper’s editorial offers little hope anything will be accomplished. “However, the 2015 session ends in a few weeks, and most of that time will be spent ironing out the budget that’s $611 million smaller than a year ago. Given that dynamic, it’s perhaps wishful thinking to believe the AICCM will be addressed.”
Of course, the newspaper’s support for the project seems more rooted in financial development in Oklahoma City than the loftier goal of providing an extremely small sliver of reparations for native people, who endured removal from their homes and lands under the genocidal President Andrew Jackson in the nineteenth century. He’s still on the twenty-dollar bill, one of our nation’s most common currencies. Ever get $100 out of an ATM?
One plan is for Oklahoma City, which gave the state the land for the project, to take it over and try to finish it. Perhaps, it could get wrapped up in another MAPS project. At this point, if state lawmakers don’t provide the additional funding, it might be the last-ditch plan. Right now, the state pays $6 million a year to maintain the AICCM and pay its debt service from a previous bond issue. It’s remarkable to me that Republicans are just throwing away this money while calling for government fiscal responsibility.
I realize the state faces a budget shortfall, as The Oklahoman noted, but this is a major museum built to Smithsonian standards that will draw people here from around the world. It seems obvious that it will eventually pay for itself. It’s an investment.
But this is about way more than money, which the state’s two largest newspapers fail to note in any adequate manner. It’s about a major part of the state’s history because, as we know, President Jackson moved many Indian people from the south right here to Oklahoma, at least those that could survive the Trail of Tears. It’s time to finish this project.