Oklahoma Governor Outlines Tax, Criminal Justice Reform, Education Focus

By John Celock

Highlighting a need to address the state’s budget shortfall after a drop in oil prices, Oklahoma Gov. Mary Fallin (R) said she wants to focus on changes to the state’s sales tax structure, along with proposals to overhaul the state’s criminal justice codes in her State of the State Address Monday.

Fallin made the decline in energy prices central to her annual message to lawmakers, saying that the state faces an almost $1 billion shortfall on a $6.9 billion budget. She said she wants to plug the hole using recurring revenue, while also avoiding cuts to public education and other state agencies. She proposed a review of the state’s $8 billion in sales tax exemptions as part of her tax overhaul, saying that changes to parts of the exemptions can address the shortfall.

“How we respond will define our future more than anything else,” Fallin said, saying she believes that the state can “build a solid foundation” based on the budget crisis. “If we work together we can overcome this. We can do it.”

Fallin told lawmakers about plans she rejected for the budget shortfall, which she said would have cut too much from state agencies and from public education in the state. She said that her final will require spending cuts but along with tax changes, including $910 million in recurring revenue to fund the state.

Fallin called on lawmakers to implement a $181.6 million hike in the state’s cigarette tax. Like other governors who have pushed cigarette tax hikes, Fallin said she viewed the plan as a public health proposal in addition to a revenue area.

“Smoking is Oklahoma’s leading cause of preventable death,” she said. “It costs our state $106 million a year.”

Saying that one in five Oklahoma residents smoke, Fallin said that cuts in smoking and smoking related deaths will improve the state’s health ranking.

Cigarette tax hikes have proved controversial in other states, with opponents arguing that it does not cause smoking to decline and adversely impacts the poor

In addition to the cigarette tax, Fallin also said she wants state agencies largely funded by user fees to share more excess revenue with the state general fund to help plug the budget hole.

Fallin spent much of the tax portion of her speech focused on the state’s sales tax. She said that the tax code has not been updated since the 1980s, noting that changes have occurred in shopping with more commerce moving online.

“Reading the sales tax code is like watching a movie on VHS rather than using Netflix,” she said.

Fallin called for Congress to adopt the Marketplace Fairness Act, which would allow states to collect sales tax on goods purchased online from stores that are headquartered in the state. The provision, which passed the U.S. Senate in 2013, has been a top issue for governors and lawmakers around the nation. The National Governors Association, of which Fallin is a former chairwoman, and the National Conference of State Legislatures have both endorsed the measure.

Supporters say that it would allow a windfall for state governments along with protecting small businesses along Main Streets. Fallin addressed the small business issue, saying that the online tax would keep consumers from going into businesses to browse and then shopping online to avoid sales tax. Fallin’s argument is similar to many other supporters.

“We have to help local communities keep local businesses healthy,” she said.

Fallin also called on a review of the sales tax exemptions saying that with $8 billion a year in exemptions on a $6.9 billion annual state budget, the review is needed.

“Does anyone remember any of these being repealed or even reviewed,” she said.

Fallin told lawmakers she wants to avoid dipping into the state’s rainy day fund in order to protect the fund for future years. She said with the volatility in the energy market, she wants to make sure the fund is around to cover potential shortfalls in the future.

Fallin said her goal is to stabilize state revenues for future governors.

“It is better for future governors to have a more stable revenue stream so the public isn’t faced with constant revenue uncertainty,” Fallin said.

Moving on from the budget, Fallin said that she wants to focus on criminal justice reform this year as well. She deemed the situation in the state’s prison system to be “very serious” noting that the state Department of Corrections will run out of funding by July. As part of her budget, she called on lawmakers to pass a $20 million supplemental appropriations for the Corrections Department this year and a $10 million increase for next year.

Fallin outlined a series of criminal justice reforms that she said that would not only reduce the state’s prison population but also reduce the recidivism rate and lead to future population reductions in prisons. Fallin said in the speech that Oklahoma prisons are at 119 percent capacity.

As part of her criminal justice plan, Fallin said she wants to reduce the sentences of nonviolent drug offenders to allow for first time offenders to avoid prison and many repeat offenders to either avoid prison or have reduced sentences. Among her plans were to allow for local district attorneys to classify first time offenders as misdemeanor crimes. She said that prison sentences for drugs have not reduced substance abuse in the state.

She said the current prison sentences have led to more crime in the state.

“They live alongside violent offenders and that can make nonviolent offenders worse and worse,” Fallin said.

Criminal justice reform has become a growing theme with governors of both parties. In their State of the State addresses last month, both New Jersey Gov. Chris Christie (R) and New York Gov. Andrew Cuomo (D) outlined criminal justice reform plans to reduce prison populations. Christie has made it a central theme of his administration in New Jersey and his campaign for the Republican presidential nomination, including making it the central focus of an address he gave to the New Hampshire House of Representatives last month.

Fallin called for changes to the state’s education structure, saying she wants more money to go into the classrooms. Among her education proposals was to merge administrative functions of certain school districts, but she said the proposal would not close or merge schools in rural Oklahoma. She also said she wants to allow local school districts more budget flexibility to move money around to cover shortfalls in instruction from other areas of the budget.

Citing the need for administrative changes to school districts, Fallin cited the words of former Gov. David Walters (D) in his 1993 State of the State Address. Fallin was a state lawmaker when Walters was governor.

Fallin also said her budget proposal contains a $3,000 pay raise for every public school teacher in the state. She said that she was able to fund the raise without raising the state’s sales tax, but did not highlight her exact funding mechanism for the raise.

Fallin said she hopes to work with lawmakers to address the budget shortfall and other issues this year.

“We were sent here to lead and we need to lead now more than ever,” she said.