OKLAHOMA CITY — Oklahoma Gov. Mary Fallin on Monday proposed increasing the cigarette tax and expanding the sales tax to a variety of services that are currently exempt as a way to close an estimated $900 million hole in next year's budget.
Fallin delivered her State of the State address to lawmakers on the first day of the 2016 legislative session, along with her proposal for a balanced budget for the fiscal year that begins July 1.
"Even in this fiscal climate, we can pass a budget that begins the type of meaningful fiscal reform the state needs," Fallin said.
Democrats pounced on Fallin's proposals, criticizing her for proposing new taxes when a Republican-backed reduction in the income tax from 5.25 percent to 5 percent just went into effect on Jan. 1.
"Our caucus will oppose each and every effort until she comes to the table with a serious tax plan to reform the income tax devastation that she has helped oversee," said House Democratic Leader Rep. Scott Inman, of Oklahoma City. "Our caucus is very frustrated by what the governor has offered."
The Legislature is grappling with a hole in the budget of about $900 million, or about 13 percent less than lawmakers appropriated last year for education, transportation and other state services. Because of poor state revenue collections in December and the continuing low price of oil and natural gas, that hole is expected to exceed $1 billion when the final revenue figures are certified later this month.
Fallin's executive budget recommends about $910 million in what she describes as "recurring revenues," including $181 million from a proposed increase in the cigarette tax from $1.03 to $2.53 per pack. She also maintains that $125 million can be captured through various agency revolving accounts that are generated mostly through fees and other sources. An additional $200 million would come from a combination of eliminating sales tax exemptions and expanding sales taxes.
"(This budget) modernizes our tax code to make it more consistent with the 21st century commerce we now have," Fallin said.
Any proposal to increase taxes, or to eliminate tax exemptions, will likely face fierce resistance in the Republican-controlled Legislature.
Senate President Pro Tem Brian Bingman said both the proposed cigarette tax and the expansion of the sales tax to additional services would be a tough sell in the Legislature.
"It would be difficult to pass that, if you're just looking at broadening the current (tax)," said Bingman, R-Sapulpa.
Finance Secretary Preston Doerflinger, the governor's chief budget negotiator, said the Fallin's proposal was intentionally vague about which services would be targeted for a tax increase or which sales tax exemptions might be eliminated.
"If I reveal the specific areas, that rotunda would be full of constituency groups screaming and crying to protect their specific exemption," Doerflinger said.
The sale of tangible property is taxed in Oklahoma, but most services, such as haircuts, home improvements and others, are not. The state also provides of dollars in sales tax exemptions for things like advertising sales, tickets to professional sporting events, or dues paid to fraternal, religious or civic societies.
The governor's budget also appropriates $178 million to pay for a permanent $3,000 pay raise for Oklahoma teachers, and she says some education savings could be realized by consolidating dependent school districts, which are typically those that have only kindergarten through eighth grade.
Under her proposed budget, most state agencies would see budget reductions of about 6 percent, but a handful of agencies were cut just 3 percent, including the Department of Human Services, Department of Health, Health Care Authority and Department of Public Safety.
She's also proposing increases in funding for the state's prison system, public education and the state's Pinnacle Plan for improving Oklahoma's foster care system. She wants legislators to approve a second bond issue to pay for improvements to the state Capitol.
Fallin also proposed several sweeping initiatives aimed at reducing the state's overcrowded prison system, including reducing penalties for many drug crimes and low-level property crimes from felonies to misdemeanors.
"Oklahoma's drug possession sentences haven't deterred substance abuse and have filled our prisons to over capacity," Fallin said.
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