Capitol Updates

 This week's Capitol Updates newsletter:


December 11, 2017

Chinese water torture is a process in which water is slowly dripped onto a person's forehead allegedly making the restrained victim insane. It's been found to be quite effective, capable of causing emotional cracks within a short time even in a controlled environment. Legislators must be wondering if this is Governor Fallin's latest tactic to force action on passing recurring revenue measures.

To review, on August 10th the state Supreme Court ruled the "cigarette cessation fee" passed last session to be unconstitutional, thus creating an unbalanced budget. After nearly a month, on September 6th the governor announced she would call a special session to deal with the Supreme Court ruling. But the governor didn't say when the session would start. Later, on September 15th she issued the call to begin on September 25th and added a range of issues, including a teacher and state employee pay raise. After weeks of on again, off again session the legislature, having passed only a small amount of recurring revenue, passed a measure to appropriate cash on hand and cuts to various agencies, then adjourned on November 17th.

A few days after the first special session ended the governor vetoed a large part of the revised legislative budget, creating a second unbalanced budget, and said she would call the legislature back into a second special session. But she didn't say when. Weeks passed by, and last week the governor announced that the special session would begin December 18th, one week before Christmas. But the governor did not file an executive order, or an official call, for the special session. She said she will do that later.

Governor Fallin says budget plan estimates are being developed on various revenue proposals, but she's waiting on the revenue estimate for the upcoming 2019 fiscal year that will be available after the Dec. 20 meeting of the Board of Equalization. She warned again that there will be a need for additional revenue to address the combination of one-time funds currently in the budget, the current fiscal year shortfall, spending obligations for 2019, and money to give our teachers and state employees a pay raise. She says these items taken together will produce a need for close to $800 million.

So, this means that since last August, legislators have been in or under threat of a special session. Prospects are that the second special session will consume January and either end with or become concurrent with the regular session beginning in February. In the meantime, little has changed to repair the budget woes since legislators left the capitol last May.

And nothing has changed regarding what it takes to pass a tax bill. Regardless of what the governor or Senate proposes, the House must first pass a revenue measure. There's no evidence that the House and Senate leadership are talking to each other or to the governor. Instead, the governor and the Speaker are exchanging press releases blaming each other for the current dilemma. Many legislators, regardless of party, are succumbing to the steady dripping of time with no progress, and are expressing discouragement and disappointment. Something dramatic needs to happen to change the trajectory of events.

Fallin calls for special session to begin December 18

Shawn Ashley, eCapitol

Gov. Mary Fallin said Thursday she will tell lawmakers to return to the Capitol on Dec. 18 for a second special session to address the state's budget situation.

"Discussions are continuing with legislators and Oklahomans in all types of professions from across the state on a long-term, predictable solution to fix our budget and fund core services. Budget plan estimates are being developed on various revenue proposals. Instead of waiting for final details, I wanted to give legislators enough notice as possible about when they should return to the Capitol," Fallin said in a press release.

"This will also give us time to get the latest revenue estimates for the upcoming 2019 fiscal year. A preliminary estimate of available funds for legislative appropriation will be available that week for the Dec. 20 meeting of the Board of Equalization. I am hopeful the estimate will show revenue growth for the 2019 fiscal year. But even if it does, there will be a need for additional revenue to address the combination of one-time funds currently in the budget, the current fiscal year shortfall from the loss of cigarette fee revenue, spending obligations for 2019, and money to give our teachers and state employees a much-needed pay raise. These items taken together will approach close to $800 million."

Fallin did not file an executive order Thursday formally calling the special session. She said she will do that at a later date.

"As I travel across the state I see signs of positive economic activity, and I believe the future looks bright for the state," the governor said. "However, I expect any additional growth in revenue coming to the state treasury will not be enough to put us on the stable foundation we want to see and give teachers a raise. In recent years, we have patched over our problems by using one-time money that, in effect, borrows from Peter to pay Paul. We know we still have a budget hole for this fiscal year of about $111 million from the loss of cigarette fee revenue that will result in cuts that the Health Care Authority will need to make starting January 1 and the Department of Human Services by February 1 if we don't identify more funding.

"Before the (special) session begins, I intend to make specific recommendations on how we can balance the budget and meet our immediate needs. I'll be working with legislative leaders and others with the goal of having at least the outline of an agreement ready for legislators later this month."

House Speaker Charles McCall, R-Atoka, blamed Fallin for the need of a second special session and cautioned money would be wasted if a plan was not in place before lawmakers returned.

"We are in this situation because the governor vetoed a compromise bill that would have funded our healthcare programs through the fiscal year without cutting those vital services. Her veto has put those healthcare programs that Oklahomans rely on in a very precarious position and created uncertainty for healthcare providers and citizens. Had she signed the bill, as she promised the House and Senate she would do, these additional revenue issues could have been addressed during the upcoming regular session," McCall said.

"Once again, the governor has called us back into special session without a plan in place, which means more taxpayer dollars will be wasted. This additional special session could have been avoided if the governor had kept her word," he added.

Fallin first indicated she would call a second special session Nov. 17 when she vetoed large portions of HB1019X, the revised fiscal year 2018 budget approved by lawmakers during the first special session. She kept intact parts of the bill that preserved some funding for the Department of Human Services, the Department of Mental Health and Substance Abuse Services and the Oklahoma Health Care Authority.

She reiterated her intention to call another special session Nov. 21 during a press conference and said she would announce the date so the following week. That next week, however, she did not call a special session and said instead Dec. 1 she would announce the date "very soon."

Fallin noted the current 2018 fiscal year budget includes $509 million of one-time funds and future obligations of at least $180 million not included in the 2018 fiscal year budget, which combined results in a starting deficit of almost $700 million for the 2019 fiscal year.

In order to pass revenue-raising measures, lawmakers would need to meet at least 10 legislative days. The Oklahoma Constitution (Article 5, Section 33) prohibits revenue raising measures from being approved during the final five days of a legislative session. The Constitution does not differentiate between revenue-raising measures passed in regular and special sessions. That means lawmakers will need to meet five additional days beyond the passage of the final revenue-raising bill in order to meet the constitutional requirement.

The special session could be recessed if lawmakers are unable to reach an agreement or for the holiday. They could return again at a date certain or the call of the chair.

The House and the Senate each met 19 days over eight weeks during the first special session. A regular session typically lasts 16 weeks and lawmakers meet between 60 and 70 days.

Revenue-raising measures must originate in the House, according to the Constitution. Bills and joint resolutions filed by the House and Senate deadlines for consideration during the special session will be first read Monday, Dec. 18. The measures will be second read Tuesday, Dec. 19, and either assigned to committee or sent directly to the calendar. During the first special session, bills were assigned to the Joint Committees on Appropriations and Budget and the chambers' Rules Committees. Some measures, including HB1019X, were sent directly to the calendar.

On the special session's third day, House bills could be voted on in the House and Senate bills could be voted on in the Senate and the measures sent across the rotunda for first reading in the opposite chamber.

The fourth day could see the measures second read and once again either assigned direct to the calendar or to committee. On the special session's fifth day, House bills could be considered on the Senate floor and Senate bills could be considered on the House floor. Once approved by both chambers, the bills would be sent to the governor.

The Constitution prohibits any revenue-raising measure passed by the Legislature from containing an emergency clause. That means the earliest it could take effect would be 90 days after the Legislature adjourns the special session sine die. The bill also could include an effective date that is later than the 90-day limit.

Fallin, McCall continue to spar over line-item veto

Shawn Ashley, eCapitol

Gov. Mary Fallin and House Speaker Charles McCall sparred again Monday over her decision to line-item veto most of the revised fiscal year 2018 budget plan lawmakers approved during the special session.

"The bill the governor vetoed would have stabilized the Health Care Authority's budget until a more sustainable solution could be reached during the upcoming legislative session or a later special session," McCall, R-Atoka, said in a press release. "The plan wasn't perfect, but it provided funding for those health agencies and programs most affected by the loss of revenue from the cigarette fee."

McCall's comments came after the Oklahoma Health Care Authority voted Friday to move forward with a series of reduced provider rate reductions. The reductions will be implemented Jan. 1.

The agency received an appropriation of $22.8 million in HB1019X, the FY2018 revised general appropriations bill approved by lawmakers during the special session, to lessen a series of cuts it implemented previously in anticipation of a projected $70 million hole.

Had Fallin not line-item vetoed large portions of the bill, all but $15 million of the $70 million hole would have been filed, according to a House analysis of the bill.

"We understand the affect that provider cuts have on access to care, particularly in rural areas of the state," McCall said. "If the governor had signed the budget agreement, those cuts to provider rates and any potential cuts to other healthcare services in the coming months would have been avoided."

Fallin reiterated her view that HB1019X "...was a short-time fix to a long-term problem" in an early evening press release of her own.

"When we return to regular session next year to begin work on the 2019 fiscal year budget, we will be facing a budget gap of as much as $600 million and the reality that provider rates would be cut again. I believe we missed an opportunity to address our long-term structural budget problems in special session by continuing to kick the can down the road and failing to develop a predictable solution to fix our budget and fund our core services," Fallin said.

She added, "We didn't get our job done. Unfortunately, it took my veto pen to bring the proper focus and attention to this matter. I am committed to addressing the health care needs of Oklahoma as I always have, and I look forward to working further with legislators to find solutions."

When she vetoed the bill and again in a Nov. 21 press conference, Fallin said she plans to call lawmakers back to the Capitol for a second special session. Friday she said, "Discussions are continuing with legislative leaders, legislators and Oklahomans in all types of professions from across the state on a long-term, predictable solution to fix our budget and fund core services. Being in a state of constant crisis is hurting Oklahoma's people, its image and its brand as a state. Ideas and offers of support have poured into my office. It is taking longer than anticipated to develop budget plan estimates and gauge support for various revenue proposals. That information should be available for my review in the days ahead. I'll announce very soon the start date of the second special session."

Fent files lawsuit challenging constitutionality of Special Cash Fund

Shawn Ashley, eCapitol

Oklahoma City attorney Jerry Fent filed a lawsuit Tuesday alleging a fund used for various fund transfers is unconstitutional.
"For 31 years the Special Cash Fund has been unconstitutional," Fent said.
Fent alleges the fund was created by legislation that violated several provisions of the of the Oklahoma Constitution, including the limit on general appropriations bills to spending matters (Article 5, Section 56) and the single-subject rule (Article 5, Section 57).
According to Fent, the Special Cash Fund was created in Senate Bill 511 in 1986 and amended in 1987 by House Bill 1099. Fent argues Senate Bill 511 included 60 different subject sections that made additional expenditures, amended numerous sections of law, created new law, repealed various statutes and appropriated funds. House Bill 1099 also included numerous different sections, his lawsuit says.
On one hand, said Fent, such a complex bill would violate the single-subject rule, but if it is claimed the bill was a general appropriations bill, which are limited only to appropriations to various entities, it violates both the limitation on general appropriations measures and the single-subject rule because of its various other provisions.
"It's a statute that had numerous subject matters in it," which makes it unconstitutional, Fent said.
Since its inception, Fent said more than $3.4 billion has been transferred into the fund and then appropriated. Fent speculated that was to divert funds from one designated purpose, such as fees paid to a particular agency that should be used for its operations, to another use, such as balancing the overall state budget.
Fent's numbers do not include the $80 million that was transferred from the County Improvement for Roads and Bridges (CIRB) Revolving Fund to the Special Cash Fund by HB1019X, which lawmakers approved and Gov. Mary Fallin largely line-item vetoed at the conclusion of the special session Nov. 17.
The way Fallin line-item vetoed the bill caused the Special Cash Fund to be over-appropriated. As a result, the Office of Management and Enterprise Services prorated the allocations to the three agencies receiving money from the fund - the Department of Human Services, the Department of Mental Health and Substance Abuse Services and the Oklahoma Health Care Authority.
Fent's figures show $209.6 million was transferred into the fund during the 2017 regular session.

