ONE of the smartest guys in any room he enters is state Treasurer Ken Miller, who will be seeking a second and final term in November. Miller isn't waiting until the election season to lay out ideas for the state's fiscal management.
Prime among them is the common-sense suggestion to “evaluate Oklahoma's entire system of taxes and revenues and design a tax code that better encourages entrepreneurial activity, productivity and growth.”
That's a tall order any year. And Miller knows that election years present particular challenges for tall orders. “In an election year, this and world peace might be too much to ask for,” he wrote in the Dec. 31 edition of his “Oklahoma Economic Report.”
Lawmakers can do little about world peace but they could do better when considering tax and revenue policy. The push will be to simply restore an income tax cut that was struck down by the state Supreme Court last month because the bill mandating the cut also included funding for state Capitol repairs. This is called logrolling and violates the state constitution.
The state's “entire system” of taxes and revenues includes numerous taxes and fees. Focusing on the income tax while ignoring the entirety of state revenues is truly a forest-trees scenario. Legislators have shown reluctance to do big things in a single session, which is why it took so long to get meaningful workers' comp system reform.
State leaders finally addressed the shameful situation involving the medical examiner's office with a higher ed bond issue, but they've steadfastly refused to consider bond financing for infrastructure repairs — particularly the deteriorating Capitol building. To do so in 2014 will cost more than it would have a year ago because interest rates have risen. Still, Miller says, the rates remain advantageous and “well below historical averages.”
As the treasurer has noted before, Oklahoma doesn't have a general debt problem. The national average for net tax-supported debt per capita is $1,416. Oklahoma's is only $604. Expressed as a percentage of gross state domestic product, the national average is 2.92. In Oklahoma it's 1.49. The state is on schedule to repay 85 percent of its debt within the next 15 years. Ten years later, it would have just six-tenths of 1 percent of that debt remaining.
These figures lead us to again conclude that arguments against bond issue financing for capital improvements are hollow. Citizens take on long-term, low-interest debt when they buy a home. Nobody considers that imprudent. So why is it irresponsible to reasonably increase the state's bond indebtedness?
Of course it's not irresponsible, but arguments against bond financing employ a nationalization strategy: Washington is in a debt crisis, so Oklahoma must avoid taking on debt. This is specious because the two scenarios are in no way comparable. The state balances its budget. Washington does not.
While the state's debt profile shows plenty of room for growth, its unfunded pension liabilities show plenty of room for improvement. Oklahoma is the 17th-worst state for pension liability as a percentage of state revenues, Miller notes.
The smartest guys in a room should be listened to and their advice heeded. We realize election years put a damper on rationality, but even if Miller's hope for tax system restructuring is unrealistic, his worries about pension debt are alarming. “Unlike low-rate bonds,” Miller says, “pension debt is accruing interest of around 8 percent annually, making it not only the largest item of debt on Oklahoma's balance sheet, but the most expensive.”
Lawmakers who are preoccupied with debt shouldn't overlook the fact that a smart solution for public pensions is an imperative in this legislative session.