State of the State Update
January 21, 2016
We’ve all heard the old phrase, “May you live in interesting times.”
We are definitely living in interesting times, but must these times be so challenging…must they push us to the brink of our financial survival?!!
Our practice in OTA has been to focus on technology in schools and as such refrain from political advocacy outside of that endeavor. However, the current budget shortfall and attendant funding cuts will severely impact technology integration in Oklahoma schools. It is for this reason that the OTA has decided to make a statement regarding the State budget.
The following is the current, Financial State of the State:
• The State enters this year’s Legislative session with a $900 Million dollar
deficit that is expected to grow to more than $1 Billion. We will learn the exact amount on February 16 when the State Equalization Board meets to certify the final amount. Presently all signs are pointing to the figure being in the $1 Billion range.
• We entered into last year’s session with an anticipated shortfall of $300
million that quickly grew to $600 million.
At that time the legislature was warned, that if they didn’t fix the problem by rolling back tax cuts, tax credits, tax incentives, etc. that the problem would be worse this year. Instead of addressing the problem last year, they chose to “kick the can” down the road which has created a devastating financial predicament for the State.
• It is oft reported that the State’s financial shortfall is due to the downturn
in the oil and gas industry. While the current oil and gas industry financial plight is a major contributing factor to the State financial shortfall, the State income tax cuts over the last 10 years cannot be ignored as another major contributing factor to our current financial condition.
• This lack of thoughtful fiscal planning by the legislature and governor is
now negatively impacting the health and well-being of our State agencies and the people of Oklahoma for whom they serve.
• The following is a chart of income tax cuts since 2006:
The cost of these Income Tax cuts to our State economy?
• A whopping $1.022 billion dollars, based upon an analysis by the Institute
on Taxation and Economic Policy (ITEP), a non-partisan national research organization.
It should be further noted that this revenue loss is ongoing and will only grow with the additional income tax cuts set in motion through reduction “triggers” approved by the legislature. The first income tax reduction trigger went into effect January 1st of this year and is projected to cost the
State $147 million revenue dollars, which projects to an incredible $1,169,000,000 ongoing revenue loss to our state. An additional income tax trigger has already been set in motion to take effect at the beginning of 2018. State Question 640 that was passed several years ago makes it virtually impossible to reverse tax cuts, so revenue lost from these cuts is,
for all intents and purposes, lost forever. SQ640 requires a 75% majority vote by both houses and approval by the governor to pass a tax increase. Historically, that margin of support for a tax increase has never occurred in our state.
Yes, tax cuts and tax giveaways have impacted our State dramatically!
Tax Exemptions, credits and the like now amount to $7.2 Billion dollars per year!
2/3rds of companies pay no Corporate Income Tax in our State!
• The Oklahoma oil and gas revenues have, throughout the history of our
state, risen and fallen due to market volatility within that industry. During the recent period of $100 a barrel oil which led to high tax revenues from gross production, our governor and legislature chose to reduce the State’s stable income tax revenue stream, which offset the great financial gains that could have been realized for the great common needs of our State during this time of plenty. Now that oil is selling for around $30 per barrel our State finds itself in it’s present, very predictable predicament, due to it’s loss of stable income tax revenue.
• It should be noted that income taxation is a progressive tax whereas the
wealthier pay more for this taxation than do the poorer population. Due to the present revenue shortfall other forms of taxation are being proffered, such as an increase to the sales tax which is a regressive tax disproportionately paid by the poor rather than the affluent.
So, how is all of this impacting education this fiscal year?
1. In December State Finance officials declared a $157 million dollar shortfall for this fiscal year. The State imposed an immediate 3% across the Board cut to all State agencies in January.
That translated into a $46.7 million dollar cut to Common Ed’s funding this year.
2. Layer on top of that a cut to school’s flex benefit health insurance funds, which schools will have to make up the difference for, a loss of school lunch matching funds, testing funds, etc.
3. It was announced in today’s Oklahoman newspaper, (January 21, 2016) that Earl Sears, the House Budget Chairman, Clark Jolly, the Senate Chair and State Finance Director, Preston Doerflinger were meeting today to consider raising the 3% cuts to 5% for some state agencies as the financial crisis worsens.
