Oklahoma's Fiscal Outlook: Moving from Crisis to Stability (February 2013)

7/29/2019 Oklahoma's Fiscal Outlook: Moving from Crisis to Stability (February 2013)

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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?


3/59


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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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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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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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


7/59


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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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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State Budgets Hammered

All but four states faced budget shortfalls in FY 11.


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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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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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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


15/59


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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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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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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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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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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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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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


22/59


Impact of Cuts: Education Per pupil funding in Oklahoma down by 20 percent since 2008

(inflation-adjusted)

Third steepest cuts in the nation


23/59


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


24/59


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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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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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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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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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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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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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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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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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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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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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


38/59


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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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


40/59



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


41/59



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


42/59



Oklahoma is already doing better than most states,including those without an income tax

Third best job growth, #1 best manufacturing job growth (2011)


43/59


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


44/59


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


45/59


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


46/59


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


47/59


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


48/59

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


Th Ch l l W F


49/59

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


Th Ch l l W F


50/59

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


Th Ch l l W F


51/59

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


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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


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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


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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



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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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Oklahoma's Fiscal Outlook: Moving from Crisis to Stability (February 2013)

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Transcript of Oklahoma's Fiscal Outlook: Moving from Crisis to Stability (February 2013)