Gov. Kevin Stitt used his second State of the State speech Monday to urge lawmakers to continue his effort to transform state government and turn Oklahoma into a “top ten state.”
Among the most dramatic proposals was combining all of the state’s major health agencies and health-related licensing boards into a single agency.
The 40-minute speech kicked off this year’s legislative session as lawmakers returned to the State Capitol without the luxury of the nearly $600 million budget surplus that awaited them in Stitt’s inaugural year.
The Oklahoma Watch staff annotated portions of Stitt’s written speech to dive deeper into what he said and didn’t say.
The Economy and State Revenue
“Let me get right to the point. The state of our state is growing in strength, stability, and new opportunity for generations to come…
“We all know that Oklahoma’s economy, and quite frankly our state budget, is built on the backs of the hard-working men and women in the oil and natural gas industry.
“When I delivered this address last year, 60 percent more drilling rigs were operating in Oklahoma than exists today.
“Our first budget together was blessed by a thriving industry. Now, we must look at the realities of a changing and evolving market that is becoming more efficient and less influenced by international volatility.
Similar to last year, the governor proposed keeping recurring state spending flat for most state agencies. But he did propose a relatively modest $25.3 million in one-time spending for what he said were his priorities, including business development, marketing and digital transformation. -Trevor Brown
“As a result, our State’s general revenue fund is estimated to be down almost one percent versus fiscal year 2020, and our total spending authority is very close to the same amount.
The state’s revenue estimates from December assumed oil would average $54 a barrel and natural gas would average $1.57 per thousand cubic feet in fiscal year 2021, putting the overall estimate at $8.3 billion. The latest commodity prices put oil at $50 a barrel and natural gas at $1.82 per thousand cubic feet. Stitt budget officials said Monday their best guess for the next State Board of Equalization meeting on Feb. 18 was a further downward estimate of between $25 million to $50 million. -Paul Monies
His budget includes a balance of $163 million, which Stitt said he wants to use, working with lawmakers, as the session proceeds. The amount could be adjusted up or down when final revenue estimates come in later this month. -Trevor Brown
“But we have nothing to fear. We will remain vigilant in recognizing our needs, planning for our future, and shedding waste where operations are outdated or redundant.
“In fact, the greatest challenge before us today is not Oklahoma’s economy. There are two reasons why:
“First: The fiscal discipline displayed by many of you in this room last year has allowed the State to garner its largest savings account in Oklahoma’s history at $1 billion.
“As a result, Moody’s Investor Service changed Oklahoma’s outlook from “stable” to “positive” in October. Their decision reflects an expectation that Oklahoma will maintain “strong fiscal management” and “a commitment to increasing reserves.
“Let’s follow through on that commitment.
“Senator Joe Newhouse has filed legislation that would give Oklahomans a voice this year on increasing the Constitutional cap on our State’s Rainy Day fund to 30%. Let’s get it to a vote of the people!
“And while we wait on this vote, I am also asking for elected leaders to join me, again, in setting aside $100 million in additional funds as part of the Fiscal Year 2021 budget.”
Stitt announced after taking office last year an ambitious goal of building up the state’s reserves to $2 billion by the end of his first term. The governor made strides toward the goal last year when the Legislature set aside nearly $200 million, which grew the fund to just over $1 billion. With that much in savings, his proposal to add $100 million this year is likely to face some opposition. Democrats say the state needs to address urgent needs in education, health and other areas first. Stitt’s plan to increase the rainy-day fund’s constitutional cap could also face challenges. It would require a popular vote if lawmakers put it on the ballot. -Trevor Brown
“Thanks to our strong pension plans, low bond debt and progress in savings, Oklahoma is ranked as the fifth most solvent state in America. Let’s take this to number one.
Debates about the state’s pension plans figure to be a hot topic. The state is carrying $7.8 billion in unfunded liabilities across the seven public pension plans. But the overall funding ratio of 81.3% is far above that of many other states. Changes could be coming. Lawmakers of both parties have said they want to give state employees a cost-of-living adjustment this year. That could increase the state’s unfunded liabilities if the Legislature doesn’t appropriate funds along with the increase.
“By saving in the good times, we are demonstrating our commitment to protect the taxpayer, the job creator, and the citizen who depends on core services.
“Second: Oklahoma’s economy is more diverse than ever before.
“When the City of El Reno faced the closure of a major facility, Oklahoma’s Department of Commerce quickly went into action.
Stitt’s referring to the closure of the Halliburton Energy Services field operations center in December. More than 800 jobs were lost in the closure, the largest to hit the state’s energy sector in the latest downturn. -Paul Monies
“We deployed two career fairs, and more than 350 Oklahomans were offered employment with companies in aerospace, finance, manufacturing, healthcare and more.
