Budget & Tax

YOU GUEST IT: A review of Oklahoma’s 2014 legislative session

June 25, 2014

Dave Bond

The Republican supermajorities which are in control at the Oklahoma state capitol produced a mix of policy victories and missed opportunities during the 2014 legislative session, which concluded on May 23.

Policy Victories

Major reform of Oklahoma’s government employee pension system. Oklahoma’s pension debt is $11 billion and growing. Prior to this legislative session, OCPA provided a roadmap for converting new hires at most state government agencies to a defined-contribution retirement system, similar to the 401(k) structure used in the private sector. With leadership from state Rep. Randy McDaniel and state Sen. Rick Brinkley, the reform was enacted. Taxpayers and public-sector retirees will benefit.

Preventing a 600 percent increase in Oklahoma’s tax rate on oil and natural gas drilling. Job creators in Oklahoma’s energy production industry pay a specific penalty, the state’s gross production tax, in addition to the myriad of other state taxes they and their employees and contractors pay. The industry already pays more in taxes to Oklahoma state government than any other industry. But before session, tax consumers began pushing the myth that energy producers were not paying their “fair share” in state taxes and demanded that Oklahoma’s 1 percent gross production tax on horizontal and deep wells be increased to 7 percent. In the final week of session, the Legislature passed a compromise setting the gross production tax on all new wells drilled in Oklahoma — horizontal, deep, conventional, vertical, or otherwise — at one, low rate of 2 percent. Lawmakers also locked in the structure permanently, so energy producers will have more certainty to allocate capital in Oklahoma.

Missed Opportunities

The opportunity to keep pace in the interstate tax competition. Oklahoma is in an “income tax sandwich” between Kansas and no-income-tax Texas. Kansas has dramatically reduced its income tax below Oklahoma’s 5.25 percent rate, with more reductions scheduled, and eliminated taxes on small business profits. A plan by state Rep. Leslie Osborn, state Rep. Tom Newell, state Sen. David Holt, and state Sen. Nathan Dahm to lower Oklahoma’s rate to 4 percent proved too bold. Instead, the Legislature passed a bill that would lower Oklahoma’s income tax to 5 percent in 2016, if tax collections reach certain levels. While delayed, this tax cut is still significant because it keeps momentum going in the right direction and does not include tax-code manipulations that, in past sessions, threatened to increase payments on middle-income families.

The opportunity to significantly expand school choice. State Rep. Jason Nelson proposed allowing certain Oklahoma parents to use Education Savings Accounts (ESAs) to place their children in schools outside the public system. Public schools work for many students, but not for all. Parents tend to know best what their children need, and ESAs would expand options, at a savings to taxpayers. Nelson’s bill failed in committee.

The opportunity to reform Medicaid. Despite Gov. Mary Fallin’s rejection of Obamacare’s costly Medicaid expansion, Oklahoma’s Medicaid program is still enormous. Policymakers in Florida, Louisiana, and elsewhere have utilized innovative methods to take greater control of federal Medicaid dollars and reduce costs. A plan by state Sen. Kim David and state Sen. AJ Griffin to take similar steps in Oklahoma was put on hold.

The opportunity to create a leaner, more efficient state government. Lawmakers passed a $7.12 billion budget that is the largest in state history and contains hundreds of millions of dollars in nonessential spending, including golf courses and rodeos.