Capitol Updates

 This week's Capitol Updates newsletter:


February 19, 2018

With what was termed the last hope for raising revenue this session, HB 1033XX failed to reach the three-fourths majority needed to pass without a vote of the people. With 14 weeks left in the regular session House Speaker Charles McCall and Majority Leader Jon Echols have said they are finished with revenue-raising measures for the session. Echols said it was like banging their heads against the wall. But 3 ½ months is an eternity to spend in session making brutal budget cuts to a budget that nearly everyone agrees is seriously deficient without looking at revenue options.

What I hope the speaker and floor leader meant was they are finished with voting on tax measures that are doomed to failure. Both Democratic and Republican House members-especially Republicans--are tired of voting for tax increases only to see the bills fail. Since the beginning of last session, they have taken many such votes. They feel they get the worst of all worlds: the anger of some constituents who are opposed to more taxes and no benefit from the money that would meet the state's budget needs.

Republican leaders were surprised with how far short the vote fell on HB 1033XX. It was 13 votes short of the three-fourths majority. Going into the vote they seemed to believe they either had the votes for passage or were close enough that they could turn enough votes on reconsideration. They probably knew 18 Republicans would vote "no," but they were surprised when 17 Democrats also voted "no." I think the surprise margin of failure resulted in the feelings of despair and the statements that there is no use continuing to search for a winning solution.

It's a safe bet that if you see another tax vote this session, the bill will pass. The only way that can happen is if the leadership can accurately count Democratic votes. They can get that count only if there is a tax plan agreed to by both parties. There was a hopeful sign last week when Auditor and Inspector and Republican gubernatorial candidate Gary Jones proposed a new tax plan that was endorsed by House Democrats. The plan included a 5% gross production tax along with a 75-cent cigarette tax and a 3-cent gasoline tax and 6-cent diesel tax increase.

Although this proposal will likely not be the final deal, it has re-started the process. Gary Jones should be lauded for having the courage to make the proposal. It, or something like it, is attractive because it's balanced and eliminates the wind tax which was unpopular with both Democrats and Republicans. The people promoting the wind tax are the big oil and gas interests. I still think something good will happen by the end of session. It may not be a good as it could have been or should been, but isn't that always the case? Neither was HB 1033XX.

Fallin refocuses second special session on FY2018 cuts, medical school funding

Shawn Ashley, eCapitol

Gov. Mary Fallin amended her second special session call Thursday for the third time, as State Auditor Gary Jones introduced a new plan into the discussion that won the backing of House Democrats and interest from House Republicans.

Fallin's new order recommends lawmakers:

* Address the necessary additional budget cuts for FY2018 and the implementation of this budget which are needed by virtue of the failure of HB1033XX; and

* Address additional supplemental funding for Graduate Medical Education.

Senate Appropriations Committee Chair Kim David, R-Porter, said budget writers no longer have a choice about how to address the fiscal year 2018 budget situation.

"We really have no other options going forward from here because of the failure of the House to be able to pass revenue," David told reporters.

The budget cuts amount to 0.66 percent across-the-board. Since the cuts will be implemented in final four months of the fiscal year, the monthly allocation reductions will be 1.98 percent, David explained. Combined, the cuts add up to approximately $44.0 million, she said. That money is then shifted to three agencies that loss revenue when the Oklahoma Supreme Court ruled SB0845, the tobacco cessation fee, unconstitutional in August.

"We had to have that much money to protect our health care agencies," David said, adding the Department of Human Services, the Oklahoma Health Care Authority and the Department of Mental Health and Substance Abuse Services would run out of money before the end of the fiscal year.

David said the effort to provide funding to the medical schools "is one of the most important efforts out there." A federal audit found Oklahoma had not properly renewed a waiver that allowed it to use federal funds for its two medical schools. As a result, the federal government clawed-back some money it already had given the state and said it would not provide additional funding going forward.

Without the funding, David said, "They will lose accreditation and we will lose our medical schools."

Fallin called lawmakers back to the Capitol in December for a second special session. Her first second special session executive order recommended lawmakers approve fiscal year 2018 funding to the Oklahoma Health Care Authority to avoid provider rate cuts. She quickly amended that order and recommended the Legislature provide $26.5 million to the Department of Human Service and $17.7 million to the Oklahoma Health Care Authority

Lawmakers approved bills doing just that, SB0001XX and SB0002XX, and Fallin signed them Dec. 22.

