More than two-thirds of the way through the legislative session, House Republicans’ budget strategy is slowly coming into focus.
Legislative leaders rolled out some of their first revenue-raising proposals this week with the introduction of five bills, which target delinquent taxpayers, remove the sales tax exemption for Thunder tickets and cap a rebate used to lure filmmakers to Oklahoma.
The proposals are expected to generate about $28 million annually – a fraction of the $878 million budget shortfall that lawmakers face for the upcoming fiscal year. The proposals offer a glimpse of what’s in store for the coming days and weeks, and with a Thursday deadline for bills to be voted off the floor before going to the governor or conference committee, lawmakers are beginning to be up against the clock.
GOP leaders say this is the first round of attempts to to slash tax deductions and credits – even those that were endorsed by an incentives review panel as recently as November – and reconsider a portion of Gov. Mary Fallin’s controversial proposal to collect sales taxes on many currently exempt goods and services.
“There will be a lot of activity moving forward,” said House Speaker Charles McCall, R-Atoka, who, along with other GOP legislative leaders, has faced criticism from Democrats for coming out with more specific budget proposals. “And there will be a lot of measures to roll out and discuss as we move forward.”
McCall said he expects details of these proposals to be released and debated by lawmakers in the next two weeks.
These could include raising motor vehicle and cigarette taxes, increasing the income tax for high earners and lifting the gross production tax on oil and gas up to 7 percent. All are politically challenging and would require a three-fourths supermajority in both chambers.
Sales Tax Exemption Cuts Back on Table
When Fallin unveiled her plan in early February to raise $934 million by broadening the state’s sales tax base, it immediately got a cold reception from both Democrats and her own party.
Her proposal called for removing sales tax exemptions on more than 160 services, including utility bills, haircuts and car repairs. But the proposal was a non-starter in the Legislature after dozens of GOP lawmakers came out against it and Lt. Gov. Todd Lamb quit his cabinet post over it.
The proposal, at least in a scaled-down version, seems to have new life.
Both Republicans and Democrats now say they are open to looking at some of the sales tax exemptions, including collecting sales taxes on NBA and NHL games, which easily won approval in the House on Wednesday.
McCall said more sales tax exemption proposals are coming. House and Senate budget committee chairs introduced more than 30 shell bills this week dealing with tax changes.
These bills’ contents are a mystery. And McCall offered few clues Thursday of what exemptions his caucus is looking at and how much money they will generate.
He said legislative leaders are also still trying to determine how much support they can garner from conservatives, many of whom who campaigned against raising taxes, and Democrats who say they oppose proposals that target low-income or middle-class residents.
Democrats, for their part, have proposed deleting 40 sales tax exemptions worth $290 million a year as part of the budget plan they released last month. They include exemptions for construction contractors, fur storage, management services and digital goods and software.
But Minority Leader Scott Inman, D-Del City, said there are some exemptions Democrats would not support removing. For example, he said, getting rid of the exemption on cable TV services – something that would generate $118 million a year – is a proposal they would not back.
“Our caucus will stand opposed to those measures, because at the end of the day you don’t solve the budget problem by raising taxes on middle-class families,” Inman said. “You do it by restoring the cuts that got us into this mess, in particular the gross production tax.”
But whether Republicans will need Democrats is another question.
House Republicans now control 72 votes in the chamber, well more than enough to clear the 51-vote threshold even with a number of defections. But Republicans would need Democrats to clear the three-fourths, 76-vote threshold, which the state Constitution requires for “revenue bills.”
Although some have argued that removing the sales tax exemptions will require the three-fourths vote, McCall said House leaders believe a simple majority vote is all that is needed.
If bills that pass with less than three-fourths support are later challenged in court and reversed, lawmakers could be forced into a special session to create a new budget.
Tax Cuts to Get Closer Scrutiny
Legislative leaders began to examine the hundreds of tax credits and rebates the state offers with the creation of the Incentive Evaluation Commission in 2015.
That group looked at 11 tax breaks last year and plans to look at 12 more this year. But lawmakers don’t plan to wait for the panel to conclude its work – or necessarily follow the group’s recommendations.
This was evident Wednesday when the House ignored the panel’s advice to keep the film rebate program until it sunsets in 2024 and instead passed a bill that would lower the rebate cap from $5 million to $4 million a year.
Former House budget chairman Rep. Earl Sears, R-Bartlesville, said he supports the program and believes it brings a positive return on investment for the state. But he said reducing the rebates is part of the GOP’s broader strategy to cap or cut credits, even those that are popular.
“You will see some others coming in the near future,” he said.
Looking at Other Options
Inman said Democrats would welcome a review of any tax credits. But he cautioned that lawmakers will not be able to “nickel and dime” their way to bridging the shortfall and finding an additional $53 million to fund the first year of teacher pay raises.
McCall, however, said plenty of options remain to close the budget gap and fulfill the House’s promise to fund a $1,000-per-teacher raise for next year.
Options include potentially using $300 million in bonds to help shore up the budget.
McCall wouldn’t confirm the amount of bonding that lawmakers are exploring. But he said it makes sense to borrow money even though Fallin and many lawmakers in both parties have stated they want to avoid the use of one-time revenues.
“Bonding is something that is always considered when you are in a contraction cycle, such as what we’ve been in the last few years,” he said. “I can’t say it’s a firm part of our budget plan, but I can confirm there has been discussions about bonds.”
Reach reporter Trevor Brown at firstname.lastname@example.org.