House and Senate Leadership Announces Budget Agreement

Murphey Legislative Update
3/21/2007

In the past two years, the size of state government has grown approximately 30%. Had it stayed the same with no growth over the past two years, the state personal income tax could nearly have been eliminated.

At the beginning of this year's session, the Governor again proposed to increase the size of government by approximately 398 million dollars, raising annual appropriations to over 7 billion dollars, an increase of about 5.9%. The Governor also wished to issue 663 million in new indebtedness spending, and nowhere in his proposal was there a call for tax cuts.

On Monday, leaders of the House Republicans, Senate Democrats and Senate Republicans, announced their alternative to the Governor's plan. Their budget would increase the size of government by nearly 230 million dollars, raising annual appropriations to just under 6.9 billion dollars for a proposed increase of 3.4%. There is no evidence that this budget will incur any long term debt. The plan would also provide four tax cuts. The income tax will be reduced from 5.65% to 5.50%. A child care credit will be issued for those who choose to care for their qualifying children at home rather than placing them in a day care facility. The franchise tax will be eliminated for all businesses owing less than $250 in annual franchise tax liability. A three day back-to-school sales tax holiday for clothing and footwear costing less than $100 will be initiated and begin the first Friday in August. The state will reimburse municipalities for their loss in sales tax revenue.

This legislative plan appears preferable to the Governor's proposal. I am happy that new bonded indebtedness is not proposed and that it appears as though massive growth in the size of government in the last two years may be coming to an end. It is also encouraging that there is some progress in reducing the state income tax rate.

I do have concerns about the legislative budget. An early proposal that won subcommittee approval to cut the income tax in a significant manner was scaled back and now the current tax cut does not go far enough. Until we are able to work in an aggressive manner toward eliminating the state income tax, we will continue to lose economic development to Texas where there is no state income tax.

I am also concerned that the legislative budget is being presented to the House in the form of one bill. There are a number of state agencies which should be consolidated or not funded by state appropriations. Since the budget will be presented to us as one big bill, then it will make it difficult to target this state waste.

Finally, there are concerns about the way the budget is developed. In the past, Oklahoma politicians claimed to have instituted the process of zero based budgeting. A visit to Governor Brad Henry's website (http://www.gov.ok.gov/gov_henry.php) will demonstrate he is claiming to have helped institute this important reform. However, evidence that the principles of zero based budgeting have been applied to the budget process are mostly lacking. It appears that nearly every agency has been awarded the same amount of money they received last year, with very little change based on performance or need. Until we can incorporate zero based budgeting, it will be nearly impossible to shrink the size of government significantly. Thus both budgets proposal an expansion in government. I am encouraged that the House Speaker placed emphasis on the subcommittee agency review process and am hopeful this will be used by House leadership as a springboard to cut the size of government by instituting effective zero based budgeting in the future.

Based on observations this year, I plan to publish a report with recommendations for agency consolidations and cost savings. As always, your feedback is appreciated as we work to accomplish true reform.