But Fallin said she would amend the call again and ask lawmakers to consider a revenue-raising and government reform plan being put together by a group of civic and business leaders, who later adopted the name Step Up Oklahoma. Fallin issued that executive order Jan. 19, just over two weeks before the Legislature was to convene the 2018 regular session.

The revenue-raising measures were incorporated into HB1033XX, which the House considered Monday as the 2018 regular session and the second special session ran concurrently. The bill failed to receive the three-fourths vote necessary for the approval of revenue-raising bills. A series of other bills arising from the group's recommendations were not considered.

Fallin had to amend her second special session call again or any bills passed by lawmakers and signed by her would not have met the constitutional requirement of being consistent with the governor's call.

House Republican leaders said Monday and reiterated Wednesday that HB1033XX was the last revenue bill the chamber would consider. House Majority Leader Jon Echols, R-Oklahoma City, reopened that door a little Thursday when he reacted positively to a plan unveiled by State Auditor and Inspector Gary Jones that had the endorsement of House Democrats.

We're excited to see a new proposal," Echols said after Thursday's meeting of the House Joint Committee on Appropriations and Budget. "We're excited to look at it. It deserves to be vetted through the legislative process and it will get that vetting. We're excited that they brought the new idea and we will move forward on it but that doesn't change the fact that even if this proposal were to pass there would still be the need for the 2018 cuts to go into effect the way they are because there's no money inside the proposal to core services."

Jones said in a press conference, "Instead of the one-size fits all, sweeping revenue bill that failed on Monday, I'm proposing a simpler measure that I hope both sides can agree to."

Jones plan includes:

* Increasing the gross production tax discount rate for the first 36 months of production from 2 percent to 5 percent;

* A $0.75 tax increase on cigarettes and little cigars; and

* A $0.03 increase in the gasoline tax and a $0.06 increase in the diesel tax.

Combined, Jones said, the increases would generate an additional $448.0 million.

House Minority Caucus Chair Emily Virgin, D-Norman, said the plan would be combined with HB2403, a cap on itemized deductions at $17,000 per household excluding charitable donations that is estimated to generate $106 million.

HB2403 passed the House during the 2017 regular session but was never taken up by the Senate. The bill would need to be amended since it proposed imposing the cap on the 2017 tax year. It would then have to be approved in the same form by both chambers.

House Minority Leader Steve Kouplen, D-Beggs, said his caucus embraced the plan because it raises the gross production tax discount rate to 5 percent and because it is a better deal for working people since the gasoline tax increase was half of that proposed in HB1033XX.

"All 28 of our members would support it on the floor," Kouplen said.

Virgin said her caucus would talk with Republican leaders about getting the proposal on the floor.

Minority Floor Leader David Perryman, R-Chickasha, said the introduction of Jones' plan into the discussion means there is no reason for budget discussions to end. Virgin added it was too early to move forward on HB1020XX, the budget reduction bill that passed out of the House and Senate Joint Committees on Appropriations and Budget Committees on Thursday.

"Those are unnecessary because we are still talking," she said.

Echols: House to move on budget cuts by week's end

Shawn Ashley, eCapitol

House Majority Floor Leader Jon Echols said the chamber will take up budget cuts by the end of the week to balance the fiscal year 2018 budget.

"We are in the process of drafting a 2018 budget right now. That's going to be about $40 million in cuts," Echols said Tuesday afternoon.

His statement is in keeping with warnings issued Monday evening that cuts would be needed to balance the current fiscal year's budget if HB1033XX was not approved. The bill failed 63-35 Monday night when it did not receive the 76 votes needed to approve a revenue-raising measure in the House.

The FY2018 budget was thrown out of balance in August when the Oklahoma Supreme Court ruled SB0845, which created a $1.50 per pack tobacco cessation fee, unconstitutional. That removed $215 million in anticipated revenue from the budget.

That revenue was appropriated to the Department of Human Services, the Oklahoma Department of Mental Health and Substance Abuse Services and the Oklahoma Health Care Authority. The Alcoholic Beverage Law Enforcement Commission also was to receive $1 million off-the-top of those collections.

