News Column

EDITORIAL: Little planning evident in counteracting budget provisions

June 2, 2014

The Oklahoman, Oklahoma City

June 02--LAWMAKERS are often accused of voting for legislation without reading it. We almost hope that was the case regarding two bills dealing with tax cuts and school funding this year. If legislators actually read those bills, it means they were deliberately trying to pass counteracting laws designed to prevent at least one, if not both, measures from actually taking effect.

Senate Bill 1246 cut Oklahoma's top personal income tax rate from 5.25 percent to 4.85 percent in two installments. House Bill 2642 would have earmarked money for schools, taking funds "off the top" before tax collections were deposited into the state's general revenue fund. The legislation called for gradually increasing the amount skimmed until an additional $600 million had been earmarked.

Here's the problem: Both bills relied on triggers whose implementation could ensure enactment of one law delayed enactment of the other.

Under SB 1246, the top income tax rate will fall to 5 percent if the total general revenue fund estimate for the 2016 budget year is greater than the original estimate for the 2014 budget year. Under HB 2642, additional education funding was earmarked only if the amount going into the general revenue fund increased by at least 1 percent compared to the highest final estimate from the prior year.

If the tax cut was enacted first, general fund collections would be reduced under the static analysis favored by state budget writers. This would have meant the education earmark was less likely to occur. But if the education trigger was pulled first, less money would go into the general revenue fund, making it less likely the income tax cut would take effect.

Oklahoma Policy Institute Director David Blatt, who favors increased education funding but opposed the tax cut, noted this problem in a meeting with The Oklahoman's editorial writers earlier this year.

"I don't know how the Board of Equalization will figure out -- if we've got a growth trigger for the education fund and a growth trigger for the tax cuts -- how you figure out what comes first," Blatt said.

There were other problems.

"That 1 percent growth trigger: I went back to 2002 and found the numbers that they would use to calculate it," Blatt said. "In the last 12 years, there were only seven that we had 1 percent growth." As a result, Blatt noted it was unlikely that the education bill would generate the extra money projected for schools within 10 years. And while the education bill was touted as providing $600 million over a decade, the first installment would have been only $30 million.

Similarly, tying the tax-cut trigger to the 2014 revenue projection is problematic since the estimate proved far higher than actual collections. Year-to-date, fiscal 2014 general revenue fund collections are $226.5 million below the estimate. Thus, under the formula in the tax cut law, state tax collections could increase by hundreds of millions of dollars and there would still be no tax cut enacted. Instead, the extra money could go entirely into new government spending.

Initially, both bills sailed through the Legislature. The tax cut eventually became law; the education earmark bill stalled out in the final days of session.

We'd like to think lawmakers finally read both bills and realized they were poised to pass counteracting provisions. If not, then state government financial planning is in worse shape than we thought.


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Source: Daily Oklahoman (Oklahoma City)

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