“This was possible because Oklahoma’s economy remains on good footing.
“Our unemployment rate remains below the national average. Oklahoma’s household income has risen by nearly 4% in 2019.
“And sixty companies moved to our state or made significant expansions in Oklahoma this past year, with more than $2.9 billion in new capital investments announced.
“One of our strongest industries this year was tourism, led by the vision of our own Lt. Governor Matt Pinnell – Imagine That!
In saying “Imagine that,” Stitt appears to be referring to a new state promotional slogan that hasn’t been officially announced but was reported by the satirical website, The Lost Ogle.
“In 2019, Oklahoma’s tourism website achieved a #1 ranking in web traffic. We beat states like California and Colorado. And tourism will continue to grow. This year, we are welcoming the largest movie production in state history with Killers of the Flower Moon.
“You gave us the tools last year to bolster our recruiting efforts, and the Lt. Governor was an exceptional partner in landing this deal for Oklahoma. Once again, beating states like Texas and New Mexico.
“The film production’s presence is expected to inject tens of millions into our economy.”
Economic development officials like to tout the economic impact of film and television production, but most of those jobs are temporary. The state’s Incentive Evaluation Commission studied the program in 2016 and recommended it should end. Despite that, lawmakers raised the annual cap on the tax credit for film and television production last year to $8 million, up from $4 million a year. They also extended the credit, which was scheduled to end in 2024, for three years. -Paul Monies
“The greatest challenge before us today is government bureaucracy.
“In my first year of public service and as the chief executive, I have found government too big and too broken.
“The state of Oklahoma spends roughly $20 billion annually. The Legislature has a strong handle on the 40% managed through the appropriations process. Then, we – working together – provide oversight of the 60% that goes directly to state agencies from apportionments, fines, fees, and federal funding.
“Last year, we delivered the greatest transparency to the State’s budget by publishing Oklahoma’s checkbook online. With the new system, we are providing user-friendly access to recent spending data.”
The online checkbook was revamped and is at https://checkbook.ok.gov.
Agencies’ Budget Asks
“Most importantly, the Legislature delivered the strongest accountability in state history when you sent to my desk legislation to reform five of our state’s largest agencies.
“This action strengthened our budgeting oversight. Time and time again, state agencies would ask you for more money as the solution.
It’s a familiar tradition at the Capitol for agency heads to submit budget requests seeking tens or hundreds of millions of dollars more. In each of the last two years, the Department of Corrections raised eyebrows by asking for more than $1 billion in new funds. It got headlines but not the bonanza. Such requests are often ignored or pared down by the governor and Legislature. This year, Stitt ordered his agency heads to submit no more than a 2% increase. Some lawmakers objected, arguing agencies should be free to ask for what they need. -Trevor Brown
“Your reforms have allowed me to go recruit the best talent, to break down silos between agencies, and to deliver the Legislature with budgets that are results-oriented. When good policy meets the right leadership, anything is possible!
“Just look at what transpired in 2019 between two key agencies. When I came into office, I was told that a change in our prison system wasn’t possible without an immediate injection of $1 billion dollars.
“I was told the Pardon and Parole Board could not take on an increase in casework without more employees and more funding. I was told that it would be logistically impossible to accomplish a large commutation docket to give low-level, non-violent offenders a second chance.
“What did we do? You passed better policy, and we changed leadership in both agencies. As a result: Pardon and Parole Board consolidated its investigators with Department of Corrections. This streamlined the case work all while increasing it by 118% over 2018. They did this without a single dollar more.
This is Stitt’s first example of consolidation at the agency level, a key part of his election promise in 2018 and among his biggest continuing efforts to bring his business experience to state government. -Paul Monies
“The Department of Corrections launched its first-ever re-entry fairs across 28 facilities for individuals that were part of the HB 1269 commutation docket.
“The idea originated from the First Lady, and it will become a permanent practice at the agency moving forward.
“The number of Oklahomans in our state prisons declined by 7.6% from 2018. As a result, the number of those incarcerated is the lowest level since 2009. This is reducing the strain on our prison facilities and giving us the opportunity to reimagine the future of housing inmates.
Stitt mentions several criminal justice reforms completed in 2019, but his speech didn’t go into detail on what he’d like to see next. His task force on criminal justice reform issued its report in January but recommended further study. Stitt renewed the task force for another year. Meanwhile, some legislative leaders mentioned another attempt to reform the state’s cash bail system. That effort died in the last days of the 2019 session. -Paul Monies
“And in conjunction, the Department of Corrections withdrew its year after year request for more than $1 billion in additional funding and submitted a FY’21 request that addresses the critical needs of tomorrow.
