Community Action Project Urges Long-Term Budget Forecast and Pause on Tax Cuts

In a press release today, Tulsa based Community Action Project proposed raising taxes in Oklahoma’s slowing economy. Click here for the issue brief titled: “Cutting Deep: New Projections of Sluggish Revenue Growth Suggest that Tax Cut Impact May Be Felt More Deeply and Quickly than Anticipated”

Full text of release:

Tulsa, OK: New Oklahoma budget projections show that tax cuts enacted in recent years are having a more immediate and dramatic impact on the state’s fiscal outlook than initially expected, according to a budget brief released today by Community Action Project, a Tulsa-area anti-poverty agency.

“We are now seeing that the tax cuts are running headlong into our ability to invest in the priorities needed to support Oklahoma families, businesses and communities,” said David Blatt, CAP’s Director of Public Policy and the brief’s author. “The trade-off for pushing ahead with further tax cuts may be felt directly by those who attend public schools and colleges, run a business that depends on a skilled workforce and functioning infrastructure, or need help with health care and social services.”

The new budget projections, certified in February by the State Equalization Board, see general revenue collections growing by just 1.5% during the current fiscal year and by a paltry 1.0% next year. This is well below the 25-year average of 5.4% annual growth in general revenue, and would mark the first time revenues have grown by less than 2% in a non-recessionary year.

“This study provides a wake-up call for what happens when the state slashes its tax base during an oil boom,” noted Alexander Holmes, OU Regents Professor of Economics and the former State Finance Director under Governor Henry Bellman. “We’ve been down this same road before, but it appears that we failed to learn the lesson that tax cuts in good times can have painful consequences in bad times”.

The issue brief shows that sluggish revenue collections are a direct result of the tax cuts passed over the past three legislative sessions. Tax cuts are estimated to have a revenue impact of over $560 million for the upcoming budget year. The vast majority of the tax cuts affected state personal income tax collections, which are projected to decline by 9% between state fiscal year 2006 and 2008.

These projected stagnant revenues come at a time when the state is already struggling to deal with billions of dollars in unfunded liabilities in the state teachers’ retirement system, as well as upholding commitments to raise teachers’ salaries, expand access to higher education, repair roads and bridges, and bolster the health care system.

“If revenues come in as projected by the State Board of Equalization in February, the state will be extremely hard-pressed to meet its funding obligations, especially since additional rounds of tax cuts are currently scheduled to take effect over the next three years”, said Blatt. “Given what we are now learning about the bleak budget picture ahead, legislators should take the opportunity to consider calling a time out.”

The brief also points to a serious flaw in the budget process itself, which fails to provide lawmakers with any long-term baseline budget forecast that could give them a framework for their decisions. Reforming the budget process to provide additional and more accurate forecasting could help lawmakers make more fiscally responsible and sustainable decisions.

“This report is an excellent addition to a small but important set of recent analyses warning of future difficulties for state government finance in Oklahoma,” commented Dr. Larkin Warner, OSU Regents Professor Emeritus of Economics. “The Governor and the Legislature owe it to the state’s citizens to prepare long term projections of state revenues and demands for state services.”

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