OKLAHOMA CITY — Gov. Mary Fallin is proposing a $200 million a year expansion of the state sales and use tax and more than doubling cigarette taxes to deal with the state’s huge budget hole.
Fallin made the proposals during a joint legislative session assembled in the House Chamber on the first day of the second session of the 55th Legislature. Her speech lasted just under 45 minutes.
Lawmakers expect to have at least $900 million less to spend in crafting the state’s fiscal year 2017 budget than they had for the current year’s budget, and officials have declared a revenue failure for the current fiscal year, requiring agencies to cut budgets already.
Tax structure: The services sector is the fastest-growing segment of the U.S. economy, and the state’s tax code does not reflect that, Fallin said.
“If we don’t adjust our tax structure to reflect this change in commerce, there will be increasing pressure to raise government revenue in less palatable ways,” Fallin said.
“If structured properly, this approach could present an opportunity to reduce the state sales-tax rate, which is currently the sixth-highest in the nation.”
Fallin’s budget proposes applying a sales tax to the service sector and collecting sales taxes on items delivered electronically, such as music.
Modernizing the tax code would generate $200 million a year for the state, she said.
Increasing the tax on cigarettes to $2.53 from $1.03 per pack would generate $181.6 million, Fallin said.
Other revenue-generating ideas Fallin proposed include taking $125 million from state agency revolving funds and taking $125 million from nonappropriated state agencies.
Fallin said lawmakers need to look at the $8 billion in annual sales-tax exemptions.
“We’ve asked around, and nobody can remember any of these ever getting repealed, let alone reviewed,” Fallin said. “Surely some of that $8 billion can be revisited.”
Tax increases in Oklahoma must receive at least three-fourths of legislators’ approval or go to a vote of the people.
State agencies: Fallin said her proposed budget would reduce appropriations to most agencies by 6 percent, with smaller cuts, 3 percent, proposed for agencies that provide critical core services, including the Department of Health, the Department of Human Services, the Oklahoma Health Care Authority, and Mental Health and Substance Abuse Services.
Her budget also would give the Department of Corrections a $20 million supplemental appropriation to make it through the current fiscal year and an increase of $10 million next year.
She said she is supporting sentencing reform for some offenses and consolidation of some law enforcement agencies.
Teacher raises: In the area of education, Fallin said her budget proposal would appropriate an additional $178 million for a permanent $3,000 teacher pay raise.
“And we can do it without raising the state sales-tax rate to the highest level in the nation,” Fallin said, referring to a proposal to let voters decide whether to increase the sales tax by 1 cent on the dollar to fund education and teacher raises.
School consolidation: Fallin said it is time the state consolidated the administration of its underperforming dependent school districts into independent districts.
“To be clear, this does not mean closing rural schools,” she said. “This would get more money to classrooms and can enhance educational outcomes in a more effective way.”
Foster care: While talking about funding in her proposed budget to support DHS and children in the foster care system, Fallin recognized Brian and Chris Siemens of Tulsa, saying they are hard-working community advocates and have big hearts.
The couple have fostered seven children, adopting three of them.
Capitol repairs: Fallin also asked lawmakers to approve an additional $120 million to repair the crumbling state Capitol.
In 2014, they approved a $120 million bond issue with the anticipation that additional money would be needed.
“Let’s finish the job right,” Fallin said.
Reaction: House Minority Leader Scott Inman, D-Del City, said the governor backtracked on her stance of no new taxes to fund government.
In supporting a GOP-led reduction in the state’s income-tax rate, Fallin said Oklahomans needed to keep more of their hard-earned dollars.
The rate dropped to 5 percent from 5.25 percent on Jan. 1, and lawmakers have balked at talks of rolling it back to the higher rate, despite the state’s financial crunch.
Fallin’s call for increased taxes now “is an absolute flip-flop on her original position,” Inman said.
Meanwhile, Oklahoma Education Association President Alicia Priest said that although Fallin proposed a teacher pay raise, she gave no details.
“We have schools moving to four-day weeks to save money and others who are already laying off employees to make ends meet this school year,” Priest said. “She didn’t address those problems in her speech today, nor did she mention that her budget calls for a 3 percent cut to common education.
“It is our hope that the Legislature will work hard to find funding solutions for public education in spite of the lack of leadership from Gov. Fallin.”
Senate President Pro Tem Brian Bingman, R-Sapulpa, said Fallin put out a bold initiative and showed good leadership, adding that this year’s budget will be the most difficult since he joined the Legislature.
House Speaker Jeff Hickman, R-Fairview, talked about the severity of the budget problem.
“We are not only out of rabbits, we are out of hats,” he said.