“It is now time to complete this successful consolidation effort.
“I am calling for the Legislature to protect the Constitutional mandate for Pardon and Parole Board appointments yet pass legislation that absorbs the remainder of the operations with Corrections.”
Transportation, Turnpike Agencies
“Sec. Tim Gatz has done an exceptional job leading both the Oklahoma Department of Transportation and the Oklahoma Turnpike Authority.
“Sec. Gatz is beginning the process of combining all back office and common functions into one shared service entity for both agencies.
“We will maintain separate general management for unique functions, while streamlining operations that are duplicative in nature so we can deliver the highest quality of transportation possible.”
The Turnpike Authority’s bonds appear to be the sticking point in any major consolidation of that agency and the Department of Transportation. Bondholders would want to be assured any consolidation doesn’t put their investments at risk. But with Tim Gatz, a Cabinet secretary, at the helm of both agencies, other functions can be streamlined. -Paul Monies
Emergency Management, Homeland Security
“When Oklahoma is in crisis, it is most often our Office of Emergency Management (OEM) that is at the center of restoring us back to normal.
“OEM has the ability to call upon whatever resource it needs to help Oklahoma’s communities prevent, respond, or recover from a major crisis.
“Homeland Security is a key part of that effort, proving valuable coordination to support our first responders.
“By merging these two agencies, we will bolster response capabilities, streamline coordination, and leverage existing resources for stronger prevention programs.”
The Office of Emergency Management and the Office of Homeland Security have some overlapping responsibilities, and they get most of their funding from the federal government in the form of grants or disaster assistance.
“Some will cry that consolidation is disruptive. Let me be clear – it will-be for political insiders and those that find comfort in big bureaucracy.
“But it is what we need to do to improve decision-making, deliver better accountability, and target dollars directly towards helping our citizens instead of paying for administrative bloat.
“Oklahoma has the 20th highest land mass among states, the 28th largest population, and yet, we have the 9th most state agencies out of all 50 states. This is unacceptable.”
“The state’s current civil service program is broken.
“High quality employees are forced into a system that doesn’t maximize their professional growth and potential. Agency leaders have their hands tied in who they can hire and promote due to outdated restrictions.
“Today, I am calling for reform that requires all new hires in state government, moving forward, to be unclassified. I am requesting language that allows agency directors discretion to offer bonuses, within the confines of their budgets, for employees to receive a promotion out of their restricted classified positions.
“Through this attrition model, I am casting a vision for the majority of the State’s work force to be unclassified in the next five years.
Non higher-education state employees are either unclassified or classified. Under the state’s Merit Protection Act, classified employees have certain job protections from retaliation or political interference. Stitt and others in the Legislature have said those protections are too rigid and hamper efforts to recruit state employees. Civil service reform will face opposition from the Oklahoma Public Employees Association, which called unclassification a “nonstarter.”
“As part of civil service reform, I am calling for a 3-person panel in the Human Capital Management Department to maintain whistle blower protections and to provide due process to state employees who have serious grievances, whether these employees are classified or not.”
Stitt wants to dissolve the Merit Protection Commission and put all grievances from classified and unclassified employees under a new panel to be housed inside the Human Capital Management division of the Office of Management and Enterprise Services.
“One of the most significant areas where we need reform is health care.
“I just returned from Washington, D.C., where I stood with the Trump administration to announce that the State of Oklahoma will be pursuing new flexibilities through the Healthy Adult Opportunity.
Ending months of speculation, Stitt last week unveiled his alternative to the Medicaid expansion state question that voters will decide this year. His proposal would expand Medicaid through a block-grant model that sets caps on Medicaid spending for low-income adults in the expansion group. It also would seek a federal waiver to add a work requirement and make enrollees pay “modest premiums.” The plan would cost the federal government $1.1 billion and require $150 million in state funds.
“With these new flexibilities, Oklahoma will begin the process in the coming weeks to rollout SoonerCare 2.0.
“Under this reformed Medicaid program, we will seek to close the gap of those uninsured in Oklahoma. We will deliver much-needed accountability in the Medicaid system to focus on rewarding health outcomes and stronger performance in care.
“With HAO flexibility, we will deliver personal responsibility to new enrollees under SoonerCare 2.0. We will seek to establish moderate premiums and work requirements.
“We will encourage able-bodied adults to transition towards a path of maintaining private insurance and pursuing educational or employment opportunities that advances their full personal potential…
“Oklahoma is currently positioned to be the first in the nation to be granted the Trump administration’s waiver to achieve unprecedented flexibility and accountability in delivering Medicaid to adults.