That led Gov. Mary Fallin to call a special session that began in September and ended in November with lawmakers passing a revised FY2018 general appropriations bill, HB1019X. Fallin, however, line-item vetoed most of the bill, approving only those portions that provided funds to the three health agencies and leaving the budget out of balance.

Fallin called lawmakers back to the Capitol in December to approve additional funds for the Department of Human Services and the Oklahoma Health Care Authority. Those bills, SB0001XX and SB0002XX, were approved by lawmakers and signed Dec. 22 by Fallin.

The funding provided thus far, however, is insufficient for the agencies to make it to June 30, the end of the current fiscal year. House Appropriations and Budget Chair Kevin Wallace, R-Wellston, said Monday that revenue generated by HB1033XX, cash on hand and potentially other cash from revolving funds would be used to balance the budget, if the bill was approved.

House Democrats on Tuesday called on the chamber's Republican leaders to return to the negotiating table.

"We are really disappointed (House Speaker Charles McCall, R-Atoka) thinks this is the end," said Rep. Steve Kouplen, D-Beggs and House Minority Leader.

Kouplen said Monday's vote was on a proposal brought to lawmakers by Step Up Oklahoma, an outside group, not a plan negotiated among legislative Republicans and Democrats.

Rep. Emily Virgin, D-Norman and House Minority Caucus chair, said her caucus has maintained it would vote for the right revenue raised in the right way. The bill put before members Monday was not that, she said.

"It didn't restore any of the income tax cuts enacted over the last few years that led to several revenue failures and it put the burden of funding teacher pay raises on the backs of those who can least afford it, instead of asking the oil and gas industry and the wealthiest Oklahomans to pay their fair share," Virgin said.

Virgin said McCall has "a defeatist attitude, saying everything has to be done by the fifth day of session."

"We think that is an abdication of his duty as a leader of this legislative body, a legislative body that is in for four months," said Virgin.

Virgin said it was too early to move forward with a plan to cut state agency budgets for the remainder of the fiscal year. "We don't think that is necessary. We think another revenue package can be negotiated and we can avoid cuts for the 2018 budget," she said.

Echols said it is clear to House leadership that a bipartisan revenue package is not going to be approved. "It has become clear there is not a lot of interest there. They have moved backwards from when we began," Echols said.

Senate JCAB approves new fiscal year 2018 general approps bill, other measures

Shawn Ashley, eCapitol

The Senate Joint Committee on Appropriations and Budget began the process Thursday of rewriting the fiscal year 2018 budget by approving three bills.

Chair Kim David, R-Porter, said the committee substitute (CS) for HB1020XX was the new general appropriations bill and it applied a 0.66 percent annualized cut across-the-board. Because the cut will take effect until March and apply to only the last four months of the fiscal year, that means agency allocations will be reduced approximately 1.98 percent each of those remaining months.

CS for HB1020XX, by Rep. Dennis Ray Casey, R-Morrison, Rep. Kevin Wallace, R-Wellston, Sen. Eddie Fields, R-Wynona, and David, modifies general appropriations for the FY2018 fiscal year. The bill implements 0.66 percent cuts across-the-board.

Sen. Frank Simpson, R-Ardmore, asked whether the budget reductions would result in provider rate cuts at the Oklahoma Health Care Authority. David said she did not know since that decision would be up to the agency's board of directors.

"This should prevent provider rate cuts," she said, adding, "But that depends on what the board wants to do.

The bill's do pass recommendation passed 8-2. Sen. David Holt, R-Oklahoma City, and Sen. John Sparks, D-Norman, voted against the do pass motion.

The two remaining bills passed without discussion or debate:

* CS for HB1021XX, by Casey, Wallace, Fields and David, states it is the intent of the Legislature that the Department of Human Services fully fund Advantage Home and Community-based Waiver Program, Money Follows the Person, Homeward Bound Waiver, In-home Supports, Advantage Waiver, Personal Care and state-funded community residential and vocational services and Adult Day Services.

CS for HB1022XX, by Casey, Wallace, Fields and David, appropriates $31.8 million from the FY2017 General Revenue Fund to the Oklahoma Health Care Authority to replace federal funds withheld due to the deferred federal financial participation expenditures claimed on the Quarterly Medicaid Statement of Expenditure. It appropriates $110.0 million from the FY2019 General Revenue Fund to the Oklahoma Health Care Authority to be distributed to Oklahoma State University and the University of Oklahoma for the benefit of the Deans Graduate Medical Education Program, in the same ratio as such funds were provided for such purpose by the Oklahoma Health Care Authority in fiscal year 2017.

