Budget & Tax

Appropriation-estimate process to face scrutiny

August 13, 2020

Ray Carter

A state board that establishes how much money lawmakers can appropriate each year will be an initial target of investigation for the Legislative Office of Fiscal Transparency (LOFT).

Members of a legislative committee that oversees LOFT voted Thursday to approve a work plan that makes the State Board of Equalization, an executive branch entity that certifies the amount of tax collections available for appropriation by the Legislature, one of the first entities to undergo a review by LOFT.

Lawmakers said they have had concerns about the validity of estimates generated by the State Board of Equalization since late in the administration of former Gov. Mary Fallin.

“This type of situation with the Board of Equalization isn’t something that just came about in the last two years,” said Senate Majority Floor Leader Kim David, R-Porter. “The whole concept of LOFT came about because of what happened in the budget crisis.”

From 2015 to 2018, lawmakers faced continual budget shortfalls tied to a crash in oil prices and resulting state recession. During that period, the reported shortfall rose from more than $600 million one year to $1.3 billion the next. But lawmakers say they soon found those numbers were of dubious validity, David said.

“It became very apparent, even back then, that the information we were getting, we could not accept at face value,” David said.

The financial figures released by the Fallin administration became so murky that in December 2017, the administration announced the state would have $900 million more to appropriate, but claimed a budget hole still faced lawmakers in the 2018 session and that the Fallin administration could not provide accurate data on the size of that shortfall.

House Appropriations and Budget Chairman Kevin Wallace, R-Wellston, also pointed to the Fallin administration’s actions during the 2017 and 2018 legislative session.

“I was here in the 56th (Legislature)—different administration, different time—but there was a lot of political pressure put on this body to raise taxes,” Wallace said, “and not, necessarily, all the information was always accurate, forthcoming.”

Lawmakers voted to approve one of the largest tax increases in state history during the 2018 session. From 2015 to 2018, the Oklahoma Legislature passed $1.1 billion in combined tax increases and other revenue measures.

Lawmakers said they also had concerns about shortfall estimates generated this year by the State Board of Equalization during the COVID-19 shutdown.

Sen. Roger Thompson, an Okemah Republican who chairs the Senate Appropriations Committee, cited the $1.3 billion shortfall certified by the State Board of Equalization last spring, and asked, “Where did it come from?”

“I have personally requested to see the model that they came up with those numbers and still have not been able to get through to the Tax Commission to see the model,” Thompson said. “If we’re going to legislate, we’ve got to have good numbers.”

House Appropriations and Budget Committee Vice-Chair Kyle Hilbert, R-Bristow, voiced similar frustrations, saying lawmakers had asked questions “directly to the Tax Commission.”

“We weren’t getting clear answers,” Hilbert said. “I would definitely support looking into this.”

In the spring, Wallace said he and other lawmakers involved in the appropriation process requested information on how the Board of Equalization’s shortfall projections were developed.

“The responses we were getting back were not acceptable,” Wallace said.

Wallace noted that numbers released this week show the final shortfall for the 2020 state budget year, which ended June 30, were not as bad as predicted. The final FY 20 revenue shortage was $366.6 million, when a shortfall of $416.9 million was declared during April’s State Board of Equalization meeting. (The separate $1.3 billion shortfall was for the state budget year that began in July and runs through June 2021.)

Lawmakers voted to create the Legislative Office of Fiscal Transparency (LOFT) in the 2019 session. LOFT’s mission is to audit state agency budgets and evaluate the effectiveness of state programs and services, and issue reports of resulting conclusions that will inform legislative debate. LOFT’s final reports will be made public.

No director was named for the agency until May, when former state Rep. Mike Jackson, R-Enid, was hired. Jackson said he has since been able to staff the agency, and its review processes will begin for several state agencies and boards in the weeks and months ahead.

Jackson said the review of the State Board of Equalization will include a review of historical data, including how accurate the State Board of Equalization’s prior forecasts have been.

“I think that there is a question amongst many legislators to really understand what the Tax Commission collects, how they collect it, how they look at specific numbers, and how they come up with the overall number for you as a Legislature to expend,” Jackson said.

He said other states’ LOFT-style entities have also conducted reviews of entities equivalent to Oklahoma’s State Board of Equalization.