“No one who is currently eligible will lose coverage; actually, more than 180,000 Oklahomans would gain coverage under SoonerCare 2.0…
“Today, I call on the House and the Senate to send to my desk legislation to give certainty that the Oklahoma Health Care Authority can use the full 4% of the SHOPP assessment to fund SoonerCare 2.0, while protecting reimbursements.”
Stitt’s plan to find the $150 million in state funds to pay for the plan comes with a couple obstacles. Legislation would be needed to increase the SHOPP assessment that hospitals currently pay.
“We must also reform TSET. Let’s protect the current corpus yet reallocate future funds towards improving the delivery of rural healthcare.
Reforming the Tobacco Settlement Endowment Trust, a fund valued at $1.3 billion as of June 30, is a perennial issue with lawmakers who suggest various ways that money could be put to better use. But those proposals historically have fallen flat. Even with legislative support, a popular vote would be needed to change the constitutionally protected fund.
“Help me keep Oklahoma #1 in competing for this new opportunity through the Trump administration.
“Any other effort to enact a clean expansion of Medicaid, to include putting it in the State’s Constitution, will create significant restrictions.
“With straight Medicaid Expansion, Oklahoma will be left with the same ineffective and unaccountable program that has failed to bring us out of Bottom Ten rankings.
Stitt didn’t directly refer to State Question 802, which seeks to expand Medicaid through the traditional model without the added restrictions Stitt proposes. But the vote on that plan – which Stitt must place on the primary or general election ballot – will carry huge implications for the governor’s plan. Since the state question would be a constitutional amendment, voter approval of it would supersede any plans Stitt and the Legislature advance this year.
“The time is now to innovate, to focus on outcomes, and to make Oklahoma a national leader in the delivery of healthcare. To make this sustainable, we must also move forward on significant reforms in the operations of our state health and human services agencies.
“Did you know that Oklahoma has 10 different state agencies passing money through the Medicaid program in Oklahoma? And 18 state entities that license health care facilities and providers?
“You cannot convince me that operating that many bureaucracies is an efficient way of doing business. And it has to change.
“This is why I am calling for the Legislature to begin the process of creating one central health care agency.
“Let’s partner together to fully integrate, by the year 2022, the functions of the State Department of Health, the Oklahoma Health Care Authority (OHCA), the Department of Mental Health, and others, as well as all of the state’s licensing boards that deal with health.”
Surprise Medical Bills
“Many of you in the Legislature are spearheading legislation that will help to create a better healthcare system across the board, to include legislation that will create pricing transparency for medical bills, and Representative Marcus McEntire’s legislation to put an end to surprise billing practices.”
Last-minute disagreements doomed legislation last year to curb surprise medical billing, which is when patients inadvertently or unknowingly are treated by a provider outside the patient’s network. The effort has bipartisan support. Lawmakers, including McEntire, have vowed to pass an agreement this year to hold patients harmless. How lawmakers will do that is still unknown.
“In this administration, we will continue to focus on becoming Top Ten in education.
“It is why the Legislature put more funding into the funding formula this school year, bringing the total taxpayer investment in common education to the largest in state history.
Stitt’s budget proposes a modest $11.7 million increase for public education.
“We will protect it. But we must also reform it by taking a hard look at our state’s funding formula.
“We should allow voters to unlock more local dollars. With reform, we must also address any mechanisms that are preventing tax dollars from getting directly to today’s classroom.
“The path to Oklahoma’s future prosperity will be achieved by promoting the profession of teaching and focusing on students’ advancements and opportunities.
“This is why the Legislature rallied last year to give our teachers a second year of much-deserved pay raises. I am glad to report that not only did districts give pay raises of at least $1,220 last year, but some went beyond, like Owasso Public Schools, where now a first-year teacher can expect a beginning compensation of $42,000.
“Our dedication will continue so that teachers know that when they retire, their pensions will be funded.”
“This year, we must get across the finish line proven solutions to enhance learning opportunities for students.
“Now is the time to raise the cap on the Oklahoma Equal Opportunity Education Scholarship to $30 million, to allow Oklahomans to be rewarded for investing their funds directly to our students and schools .
This is poised to be the most controversial of all Stitt’s education-related proposals. It would raise the cap from $5 million to $30 million. The program, which sends potential tax dollars to private schools instead of state coffers, is opposed by many public school advocates because it channels funding away from public schools to private schools, which do not have to comply with state accountability requirements and can deny enrollment to a student for any reason.
“Increasing the tax credit cap will provide additional incentives for donors, resulting in more public-school grants and private-school scholarships…
“Let’s work together to make sure all students at all schools have access to an innovative, enriching curriculum, regardless of ZIP code.”
Most private schools are in Oklahoma and Tulsa counties, and many counties have none.
“While we are on the topic of education, let me take a brief moment to address one critical matter.
“In 2019, 1.3% of the common education funding came from the State’s exclusivity fees on Class III games on tribal casinos. These dollars, which are first deposited to the Oklahoma Education Reform Revolving Fund, equal roughly $130 million compared to public education’s total funding of $9.7 billion, as sourced by the 2019 School District Revenue Report.
“The Model Gaming Compacts have been a success, greater than anyone predicted.
“Unfortunately, we have an expired Model Gaming Compact, a compact in which notable tribes have previously called “dated” and “unsuitable” for current and future business.
“After 5 offers from the State for all stakeholders to come together to modernize the Model Gaming Compact, three tribes instead sued the State on New Year’s Eve.
“While we wait for the federal court’s decision, I am calling for the Legislature to join me in protecting public education. I am asking for legislation that will allow the remaining cash balance from 2019 and funds from the Revenue Stabilization Fund to be leveraged, if needed, to compensate for any temporary pause in Class III gaming fees.
“As Governor, I remain supportive of the sovereignty of the State of Oklahoma and our right – and your duty as the Legislature – to oversee all industries operating in the State.
“I also remain confident the State and Oklahoma’s tribes can hammer out a compromise that is a win-win for all four million Oklahomans, and we can accomplish this without putting public education in the crosshairs.”
Stitt’s remarks on tribal gaming compacts drew applause in the chamber, but not from all. A number of tribal leaders and many Democrats did not applaud.
No Moves on Taxes
“As I said last year, and it bears repeating, we need more taxpayers, not more taxes.”
For the second straight year, Stitt is not proposing any major tax cuts, tax increases or new taxes. But changes could be around the bend. Mike Mazzei, Stitt’s budget secretary, told reporters before the governor’s speech that the administration wants to hold off on tax changes this year. Mazzei said he hopes there will be a comprehensive look at the state’s tax policies next year.
“It is why my budget calls for the funding of the Closing Fund by another $3 million, as well as a $200 million financing plan with a majority prioritized towards rural roads and high-volume interchanges.”
The Quick Action Closing Fund has a balance of $16.5 million. It’s a discretionary fund the governor can use as a sweetener when closing economic development deals. The Commerce Department said pending awards, which have not yet been announced publicly, would put the fund at $9.8 million. Since taking office, Stitt has used $650,000 from the fund. It was the second of two payments to Sofidel, which expanded its paper mill in Inola. The $200 million infrastructure plan would take advantage of low interest rates to accelerate existing plans to improve both rural, two-lane roads and high-traffic urban interchanges. It also would finance $50 million for state agency technology infrastructure improvements.
“Today, I am also filing an executive order to address Oklahoma’s excessive red tape.
“Oklahoma’s administrative code is double the size of the state of Kansas and 20 percent more than Missouri and New Mexico.
“My executive order will call for the first-ever comprehensive review of the State’s administrative code and will instruct agencies to remove two regulations for every new one created.
“The intent is to reduce red tape by 25% in the next three years, providing relief to Oklahoma’s job creators and farmers and ranchers while also strengthening our recruitment efforts to diversify and grow Oklahoma’s economy.”
Stitt is taking a page from President Donald Trump, who announced his own “one-in, two-out” regulation cutting in January 2017. In an executive order filed Monday, Stitt directed state agencies to undertake a comprehensive review of their rules and report back by Aug. 1. He said any new rule should identify two old rules to be revoked until the agency cuts its rules by 25 percent. The state’s administrative code contains more than 16,430 pages.
“Ladies and Gentlemen, Oklahoma is competing. Oklahoma is winning. Oklahoma is undergoing the Turnaround that voters demanded.
“It may not be comfortable at times. It demands hard decisions and boldness. It requires long-term planning and commitment to one vision. But we are making inroads that will last for generations… that will make us stronger… more prosperous… Top Ten.
“There is no place I would rather be than Oklahoma. There is no better team than the ones elected in this room. There is no better time in our State’s history than now. Let’s do this together.
“God bless you. And God bless the great State of Oklahoma.”
More on the state of the state
How did Gov. Kevin Stitt’s State of the State address in 2020 compare with his first one in 2019?
Oklahoma’s 57th Legislature enters its second session in an election year and likely with a relatively flat budget. Do you know who your legislators are?