Senate Appropriations Committee to hold additional budget hearings

Shawn Ashley, eCapitol

The Senate Appropriations Committee will hold a series of budget hearings beginning Tuesday with the agencies that combined receive more than 90 percent of state appropriations, Senate President Pro Tempore Mike Schulz and Senate Appropriations Chair Kim David announced Thursday.
"We are going to bring the big agencies back in before the full Appropriations Committee to dive a little deeper into their budgets," said Schulz, R-Altus.
The hearings begin Tuesday with the Ethics Commission, which originally was appropriated $703,723 for the current year, the smallest amount of any of the agencies on the list, and the State Department of Education, the single largest recipient of state appropriations at $2.4 billion in original funding.
Those two agencies and the others on the list appears before Senate Appropriations and House Appropriations and Budget subcommittees in the two weeks prior to the start of the regular legislative session.
Schulz and David, R-Porter, said the hearings will provide an opportunity for the full Appropriations to examine the agencies' budgets. The Senate Appropriations Committee is made up of all Senate members.
"We will be able to make sure they are doing the things they need to be doing," Schulz said.
"These budget hearings will assist us in providing oversight of how agencies spend your tax dollars. Additionally, holding hearings during the session will bring more people into the process, providing lawmakers and the public with even more information about the state budget," David said.
Dates, and the agencies scheduled to appear include:
* Tuesday -- 3:30 pm: Oklahoma Ethics Commission and 4:30 pm: Oklahoma State Department of Education
* Feb. 27 -- 3:30 pm: Oklahoma Health Care Authority and 4:30 pm: Oklahoma Health Department
* March 6 -- 3:30 pm: State Regents for Higher Education and 4:30 pm: Department of Public Safety and/or Office of Juvenile Affairs
* March 13 -- 3:30 pm: Department of Human Services and 4:30 pm: Department of Career and Technology Education
* March 20 -- 3:30 pm: Department of Corrections and 4:30 pm: Department of Mental Health and Substance Abuse Services
* March 27 -- 3:30 pm: Department of Transportation and 4:30 pm: Office of Management and Enterprise Services.
Then-Speaker-elect Charles McCall, R-Atoka, held a series of House-wide budget hearings prior to the start of the 2017 regular session, during which members heard from the State Department of Education, the Oklahoma Health Care Authority, Regents for Higher Education, Department of Human Services and the Department of Corrections.

Senate Appropriations Committee approves tax incentive measures, other bills

Shawn Ashley, eCapitol

The Senate Appropriations Committee gave its approval Wednesday to a series of measures altering various tax incentives, along with several other bills

Seven of the bills on the committee's agenda dealt tax credits and incentives, mostly modifying or imposing limits on the credits. None drew significant discussion or debate.

Sen. Julie Daniels, R-Bartlesville, said she opposed the credit program offered under the Oklahoma Affordable Housing Act. SB0953, by Sen. A J Griffin, R-Guthrie, modifies the definition of the term "qualified project" as it applies to the Oklahoma Affordable Housing Act, increasing the population threshold to qualifying projects from counties with populations of less than 150,000 to counties with populations of less than 300,000. The bill reduces the number of years unused tax credits in the program can be carried forward to three years from five years beginning Jan. 1, 2019.

"I would like to see this credit repealed," said Daniels.

Sen. Mark Allen, R-Spiro, also expressed opposition to the original program, saying it was a bad bill when it was passed. "I still think we don't need it," he said.

Griffin stressed that the bill tightens the program. If members were concerned about the population expansion, which will allow Canadian and Cleveland County projects to participate in the program, Griffin said she was willing to discuss that with members.

The bill received a do pass recommendation with its title stricken from the committee.

The following tax credit related measures also received do pass recommendations with their titles stricken:

* SB0883, by Sen. Roger Thompson, R-Okemah, extends to Jan. 1, 2022, the tax credit for fees paid by banks and credit unions under the Small Business Administration "7(a)" loan guaranty program.

