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Tax Increases, Budget Cuts Likely Required to Meet State Question 744 Constitutional Mandate

Tax Increases, Budget Cuts Likely Required to Meet State Question 744 Constitutional Mandate

Jennifer Monies, Press Secretary
Oklahoma House of Representatives
Office of House Speaker Chris Benge
Office: 405-962-7679

OKLAHOMA CITY (Sept. 22, 2009) – In order to finance a constitutional amendment proposed by the Oklahoma Education Association, agencies other than Common Education would be forced to have their budgets slashed or income and sales tax rates would have to increase, House members were told at an interim study analyzing the potential effect of State Question 744.

In their own literature, supporters of SQ 744 say the change would cost anywhere between $850 million to as much as $940 million. To make up that difference, lawmakers would be forced to either increase taxes, put in place funding reductions to other state agencies, or a combination of both, House fiscal staff told members today.

“This study is meant to present both sides of this issue so lawmakers, and eventually voters, can make an educated decision when it comes to State Question 744,” said House Speaker Chris Benge, R-Tulsa. “It is critical that we have all the facts on how this constitutional change would affect our state budget and our long-term revenue picture.”

The OEA claims the state question, if approved by the voters in 2010, would not lead to a tax increase. But, if approved lawmakers would be constitutionally obligated to find at least $850 million in funds to divert to education. Inevitably, lawmakers would have to either look for new funds through tax increases, or taking existing funds from other agencies to fill the hole.

            One option would be to broaden the state’s tax base to raise the additional funds needed, which could include eliminating the state’s income tax exemption on retirement benefits or ending the standard deduction.

            Lawmakers may be forced to look at raising tax rates to bring more funds into the state’s budget. In order to increase revenue by $850 million, the state income tax rate would have to be increased from 5.5 percent to approximately 7.35 percent, according to House fiscal staff, or a 34 percent increase overall. Another option would be to raise the state’s sales tax rate, which would go from 4.5 percent currently to about 6.2 percent in order to raise the funds necessary to pay for SQ 744, or a 38 percent jump.
            “The teacher’s union readily admits that this state question would cost millions of dollars, and those funds will not magically appear on trees,” said Rep. Leslie Osborn, R-Tuttle, who is the member who requested the interim study. “It is appropriate for Oklahomans to know the full story before they go to the ballot box next fall. This study is not meant to determine the worth of increased education funding, which we all agree is important, but to determine what the fiscal consequences to our state would be if SQ 744 passes.”

A final option would be funding reductions to the balance of state government. Since Common Education would be excluded from any cuts, the remaining state agencies would see across the board cuts of as high as 20 percent to raise the necessary funds.
Currently, Common Education already receives 36 percent of the state budget, or $2.4 billion annually. The next closest percentage to a single agency is Higher Education, which receives 15 percent of the budget, and then Health Care Authority, which receives 10 percent of the budget.

If SQ 744 is approved, Common Education’s percentage would increase to 49 percent of the state budget, which would effectively remove legislative oversight over half of the state’s budget.

“If this state question is approved, the people’s representatives will not be able to prioritize competing needs and will have no say on the largest single component of the state’s budget. Instead education policy will be arbitrarily set by a rigid regional formula,” said Rep. Ken Miller, R-Edmond and chairman of the House Appropriations and Budget Committee. “Voters will decide at the polls whom they want making funding decisions in Oklahoma—those they elected to represent them at the state Capitol or politicians from other states.”

In order to put the constitutional mandate in place, if approved, Higher Education would have to be cut by as much as $200 million; Health Care Authority would lose $134 million; Department of Corrections, $101 million; Department of Human Services, $97 million; Transportation Department, $42 million; Mental Health and Substance Abuse, $40 million; and the 72 other appropriated state agencies would be cut by a total of $232 million.

State Treasurer Scott Meacham also presented the state of Oklahoma’s economy during the interim study, saying lawmakers can expect a “very tough” economic year heading into fiscal year 2011.
“Lawmakers need as much flexibility as possible on the spending side to make sure we can account for both the good financial years and those where collections fall below expectations like this year,” said Rep. Randy McDaniel, R-Oklahoma City, who is also a member who requested the study.

Finally, members heard from Shari Weber, former Majority Leader of the Kansas State House of Representatives, who told lawmakers Kansas’ school finance formula often hamstrings legislative budgeting decisions. She also noted that despite increased funding to education and raised taxes to pay for that increase, student achievement and performance has not improved accordingly in Kansas.

The interim study will continue Thursday, Sept. 24 at 10 a.m. with numerous state agency officials discussing the effects they will likely face if SQ 744 is approved.

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