You almost wouldn’t know Oklahoma was coming out of a cataphoric pandemic and financial downturn based on a state budget agreement Gov. Kevin Stitt and GOP lawmakers unveiled Thursday.
The $8.3 billion spending plan avoids any cuts to the state budget, slashes taxes for low and high earners and puts hundreds of millions back into the state’s rainy day account.
It also includes $232 million in new education funding and more than $100 million for new broadband, film and economic incentives.
The budget proposal, which will need to be approved by the Legislature, comes one year after lawmakers finished an abridged session by cutting most state agencies by 4% as COVID-19 cases began to climb.
But thanks to the influx of direct and indirect federal COVID relief and stimulus funds and a better-than-expected economic recovery, lawmakers found themselves in a better fiscal position this year.
Here are some of the most notable things included — and excluded — from the state budget plan.
Tax Cuts Make It In
For months, House and Senate leaders were split over a plan championed by House Speaker Charles McCall, R-Atoka, to cut the state’s corporate income tax, personal income tax and restore the refundability of the earned income tax credit.
Just days before Thursday’s budget announcement, it appeared a deal wasn’t going to happen.
In the end, the Senate agreed to accept the cuts with tweaks to how they are implemented. Lawmakers plan to cut:
* The state’s corporate income tax from 6% to 4%, resulting in a loss of about $48.5 million in revenue this fiscal year and $110 million each full year after that.
* The state’s top personal income tax from 5 percent to 4.75%, resulting in loss of revenue of $66 million for this upcoming fiscal year and about $170 million a year after that.
Though the Legislature has often found itself in deep budget holes several years after approving tax cuts, Stitt and the GOP legislative leaders said this was the right time for the tax relief.
“There is a push in the federal administration to raise corporate taxes, to raise personal income taxes,” Stitt said. “Now we want Oklahoma to be the state that says, ‘you know what, we are open for business, we want to lower taxes in Oklahoma and we are business friendly.’ ”
The agreement also restores the refundability of the earned income tax credit, which would cost the state about $28 million annually. The credit, which had resulted in an average refund of $121 per household for the 200,000 Oklahomans with low-to-moderate income Oklahomans, was a casualty of the Legislature’s 2016 cost-cutting moves.
Since then, it has been a priority among legislative Democrats to restore the cuts.
Education Sees a Boost
Common education came up big in the budget plan.
The plan calls for a 6% funding increase of $171.8 million to a record high of $3.2 billion. The money, according to lawmakers, will be used to reduce class size for kindergarten and first grade.
It also increases the Equal Opportunity Scholarship program cap by $50 million, with half that money going to private schools and half to public schools.
State Superintendent of Public Instruction Joy Hofmeister announced her support for the plan shortly after it was announced. She called it “tremendous news for students, teachers and, in fact, all Oklahomans who benefit from a strong educational system.”
The Oklahoma Education Association, the largest teacher organization in the state, also called the plan “good news.” But, in a press release, the group said they still want an “ongoing commitment” to public education from the governor and Legislature.
Medicaid Expansion Gets Funded
Since voters last year approved State Question 802 through a constitutional amendment, it was only a question of how lawmakers will fund the Medicaid expansion plan.
Although Stitt and others who opposed the state question repeatedly claimed that approving the expansion would lead to dire budget cuts or tax increases, it turns out that will not be the case.
Lawmakers said they will pay the state’s $164-million-a-year portion (the federal government picks up 90% of the costs) by utilizing enhanced Medicaid rates that were triggered by the pandemic, a recently passed extra cash incentive for states to accept the expansion and a provider fee from hospitals.
It appears Stitt’s plan to transform the state’s Medicaid program, including the new enrollees from the expansion population, into a privatized managed care model is moving forward.
Senate Pro Tempore Greg Treat, R-Oklahoma City, said talks and the House’s proposal to allow the Oklahoma Health Care Authority to oversee the managed care model instead of private companies, are continuing. But he said the managed care debate was not part of the budget negotiations.
Building Up the State’s Savings Accounts
Just a couple years ago, Oklahoma had more than $1 billion socked away in the state’s two main savings accounts: the rainy-day fund and the Revenue Stabilization Fund.
When the pandemic hit, state leaders tapped much of the reserves as they tried to avoid broader cuts. The savings accounts balance dropped to about $230 million.
The budget agreement calls for rebuilding those accounts by sending about $800 million into the reserves.
Stitt, who made it his goal to build those reserves to $2 billion by the end of his first term, said that should “protect” the state against any unforeseen crisis.
Many Democratic Priorities Rejected
Since the GOP holds supermajorities in the House and Senate, it will not need any Democratic votes to pass the budget plan barring defections by Republicans.
But it appears that unless GOP lawmakers agree to changes, they will be hard pressed to win a bipartisan budget vote.
House Minority Leader Emily Virgin said Democrats want the state to save just $300 million, instead of $800 million, so half a billion could be spent on current needs, according to a statement released Thursday.
“With this money, we could end the state sales tax on groceries, which would save Oklahomans more than $250 million per year,” she said in the statement. “We could do this and restore and increase the Earned Income Tax Credit, which puts money directly back into the pocket of Oklahoma workers.”
She added that diverting half of the $50 million for the Oklahoma Equal Opportunity Education Scholarship to private schools is a deal-breaker for her caucus.
“Budgets are a product of the priorities of their authors,” she said. “Both Democrats and Republicans proposed tax cuts this week. Republicans focused on lowering the tax burden on corporations, while House Democrats focused on working Oklahomans and their families.”