In the last several weeks, a lot of eyes have been focused on Oklahoma’s $900 million budget shortfall and the effect it may have on our state. We have heard a lot of talk about revolving funds, off-the-top spending, structural imbalances and dozens of other terms capitol insiders use to describe the current budget crunch.
All of that sounds complicated, but if you break down its major components, the state budget is not unlike the personal budgets that families manage. Simply put, you need your income to be greater than your expenses. If it isn’t, you are in trouble.
I like to think of the state’s total revenue as the income that someone might receive from two jobs. The state earns income from collections in the form of several major tax categories, including income, sales, motor vehicle and gross production taxes. Those are permanent sources of revenue, like a full-time job. Cigarette, franchise and other smaller taxes are like a second, part-time job.
Combined, those two “jobs” account for the money coming into the state. The money going out in the form of expenditures is mostly accounted for by various state agencies. Each state agency is like a bill that needs to be paid each month. You pay a mortgage, car payment, and insurance bills. The state pays the Department of Transportation, Department of Education, Oklahoma Health Care Authority and other agencies to perform core government services.
In a good year, a working Oklahoman might get a bonus on their full-time job, which could allow them to cut hours on their part-time job. They don’t need the extra money to pay the bills, so why work the extra hours?
Similarly, the state has experienced some good times over the years because of economic development or oil and gas booms. That has occasionally produced excess revenue, which in some cases has gone into the Rainy Day Savings Account. Many times, however, that money has been returned to taxpayers in the form of tax cuts, fee reductions, or other reforms that reduce state revenue in future years.
Now here’s where things get tricky. Let’s say a family is going through an economic rough patch, and they need to increase their hours at their part time job by working a few extra shifts. That may not be ideal, but it is one way to balance their budget.
The state, however, can’t do that. Because of the Oklahoma Constitution, cuts made to state revenue in the form of tax cuts are permanent unless the Legislature votes by three-fourths of the membership to increase taxes.
With revenue being difficult to raise, the Legislature often turns to cuts. Some lawmakers say that’s a good thing. Oklahoma families must control their spending; why shouldn’t the state?
That’s a fair point, but here is the truth of the matter: our state government is not like a family that has bought a Ferrari and now must return it. We are like a family living in a house with a leaky roof and no heat, driving our kids around in a car that is about to break down. The solution to that problem is not less spending; it is investment with proper revenue.
Legislators this year must decide whether to make cuts to the budget or bring in the additional revenue to provide services by raising certain taxes. I hope supporters of OICA and a functional government will take the time to contact their legislators and voice support for reasonable policies that raise revenue and help our state agencies stay afloat.