Budget & Tax

“Cost avoidance” for special session

September 22, 2017

Trent England

Oklahoma government spending is on track to be higher than ever this fiscal year. This follows runaway growth under Gov. Brad Henry and continued, if slower, growth under Gov. Mary Fallin. Total spending on basic education and higher education are examples.

After the Great Recession, the lackluster national recovery under President Obama, and a precipitous plunge in oil prices, it is no surprise that taxpayers have a hard time keeping up with government’s growing costs.

During the regular session, Secretary of Finance Preston Doerflinger downplayed proposals to cut spending. He wrote that such ideas were “in the category of cost avoidance, not revenue creation.” He wanted the legislature to focus on the latter, in other words, on tax increases.

The first step in balancing any budget—family, business, or government—is “cost avoidance.” In fact, during Gov. Fallin’s first term, Sec. Doerflinger himself wrote that he was pleased, and taxpayers were benefitting, from his own “cost avoidance” efforts.

Now the Oklahoma legislature is coming back for a special session, at a cost of around $30,000 per day. Lawmakers should focus on ending the session as quickly as possible without raising taxes. Here are some “cost avoidance” measures and related recommendations that avoid further burdening Oklahomans.

1. Medicaid Enrollment Audits- FY 2018 Savings: $57 million
Most states, including Oklahoma, have programs to prevent fraud by providers who are reimbursed by Medicaid. Many states, however, lack robust procedures to verify that Medicaid enrollees are and remain legally eligible. A number of states, including Illinois and Pennsylvania, have implemented Medicaid enrollment audits and eligibility verification efforts to remove Medicaid participants who are no longer eligible.

2. Cap Zero-Emission Tax Credit Liability Payout At $12.5 Million Annually- FY 2018 Savings: $35 million
Capping the annual payout of the zero-emission tax credit existing liabilities at $12.5 million would conservatively save the state $35 million.

3. Cap Ad Valorem Reimbursement for Wind At $12.5 Million Annually- FY 2018 Savings: $11.67 million
Wind energy developers made multiple representations to lawmakers and the public when wind incentives were first adopted that the cost of the incentives would be very low. In fact, payment of the incentives has caused the state to borrow from other funds in recent fiscal years. Wind facilities were given a special carve-out to be added for the purposes of ad valorem reimbursement by state taxpayers and the wind projects increased significantly the amount state taxpayers are on the hook for ad valorem reimbursement for wind.

4. Repeal Sales Tax Exemption on Wind Turbine Sales- FY 2018 Savings: $26.67 million
The Oklahoma Incentive Review Commission has noted that Oklahoma has already exceeded its renewable energy goals. The Commission also found “that a significant portion of the expected new development in wind facilities is to provide energy for transmission to users in other states. In this case, there is no real benefit for Oklahoma consumers in subsidizing the generation of this electricity.” Given these findings and the substantial amount that taxpayers are on the hook for wind tax credits, it makes sense to repeal this sales tax exemption to help balance the state budget. FERC interconnect filings show that as many as 3,152 new turbines are planned for Oklahoma.

5. Eliminate Hollywood Subsidy- FY 2018 Savings: $2.67 million
The state of Oklahoma pays a subsidy for films made in Oklahoma. It’s absurd to ask Oklahomans to subsidize Hollywood while threatening Oklahomans with tax increases.

6. Eliminate Cigarette & Tobacco Products Sales Rebate to Tribal Governments- FY 2018 Savings: $40 million
According to the Oklahoma Tax Commission records and a recent Tulsa World article, the State of Oklahoma provides tribal governments 50-cents on the dollar rebates for the cigarette and tobacco taxes they collect. It is unjust for taxpayers to pay for the sale of cigarettes or tobacco products.

7. Surplus Cash Withdrawal from CIRB Fund- FY 2018 Savings: $102.7 million
Due to the timing and nature of county roads projects, this fund carries large balances throughout an entire year and the monies that accumulate to the fund are far more than actual needs and expenditures. The CIRB Fund has a cash balance that can be accessed in order to balance the current budget.

8. Convert Spaceport Authority, OETA, and JM Davis to Non-Appropriated- FY 2018 Savings: $2.2 million
Spaceport Authority: Attempts at space travel are not a core function of government and should not be subsidized by state taxpayers. The spaceport should operate entirely on fees as it is an intensely non-core function of government. Because this agency has other sources of funds in addition to legislative appropriations, it can continue to operate even if the Legislature eliminates the appropriation, as it has done recently for other state agencies.

OETA: Because this agency has other sources of funds in addition to legislative appropriations, it can continue to operate even if the Legislature eliminates the appropriation, as it has done recently for other state agencies. Previous legislative studies have revealed that 17 states do not use taxpayer dollars to subsidize public television.

JM Davis: The JM Davis Museum is an intensely local attraction that should be entirely funded by local funding and tourist visits. Because this agency has other sources of funds in addition to legislative appropriations, it can continue to operate even if the Legislature eliminates the appropriation, as it has done recently for other state agencies.

9. Use Surplus Certified Cash- $83 million
Item from House proposal

10. Legally Access the Rainy Day Fund- $23 million
Item from House proposal

11. TSET Reforms
The Legislature should not leave the special session without sending TSET reforms to a vote of the people by the end of calendar year 2017. With more than $1 billion in the bank, investment earnings of about $40 million per year, and additional income of $50 million per year from the sale of cigarettes, TSET needs to be refocused on paying for the actual provisions of health care to the most vulnerable Oklahomans rather than self-serving grant programs and harassing Oklahomans about their personal lifestyle decisions. It’s absurd that while working Oklahoma families and small businesses are in the crosshairs of bureaucrats, TSET is releasing multi-million dollar bids to further harass Oklahomans about their personal lifestyle decisions.

The total from these items is $383.97 million. Lawmakers could enact any combination of the following to make up for the approximately $215 million that the state will not receive from the tobacco tax.