By June 23, 2016 Uncategorized 1 Comment

Here’s a dumb question: At what point after a locomotive crashes should the engineer and fireman stop shoveling coal?

I would think the first priorities in the above scenario would be to clean up the wreckage, investigate the cause of the crash, and then work to correct the reasons why the train went off the tracks in the first place.

That’s if you believe train wrecks are generally something to be avoided.

Therefore, adding more fuel to the flame by continuing to shovel coal into a broken train engine would be rather idiotic, right?

Speaking of train wrecks .  .  .

We know this year’s Oklahoma state budgeting process was a disaster. After years of pushing through ill-advised tax cuts and incentives and failing to shore up structural flaws in our state tax code, our legislature was appropriated $1.3 billion fewer dollars to craft this fiscal year’s budget.

This is after our state endured $611 million in cuts for the previous fiscal year which, after several revenue failures this spring, somehow turned out to be overly optimistic.

Oklahoma’s budget woes have certainly been amplified by a multi-year decline in oil and gas prices, a central piece of our state economy.

Regardless of how some partisans would like to spin this scenario, the fact that our state is struggling to meet its central obligations illustrates a fundamental weakness of our current economic planning and budgeting process.

The budget crisis was not a surprise to most.  This runaway train has been hurtling towards calamity for the past decade. As reported by OK Policy, the cost of state income tax cuts since the mid-2000s has grown to over $1 billion annually.

Nonetheless, in January 2016, state income taxes were cut from 5.25 to 5 percent because a revenue trigger written into the original legislation had been reached.

Now that the budget train has flown off the tracks, it seems reasonable we would stop shoveling coal.

Yet, according to this recent article in The Oklahoman, our state may face another tax cut trigger very soon: 

Oklahoma’s income tax rate appears poised to decline again, further reducing state revenue at a time when lawmakers are finding it hard to fund core state services. A bill that would have delayed the next incremental drop in the income tax rate didn’t advance in the recently concluded legislative session. Sufficient state revenue growth would trigger a rate decrease from 5 percent to 4.85 percent as soon as Jan. 1, 2018

It gets complicated, but the essence is that an additional 0.15 percent tax rate cut will be triggered Jan. 1, 2018, if the state Board of Equalization determines next February that the reduction’s $94.7 million cost would be covered by general revenue growth.

Such growth could be stimulated by measures approved by the legislature this year to increase new revenue. Also, oil prices appear to be slowly increasing, which also could eventually increase state revenue.

What’s crazy is that we actually have some reasonable policy makers doing everything they can to take the shovel out of the hands of the tax-cutters. They recognize that another cut during this time would represent bad economic policy.

Republican State Treasurer, Ken Miller, said this:

“I can think of no financial reason to pass a measure predicated on future growth when legislators could simply wait to preserve flexibility for unforeseen fiscal challenges, such as the ongoing problems we are experiencing,” Miller said.

“Until lawmakers come to the terms with the fact that their desire to spend surpasses their desire to generate revenue, Oklahoma will continue to have structurally unbalanced budgets that will only worsen as recurring revenue sources are reduced.”

To their credit, the Oklahoma Senate tried to get legislation through last month to alter the trigger language.

Senate Bill 1618, which would have required estimated revenues to reach $7.25 billion in order to trigger any new tax reductions, passed the Senate on a vote of 44-3. Certified revenues for the 2017 fiscal year reached just $5.85 billion so the state would have been well below the trigger for another tax cut.

However, the bill died on the House floor without so much as even an up or down vote.

House Speaker Jeff Hickman responded to The Oklahoman article by saying: “There were problems with the way the bill was drafted that could have led to unintended consequences or left it vulnerable to legal challenge. There wasn’t time to revise it before the end of the legislative session.”

As we know, accurately anticipating unintended consequences is one thing the Oklahoma Legislature does spectacularly!

The tax trigger issue was initially discussed as early as last summer, so it’s not clear why a bill on the issue didn’t come up until lawmakers were within days of going home in late May.  I’m sure you recall how busy the legislature was milling about smartly earlier that month.

Nonetheless, by the time the legislature reconvenes in February 2017, the Board of Equalization revenue estimates will already be in place and wheels could already be in motion for a new tax cut.

In other words, the Oklahoma Budget Train won’t even be back on the tracks before we further sabotage one of the engines of long-term economic recovery.

With that awkward sentence, I think I have adequately beat this train metaphor into submission . . . well, except maybe for this:

Fasten your seat belt. We’re in for some more bumpy rides.

This Post Has Been Viewed 168 Times

Share this: