Gov. Mary Fallin's proposal to cut the highest bracket of Oklahoma's personal income tax rate, a much more modest plan than her idea last year that fell flat with lawmakers, is part of a nearly $7 billion budget that her chief budget adviser calls gimmick-free.
“There are no tricks or gimmicks in this budget,” said Preston Doerflinger, the governor's finance secretary.
The governor for the second year in a row urged lawmakers Monday to cut the top bracket of the state's personal income tax, which would be a $40 million hit on state revenues for the upcoming fiscal year as well as calling for increases in spending for mental health and child welfare services.
A pay raise for the state's approximately 34,000 employees is not included in her budget. She, like Republican legislative leaders, opposes a cost-of-living increase. Instead, she is proposing $200,000 to develop a study to look at the pay of state employees with the goal to move toward a performance-based compensation system. The study also will look at what private businesses are paying workers who perform similar tasks as state employees.
State employees haven't had an across-the-board increase since October 2006. Doerflinger said some agencies have provided pay increases for their employees since then.
“If we just give 3 percent … across the board on top of raises that other agencies may have already experienced, I'm not sure how that is fair,” Doerflinger said.
House Democrats criticized the Republican governor's budget, saying it doesn't add up.
“She was long on ideas, short on details,” said House Minority Leader Scott Inman, D-Del City.
“She named a litany of programs that she believes are important for the state of Oklahoma, and in many of those she'll find common ground with House Democrats,” said Inman, whose party is outnumbered 72-29 by House Republicans.
“However, at the same time the governor offered a tax cut plan that would reduce state revenues by over $120 million,” Inman said. “When you've got only $170 million of growth revenue, and hundreds of millions of dollars worth of needs that she outlined today, we simply don't see how the math adds up.”
Lawmakers should have about $170 million more to appropriate this year compared with a year ago, based on tax revenue estimates. Their main duty during the session, which began Monday and runs through late May, is crafting a budget.
Doerflinger, who also serves as director of the agency that prepared her budget document, said lawmakers could have another $36 million or so when the final amount is determined later this month. The estimate of available funds for the 2014 fiscal year, which starts July 1, was issued in December.
Fallin asked lawmakers to lower the top income tax bracket, which kicks in after the first $8,700 of income made by every Oklahoman, from 5.25 percent to 5.0 percent. Proposals seeking bigger cuts made by and lawmakers failed to advance last year.
Fallin's plan last year called for reducing the top 5.25 percent rate to 3.5 percent, and reducing the number of income tax brackets from seven to three, with individuals earning less than $15,000 not required to pay personal income taxes. Further cuts in the income tax rate would be cut by an additional quarter point in any year in which the state saw 5 percent revenue growth.
‘Move the needle'
Personal income taxes bring in about one-third of the state's legislatively appropriated budget. For this fiscal year, personal income taxes are estimated to bring in $2.1 billion of the $6.8 billion budget.
“The governor continues to move the needle on income tax reduction,” Doerflinger said. “We know that every time we sustained cuts in the income tax since 1998 that we have seen additional revenue come in as a result of that, that generally far exceed the cost of the cut itself.”
Fallin's plan calls for it to be paid out of available revenue. It is not dependent on reducing or eliminating any tax credits or exemptions or deductions as her proposal a year ago was. It's expected when fully implemented in the 2015 fiscal year, it would cost the state about $120 million annually.
Doerflinger said the governor would welcome any effort by lawmakers to reduce or eliminate unnecessary tax incentives and produce a bigger cut in the personal income tax rate.
Fallin's budget does not call for a $2 million appropriation to the Agriculture, Food and Forestry Department, which is the subject of a lawsuit. Lawmakers and the governor last year approved giving the agency $2 million, which went to the youth expo junior livestock show, an annual Oklahoma City event. Rep. Mike Reynolds, R-Oklahoma City, has filed a lawsuit claiming that the spending and associated actions violate the state constitution in a variety of ways, including a constitutional ban on making gifts of public money.
Other budget items
Fallin, during her State of the State speech Monday to lawmakers, defended her earlier decision to not accept federal money to expand the state Medicaid system. Her budget calls for an additional $40 million to pick up Medicaid costs for about 61,000 Oklahomans who are eligible for Medicaid but are not enrolled in the health care program.
Fallin also is seeking an additional $16 million for state mental health services, which would be used to pay for a third community crisis center in the state and beef up funding of programs intended to reduce suicide and prescription drug abuse. She also wants money to go to a program that helps children and families with children who are suffering serious emotional issues.
She also is seeking $46 million of new money to pay for recommended changes in a five-year plan to improve child welfare operations at the Department of Human Services. The plan is part of an agreement to settle a federal lawsuit.
Fallin's budget also seeks a $13.5 million increase to public schools to pay for recently enacted changes. Earlier changes approved but not funded by lawmakers include better reading instruction and end-of-high-school exams in public schools.
State prisons fell short of their request. The governor's budget calls for an increase of $1 million; Prisons are at 99 percent capacity and the Corrections Department sought an additional $66.7 million in the next fiscal year to help deal with a growing offender population and to attract and retain correctional officers.
Fallin is proposing about $20 million be appropriated immediately from about $125 million in funds available this fiscal year. She is seeking $10 million for the nearly 100-year-old Capitol: $8 million to repair the crumbling limestone exterior and $2 million for a study to develop a plan to repair and renovate the building.
The governor also is seeking $8.5 million to pay for teachers' health benefits. Actual cots have risen because of increases in the number of teachers and support staff as well as increasing costs to provide their benefits.