The Senate Appropriations Committee unanimously approved the nomination of former Sen. Mike Mazzei to serve as Gov. Kevin Stitt’s cabinet secretary of budget, less than a week after that appointment appeared in jeopardy.
A prior confirmation hearing ended abruptly last week after a heated exchange between Mazzei and some senators over an email senators believed indicated the Stitt administration was stifling access to agency officials. Following that meeting, Senate President Pro Tempore Greg Treat, R-Oklahoma City, warned Mazzei’s nomination was “in jeopardy of not having the votes” to pass out of committee.
On Monday, the same senators gave Mazzei easy passage after he addressed concerns about legislative access, defended prior tax cuts, and urged lawmakers to boost state savings.
“The Stitt administration wants to make it clear that all state legislators deserve and should have easy access to state agencies to exercise their constitutional duties to provide oversight,” Mazzei said.
He said an email that became a source of contention last week, which was sent by an official at the Oklahoma Health Care Authority, “did not represent the wishes of the Stitt administration and was a wrong interpretation of recent change in state law.”
“I can state, unequivocally, that there has never been a request that agencies withhold information from the Legislature,” Mazzei said.
During the meeting, one Democrat suggested Oklahoma government’s recent financial problems were tied to income-tax rate cuts enacted largely between 2006 and 2010. Mazzei dismissed those arguments.
“The 2014 number, as I recall in terms of income-tax revenue, was still significantly higher than the income-tax revenues from 2006 and 2007,” Mazzei said. “So income-tax cuts would not have created the structural deficit problem. What really created the structural deficit problem was the cost of what we call tax expenditures, the drop in oil-and-gas revenues, and the previous year’s spending and, as I said, one-time funding sources.”
Mazzei said Oklahoma’s budget problems were caused primarily by “the downturn in oil and gas prices,” increased government spending “during those good years that we did get to enjoy,” and an “explosion in some of the costs” of tax-credit programs. He cited the “incentive” gross-production tax rate for horizontal drilling as one problem, saying the incentive rate was a “little bit too generous, and a little bit too large, and a little bit over the top.”
The rate for horizontal wells during the initial years of production was set at 1 percent for over a decade before being raised to 2 percent in 2014 and then increased repeatedly in subsequent years until it hit 5 percent.
Mazzei said he is “generally not an advocate of tax credits, tax rebates, tax deductions, tax exemptions.” He said those tax breaks should be evaluated based on how they impact “net economic benefits in terms of potential payroll, in terms of potential sales taxes to the state, in terms of potential additional job growth, in terms of potential increases in income taxes,” citing the aerospace engineering tax credit as an example of a tax break that generates more money than it costs the state. The Oklahoma Opportunity Project, a think tank Mazzei helped launch after leaving the Senate, also identified the Education Scholarship Tax Credit program as a net-plus for the state.
Mazzei said this year’s revenue growth of roughly $570 million can be attributed to three factors: “a growing economy that’s happening nationally and we’re obviously benefitting from; an increase in oil-and-gas prices, which is part and parcel of that growing economy; and last year your work on increasing, frankly, the GPT tax from the 2 percent to the current 5 percent and phasing out the incentive for horizontal drilling.”
Even with this year’s massive surplus, Democrats noted agency spending requests are outpacing available funding. Sen. J.J. Dossett, D-Owasso, asked Mazzei if the Stitt administration would support additional tax increases this year.
“As a budget secretary, would you be for finding new revenue as we did last year?” Dossett said.
“If you’re saying would I, as an incoming budget secretary, look favorably on tax increases to provide more revenue, I don’t think that’s necessary at this time,” Mazzei said.
Instead, Mazzei stressed the need to build up state reserves, saying the governor believes officials should be “saving money for a future, inevitable recession.”
“It’s coming,” Mazzei said. “We don’t know when it is. We don’t know how bad it is, but after a nine, 10-year period of economic expansion, there is another recession around the corner, and we would like to have the proper savings amount so, as earlier discussed, we don’t have to negatively impact core services, nor would there be a need to raise taxes, which from an economic standpoint is usually a mistake in a downturn.”
Stitt has called for setting aside $200 million of this year’s $570 million surplus. That would give the state roughly $1 billion in savings by mid-summer, based on estimates. Stitt has said he wants $2 billion in state savings by the end of his four-year term.
Mazzei also cautioned against enacting a state pension cost-of-living adjustment (COLA) without providing additional money for the increase.
While Mazzei said it is “reasonable” to discuss a COLA for pension systems that are 90-percent funded or better, he stressed that the teacher’s retirement system, which is just 73 percent funded, is not capable of handling a COLA without additional funding.
“That’s not in a position yet, given the enormous billion dollars of liability that still exists, where it can fund, in and of itself, a COLA adjustment,” Mazzei said.
Mazzei said passing a COLA for the teachers’ retirement system without funding could have repercussions for the state’s bond rating.
“The rating agencies will look down on that,” he said.
Mazzei’s nomination was approved on a 20-0 vote in the Senate Appropriations Committee. It will now proceed to the floor of the Oklahoma Senate.