* SB0888, by Sen. Josh Brecheen, R-Coalgate, terminates the retailer ethanol tax credit on Nov. 1, 2018.

* Committee substitute (CS) for SB0893, by Sen. Marty Quinn, R-Claremore, removes the sunset date for the $25.0 million annual cap on the credits for investment or job creation.

* SB0897, by Sen. Roger Thompson, R-Okemah, modifies and limits the duties of the Incentive Approval Committee to determining the eligibility of all applicants for the Oklahoma Quality Jobs Program Act, subject to the applicable requirements. The bill repeals the Saving Quality Jobs Act.

* SB1004, by Sen. Tom Dugger, R-Stillwater, requires the Insurance Commissioner to verify the number of Oklahoma employees being used to determine qualification for the insurance premium credit through the Oklahoma Employment Security Commission. The bill provides that an insurer will only be considered to have met the requirements for full-time, year-round Oklahoma employees if the total number of employees has increased or been maintained from the immediately preceding year for which the credit is being claimed.

* CS for SB1068, by Sen. Greg McCortney, R-Ada, relates to credits for qualified investment in property or new jobs. The bill limits the carry forward period for taxable years beginning on or after Jan. 1, 2018, to each of the five years following qualification for credits based on investment in qualified depreciable property and to each of the 10 years following qualification for credits based on a net increase in employment. It increases the qualifying income and investments thresholds. The committee substitute was adopted Tuesday by the Senate Appropriations Subcommittee on Finance.

The following bills received do pass recommendations with their titles stricken:

* SB0903, by Griffin, modifies language related to the School Consolidation Assistance Fund. It removes language that permits money from the fund to be used for unemployment compensation and adds language that permits money from the fund to be used for dismissal payments by the consolidated or annexing district. The bill prohibits the State Board of Education from paying the severance allowance to employees determined to be eligible for the award until the employee has filed an initial claim for unemployment with the Oklahoma Employment Security Commission. It requires the severance allowance amount be reduced by the total amount of unemployment benefits paid to the employee for the claim if the employee is determined to be eligible to receive unemployment benefits by the Oklahoma Employment Security Commission. It permits the Oklahoma Employment Security Commission to release benefit claim information to employees of the State Department of Education for the purpose of determining eligibility for severance allowance awards.

* SB0906, by Sen. Frank Simpson, R-Ardmore and Rep. Tommy Hardin, R-Madill, exempts the sale of motor vehicles from the purchase limit for the sales tax exemption for honorably discharged, 100 percent disabled veterans.

* SB0943, as amended, by Sen. Kay Floyd, D-Oklahoma City, requires individual income tax and corporate income tax forms for tax year 2019 and beyond contain a provision to allow a donation from a tax refund for the benefit of the Oklahoma AIDS Care Revolving Fund. It requires money donated to be deposited in the Oklahoma AIDS Care Revolving Fund created by the bill. The bill appropriates money from the fund to the Department of Human Services for the purpose of providing grants to the Oklahoma AIDS Care Fund for purposes of emergency assistance, advocacy, education, prevention and collaboration with other entities. It establishes procedures for a taxpayer to request a refund. The amendment changed the agency to which the funds will be appropriated from the Department of Health to the Department of Human Services.

* SB1008, by Sen. Kimberly David, R-Porter and Rep. Glen Mulready, R-Tulsa, adds soliciting, inducing or enticing another to commit an act of prostitution and human trafficking to the list of activities that define a criminal street gang.

Northrup succeeds Doerflinger at OMES

Shawn Ashley, eCapitol

Gov. Mary Fallin named Denise Northrup director of the Office of Management and Enterprise Services on Tuesday, succeeding Preston Doerflinger who resigned from state service.
Northrup joined the agency in October 2016 as chief operations officer after serving as the governor's chief of staff since her election to the post in 2010.
Fallin and Northrup's professional relationship goes back more than 20 years. She oversaw Fallin's campaigns for Congress and governor. Northrup first worked for Fallin when she was lieutenant governor.
Northrup was named interim director of the Office of Management and Enterprise Services (OMES) Oct. 31 when Doerflinger was chosen by the State Board of Health to serve as interim commissioner of health. Doerflinger resigned from that post, as well as from his position as OMES director and as Fallin's secretary of finance, administration and information services, Tuesday, less than 24 hours after The Frontier, a Tulsa-based nonprofit news website, reported on a 2012 incident in which Doerflinger was alleged to have choked his now ex-wife twice during an argument.
The appointment is subject to Senate confirmation.
Fallin has not set a timeline to fill the secretary's position, according to Michael McNutt, her spokesman. Cabinet secretaries have a number of administrative responsibilities. In her Nov. 21 executive order that prohibits state agency purchases of nonessential items used to promote the agencies for the remainder of the current fiscal year and imposes a combined $10 million cap on such purchases for each subsequent fiscal year, for example, the governor required cabinet secretary approval of items intended to be purchased.