Health Department to eliminate 198 positions

Tyler Talley, eCapitol

The Oklahoma State Department of Health (OSDH) announced Friday it would be eliminate nearly 200 positions, 37 of which will be effective immediately and the remaining 161 taking place next spring.
Thirty-seven unclassified positions will be eliminated before the end of the year, with positions affected including: advance practice registered nurses, local emergency response coordinators as well as partnership consultants and staff in Records Evaluation and Support, Minority Health, Office of Performance Management, and the Center for Health Innovation and Effectiveness.
An additional 161 classified positions will be cut via an Office of Management and Enterprise Services (OMES) approved reduction-in-force (RIF) set to be implemented in March. The process by which these employees are notified will begin next week.
"While extremely difficult, this action is another step to bring the agency more in line with current work responsibilities and core service delivery," Interim Commissioner Preston Doerflinger said in a release. "Many of these positions involved duties that are already being performed or can be absorbed by other positions in the counties and central office."
The elimination of these positions is expected to result in an approximate annual savings of $10.5 million, minus the RIF costs for the first year.
All employees being let go will be entitled to 18 months of paid employee-only insurance premiums as well as longevity payment for their next anniversary date and their annual leave balance.
These cuts come after the agency received a $30 million supplemental appropriation from the Legislature in November to make payroll in the wake of its ongoing cash crunch. A condition of the appropriation was a future cut of 15 percent to its fiscal year 2019 state allotment.
Department of Health Julie Ezzell, who also is the agency's acting human resources director, said in a letter to OMES requiring approval of the RIF plan, "The appropriation reduction goal will only be met with the implementation of the attached RIF plan and the separation of affected unclassified employees."
Rep. Kevin Calvey, R-Oklahoma City, said Friday he was shocked to learn of the employees' terminations.
"We just voted to appropriate a $30 million supplemental for the Health Department based on the representation from the governor's office and others that they needed that to make payroll. If they are laying these people off now, obviously it's not going for payroll. Where is that money going?" Calvey asked.
Calvey is a member of the House Special Investigation Committee that will be holding a hearing Monday to look into possible financial mismanagement at the agency. Doerflinger, along with Gov. Mary Fallin's Chief of Staff Chris Benge and Interim Office of Management and Enterprise Services Director Denise Northrup are scheduled to testify.
The committee has set a second meeting for Tuesday.
The agency also announced the ongoing furlough for all employees making over $35,000 annually will end Dec. 23.

Schulz names new leadership for some Senate committees

Shawn Ashley, eCapitol

Senate President Pro Tempore Mike Schulz named new leadership for four Senate committees and one subcommittee Tuesday, filling vacancies resulting from members leaving the chamber.
Resignations over the course of the year left the Senate Energy Committee without a chair and vice chair, the Senate Rules Committee without a vice chair and the Senate Business, Commerce and Tourism Committee will lose its chair at the end of January. The Senate Appropriations Subcommittee on Select Agencies also lost its chair and vice chair.
Schulz, R-Altus, named Sen. Mark Allen, R-Spiro, to lead the Senate Energy Committee. Sen. Eddie Fields, R-Wynonna, will serve as the committee's vice chair. Allen succeeds former Sen. Bryce Marlatt, who resigned in September and Fields replaces former Sen. Ralph Shortey, who resigned in March.
Allen had chaired the Senate Transportation Committee. Schulz named Sen. Darcy Jech, R-Kingfisher, to that position Tuesday. Sen. Joseph Silk, R-Broken Arrow, was named vice chair. Marlatt had held that position previously.
Fields will remain chair of the Senate Rules Committee. Sen. Frank Simpson, R-Springer, will become the committee's vice chair, replacing Marlatt who also had held that position.
Schulz elevated from Senate Business, Commerce and Tourism Committee vice chair to chair Sen. James Leewright, R-Bristow. He will succeed Sen. Dan Newberry, R-Tulsa, who will leave the Senate at the end of January. Sen. Stephanie Bice, R-Oklahoma City, was named vice chair, a position she previously has held.
Sen. Roger Thompson, R-Okemah, was named chair of the Senate Appropriations Subcommittee on Select Agencies. He replaces former Sen. Kyle Loveless who resigned in April. Sen. Nathan Dahm, R-Broken Arrow, was named the subcommittees vice chair, a post previously held by Shortey.
The resignations mean that members that have been lost from eight of the Senate's 13 standing committees. Aaron Cooper, Schulz's spokesman, said the complete committee membership will be completed at a later date.

Gross receipts increase for eighth consecutive month, Miller reports

Shawn Ashley, eCapitol

November's gross revenue was up more than 12 percent over the same month one year ago, State Treasurer Ken Miller reported Tuesday, marking the eighth consecutive month of year-over-year growth.

November gross collections totaled $893.4 million, up 12.4 percent or 98.6 million over November 2016. The last time monthly gross receipts grew by more than 12 percent was in February 2012.

"Gross receipts to the Treasury, insomuch as they indicate general economic activity, paint an encouraging picture as we enter the holiday period," Miller said in a press release. "Sales tax collections, a measure of consumer confidence, are up by double-digits and the bulk of holiday shopping including Black Friday is not yet measured with this report."

Sales tax receipts grew by 11.4 percent in the November report. The three other major revenue streams - gross income, gross production, and motor vehicle taxes - also increased during the month compared to November of last year.

Gross Receipts to the treasury for the past 12 months are up by 4.7 percent compared to the prior 12 months with all major revenue sources showing growth.

The Tax Commission attributes $24.4 million in November to new revenue resulting from legislation enacted during the last regular session. The largest amount, $10.4 million, is from a 1.25 percent state sales tax on motor vehicle purchases, HB2433. A $5 fee on motor vehicle registration, HB1845, increased collections by $1.8 million for the month.

The amount of new revenue generated in November by boosting the 1 percent horizontal drilling gross production tax rate to 4 percent in HB2429 is reported as $7.8 million by the Tax Commission. Elimination and suspension of gross production rebate payments, HB2377, added approximately $3 million to gross collections during the month.

Ending a discount for businesses that remit sales tax, HB2367, added $1.3 million during November, and a new fee assessed on professional sports tickets, HB2361, contributed $28,613.

Since August, law changes from last session have yielded $90.6 million in new gross revenue.

Gross receipt collections often, but not always, indicate which way General Revenue Fund (GRF) collections will move. The Office of Management and Enterprise Services will issue its report on GRF receipts, the main source of legislative appropriations, later in the month.

For the month of November:

* Gross income tax collections, a combination of personal and corporate income taxes, generated $262.8 million, an increase of $22.8 million, or 9.5 percent, from the previous November. Individual income tax collections for the month are $252.3 million, up by $19.6 million, or 8.4 percent, from the prior year. Corporate collections are $10.5 million, an increase of $3.3 million, or 45.5 percent. Large swings in monthly corporate tax collections are not uncommon.

* Sales tax collections, including remittances on behalf of cities and counties, total $382 million in November. That is $39.1 million, or 11.4 percent, more than November 2016.

* Gross production taxes on oil and natural gas generated $52.7 million in November, an increase of $18.7 million, or 54.8 percent, from last November. Compared to October reports, gross production collections are up by $686,000, or 1.3 percent.

* Motor vehicle taxes produced $54.5 million, up by $35,114, or 0.1 percent, from the same month of last year.

* Other collections, consisting of about 60 different sources including use taxes, along with taxes on fuel, tobacco, and alcoholic beverages, produced $141.4 million during the month. That is $18 million, or 14.6 percent, more than last November.

For the 12-month period ending in November:

* Gross revenue totals $11.3 billion from the past 12 months. That is $512.5 million, or 4.7 percent, more than collections from the previous 12 months.

* Gross income taxes generated $4 billion for the December 2016-November 2017 period, reflecting an increase of $33.8 million, or 0.9 percent, from the December 2015-November 2016 period. Individual income tax collections total $3.6 billion, up by $85.2 million, or 2.4 percent, from the prior 12 months. Corporate collections are $400.9 million for the period, a decrease of $51.3 million, or 11.3 percent, over the previous period.

* Sales taxes for the period generated $4.4 billion, an increase of $193.1 million, or 4.6 percent, from the prior year.

* Oil and gas gross production tax collections brought in $520.4 million during the past 12 months, up by $171.8 million, or 49.3 percent, from the previous 12-month period.

* Motor vehicle collections total $762 million for the period. This is an increase of $14.7 million, or 2 percent, from the trailing period.

* Other sources generated $1.7 billion, up by $99.1 million, or 6.3 percent, from the previous 12 months.

Have a good week. Give me a call at 918.671.6860 if I can be of help in any way.