4. Further, the HB1017 funds, which are 39% of school’s funding is also in revenue failure. This fund’s total shortfall for this year is yet to be determined, but that cut is still forthcoming for schools this fiscal year.
Presently HB1017 funds are down $19 million. HB1017 funds are dedicated funds for Common Education and thus the full impact of this shortfall would only be felt by Common Education recipients.
5. The Ad Valorem reimbursement fund which effects many schools is in jeopardy of not being funded this year as well. This is a fund that was set up by the legislature many years ago to offset the loss of local Ad Valorem funding to schools due to tax incentives, credits and the like.
6. Thus far this fiscal year the cuts have amounted to a State Aid cut of $23 per weighted child that will most likely grow this fiscal year. That figure is based upon only the first item as stated above. Item 2 above will impact local budgets in other ways. Items 3 through 5, while anticipated are speculative, and thus the fiscal impact of them is yet to be realized.
Anticipated fiscal impact to Common Education next year when the actual $900 million to $1 billion dollar financial shortfall actually hits the State:
• We’ve been warned that worst case scenario could be a 13% across the
board cut to all State agencies. I do not anticipate cuts of this draconian magnitude. However, Common Education has already been forewarned that the deficit is too deep and that all State agencies will receive some cuts.
The State’s Rainy Day fund presently has $385 million of which $144 million can be utilized this year. And no doubt, the legislature will find other creative ways to offset the revenue shortfall, but they cannot mitigate it all, therefore, there will be additional school funding cuts going into next fiscal year.
Any amount approaching 13% would be devastating to Common Education though. Most schools carry a cash forward each year of far less than 13%, and district’s cash forwards will shrink dramatically going into their next fiscal year due to the funding cuts that are occurring this year.
• All of these State Aid cuts are happening while student population is
rising. Over the last 7 years Oklahoma student population has grown by 46,585 students, for an average of 6,655 new students per year. That obviously spreads funding per child markedly thinner.
Fiscal Year 2018 and beyond:
The outlook for properly funding instructional technology as well as other financial necessities for schools is grim. Last year and this year our State was 1,000 teachers short of having the necessary amount of teachers to fill the classroom needs of the State. This coming at a time when the schools of Oklahoma have dramatically increased student classroom sizes to accommodate dwindling financial resources.
The children of Oklahoma deserve better. At a minimum they deserve a certified teacher in every classroom who is being compensated with a respectable salary. Our teachers have not had a State salary increase in 8 years. Their pay is ranked 48th in the nation, and is dead last in our region.
Obviously this contributes to our teacher shortage as other surrounding states have found Oklahoma to be a fertile teacher recruiting ground for several years now.
Our children deserve up-to-date textbooks and technology, broad access to fine arts and foreign languages, all of which have been cut throughout the schools of Oklahoma these last few years to accommodate the loss of funding.
The oft used term by many current legislative leaders for the financial phenomena we see playing out before us is that of “right sizing” government. They desire the forced reduction in the size and cost of State government. They are indeed achieving their goal. Almost daily, articles appear in The Oklahoman and Tulsa World of State agencies faltering and failing to meet their basic obligations. Here is a sampling of the concerns from those articles: Mental Health Funds Slashed, Corrections in Jeopardy of Federal Takeover, Department of Human Services Cutting Employees, Road and Bridge Repair Funds being Cut, and yes, Oklahoma 1,000 Teachers Short of Meeting Classroom Obligations.
The question for all Oklahomans to ask themselves is this: What size of governmental services do I desire for Oklahoma? The Oklahoma legislators have been “right sizing” State government in excess of 10 years now, requiring ever greater efficiency in those governmental services. At what point do diminishing returns set in? At what point do governmental services fail to meet the quality of services desired? Is this the “right size” of governmental service the citizenry of Oklahoma desires?
If so, your goal is being achieved.
If not, it is time to make your wishes known to your respective senator and representative.
Greg Kasbaum