Senate gains one, loses one in Tuesday elections

Shawn Ashley, eCapitol

The Senate came close Tuesday to having a full complement of members when Rep. Casey Murdock was elected to fill the only vacancy in the chamber. But Sen. David Holt's election as Oklahoma City's next mayor means the Senate will finish the 56th Legislature with at least one vacancy.
Murdock's election to the Senate also guarantees the House will be a member short through the end of the legislative year.
Murdock, R-Felt, defeated Democrat candidate Amber Jensen to win the Senate District 27 seat. Former Sen. Bryce Marlatt, R-Woodward, resigned from the seat in September following accusations he forcibly touched an Uber driver in Oklahoma City.
According to preliminary results from the State Election Board, Murdock received 67.97 percent of the vote to Jensen's 32.03 percent. The results are scheduled to be certified Tuesday, after which Murdock could be sworn-in as a senator and seated by the Senate.
Murdock was first elected to the House in 2014. He will serve the remainder of Marlatt's four-year term from his 2016 reelection. The unexpired term will not count against his 12-year term limit, extending the time he could serve in the Legislature to 2029.
Murdock's election to the Senate came less than 24 hours after he rose on the House floor to debate against HB1033XX, the Step Up Oklahoma revenue-raising proposal. Murdock argued it was too early in session to be considering a large tax increase, particularly when the Board of Equalization will meet Tuesday to consider its final fiscal year 2019 revenue estimate.
"We need to vet this. We need this bill to go through the process. Every bill I ran here I was in love with at the first of the session," he said. "It was a perfect bill, but when we got to the end of the session, it was a better bill."
The bill failed to receive the three-fourths vote necessary for a revenue-raising measure to pass the House. Murdock was one of 35 members, including 18 Republicans, who voted against the measure.
Murdock's election would have returned the Senate to a full chamber, but Holt will now resign from the Senate to become Oklahoma City's top elected official. Holt won more than 78.0 percent of the vote in Tuesday's three-way mayoral race.
Murdock's election also leaves a vacancy in the House. Special elections will not be called to fill either Murdock or Holt's seat. That is because state law prohibits special elections to fill a vacancy in the same year in which an election for the office is scheduled. Murdock's House District 61 and Holt's Senate District 30 seats are up for election this year.
A special general election March 6 will fill the vacant House District 51 seat. Republican Brad Boles faces Democrat Charles Murdock, both from Marlow, in the election to fill the seat vacated by former Rep. Scott Biggs, R-Chickasha, who resigned to take a federal appointment.
One seat in the Senate also is expected remain unoccupied through the 2018 session. Sen. Joe Newhouse, R-Broken Arrow, announced shortly after the 2017 regular session concluded that his Navy reserve unit would be deployed and he likely would miss the 2018 session.
"When you are in the reserves, you know there is the possibility that you could be deployed at any time," he said in a June 15 press release. "Although my service in the Senate could have possibly exempted me, I would not want to be treated differently than any other reservist -- especially in light of recent terrorist attacks in England, France and around the world. We have to stop these murderous attacks on innocent people, and right now northern Africa is a hotbed for terrorist organizations like Al Qaeda, the Islamic State, Boko Haram and more."
Before seeking elected office in 2016, Newhouse was a jet pilot in the U.S. Navy with the rank of lieutenant. He was assigned to the aircraft carrier USS Nimitz and flew multiple combat missions during the Iraq War. After returning home, Newhouse continued to serve in the Officer Reserve Corps as a Navy Commander and military advisory to NATO.
Newhouse represents Senate District 25 which includes South Tulsa, Bixby, Broken Arrow and Jenks. His freshman term will end in 2020.

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