Tax cuts sound great. And in Oklahoma our governor and Legislature are all about cuts. But at some time we will have to pay the piper. Further cuts make no sense right now.
The issues are several fold. The budget process in Oklahoma is short term. Some decisions are purely politically driven. What happened to business reason? There seems to be no long-range strategic plan considering overall impacts of cuts on services and magically, if we reduce taxes an increase in business and sales will make up the difference. It sounds lie trickle-down economics, but there are too many variables. You could not run a business this way. We are headed for trouble.
First, once you cut taxes it is virtually impossible to get any consensus to raise taxes. Second, Oklahoma is already facing a $188 million revenue shortfall.
Third, if you examine Oklahoma’s history of tax revenue, however you slice the pie, a big part of revenues comes from taxes on the oil and gas industry — feast or famine depending on how oil markets go. When energy activity decreases, so does Oklahoma’s budget.
We have 7 percent tax on production. This was reduced to 1 percent on horizontal drilling as an incentive, which is set to expire in 2015, though some in the Legislature want to make it permanent. According to the Oklahoma Policy Institute, at 7 percent we have the lowest taxes in the nation on oil and third lowest on natural gas. Activity is up and energy strong. But with low taxes in all segments, what about the day when the energy cycle spins down? We will need this revenue. I appreciate the huge contribution energy makes to our economy and I am not proposing unreasonable taxes at the expense of the industry. This was an incentive. It worked. But many in the industry expect a negotiated agreement and some additional tax percentage can be agreed. But not if lawmakers freeze the tax at the lowest level.
The argument of the governor and Legislature is for smaller government. But how do you define smaller government? Government’s business includes a spectrum of services for citizens of all needs. Just like in a business, there are operating costs. In business if you cut prices too much and cannot support your infrastructure, the risk is your service to customers will suffer. Your customer base and revenue will then continue to decline. Government needs to be smart about budgeting and cuts.
I argue you can have a smaller government but it will only be strong if built by reforms and reorganizations in administrative overhead and improving operations without reducing services. Develop a strategic budget planning process, much like in business, targeting all necessary and possible additional services. Identify use of reasonable revenues looking for efficiencies, waste and adding upgraded processes. Move from a pension system to 401(k) retirement options. Cutting funding for the sake of a bully pulpit for political reasons is folly. The goal is building a government on best practices. Remembering the government is for the people.
With reduced revenues we will not achieve major improvements in key areas. Increase funding for a first class educational system, which is a first line of defense against poverty. Education is linked to economic growth. Education is an investment. Children going to school hungry is an issue in Oklahoma. Of 640,000 students in the state, 56 percent are eligible for free and reduced lunch. In Oklahoma City that rate is at 90 percent of 42,000 students.
We are in crisis losing teachers with pay 9 percent below regional averages. We are accepting rankings in the bottom 5 percent of all states for teacher pay and per pupil expenditures. Shouldn’t the focus be building our state government services and education to one of the best? Bite the bullet and review the impacts of reduced administration, transportation and facilities costs and duplications by consolidating Oklahoma’s 526 school districts — far more districts than larger states.
Denying federal aid, the governor is expecting the state to find a way to pick up Medicaid costs for 160,000 now without coverage. Many are children. She wants to consolidate agencies, which will reduce money for the arts. With deficit problems, refusing federal monies over ideology, is not well founded and agencies will be sacrificed unnecessarily.
Effectively, this short-term approach to tax cuts and poor budget planning will result in a smaller government but far less effective government. And, potentially a failure in services. Decisions today will impact us tomorrow. Step back and examine the agency expenditures, costs of services, needed areas for increased funding, find efficiencies and improve and adopt a systematic, reasoned budget process. Then develop a tactical and strategic plan to improve government and Oklahoma. The policies today make no sense. Stop the madness before it is too late.
PHIL BUSEY, an Edmond resident, is chairman and CEO of The Busey Group of Companies in Oklahoma City.