The Oklahoman
By: Ronn Cupp
05/14/10

The Oklahoma Constitution requires the Legislature to pass a balanced budget each year, and budget negotiations among the governor and legislative leaders are now in full swing. Their task is made more difficult because the state faces a revenue shortfall of about $1.2 billion.

Last week, a number of legislators called for imposing a 10 percent cut or moratorium on selected tax credits, which they said could "recover up to $500 million.” They base this calculation on the statement that "the state hands out $5.6 billion in tax credits each year.”

Let’s look at the numbers and some real-life facts. First, assuming the $5.6 billion figure is accurate, please note that many of these incentives are not "tax credits.” Many are exemptions to sales tax, income tax, excise tax, severance tax and the like. In fact, nearly $1.5 billion of them apply to families and individuals.

It is a fact of life that some incentives are necessary for Oklahoma to compete with other states in an increasingly competitive environment. Every incentive in Oklahoma law was put there by the constitution (vote of the people) or the Legislature. Every one of them has a constituency that at some point convinced lawmakers that a particular tax credit or exemption was beneficial to Oklahoma in competing with other states for attracting plants and jobs. The result is these incentives are designed to create jobs, jobs that allow Oklahomans to make a living for their families and provide funding for state government.

Are all incentives created equal? Certainly not. Should all of them be maintained as is? Maybe, maybe not. The point is, legislators should exercise extreme caution before they vote to repeal or cut back incentives. It makes no sense to arbitrarily say we need to cut back 10 percent. The Legislature needs to use a rifle, not a shotgun.

For fiscal year 2004, Oklahoma’s budget was $5.1 billion. In fiscal year 2008, it was $7 billion. That’s a 37 percent increase in just four years. We had a balanced budget in fiscal year 2004 with "only” $5 billion. Last year’s budget was about $7.1 billion. It would appear that what really needs to be done is a close examination of state agencies’ budgets and the imposition of a "zero-based” budget process that will identify what services Oklahoma really needs and can afford.

Cupp is senior vice president for government affairs at The State Chamber of Oklahoma.