Gov. Fallin wants sales tax expansion to close budget hole

Oklahoma City (AP) — Oklahoma Gov. Mary Fallin on Monday proposed increasing the cigarette tax and expanding the sales tax to a variety of services that are currently exempt as a way to close an estimated $900 million hole in next year's budget.

Fallin delivered her State of the State address to lawmakers on the first day of the 2016 legislative session, along with her proposal for a balanced budget for the fiscal year that begins July 1.

"Even in this fiscal climate, we can pass a budget that begins the type of meaningful fiscal reform the state needs," Fallin said.

The Legislature is grappling with a hole in the budget of about $900 million, or about 13 percent less than lawmakers appropriated last year for education, transportation and other state services. Because of poor state revenue collections in December and the continuing low price of oil and natural gas, that hole is expected to exceed $1 billion when the final revenue figures are certified later this month.

Fallin's executive budget recommends about $910 million in what she describes as "recurring revenues," including $181 million from a proposed cigarette tax increase. She also maintains that $125 million can be captured through various agency revolving accounts that are generated mostly through fees and other sources. An additional $200 million would come from a combination of eliminating sales tax exemptions and expanding sales taxes.

"(This budget) modernizes our tax code to make it more consistent with the 21st century commerce we now have," Fallin said.

Any proposal to increase taxes, or to eliminate tax exemptions, will likely face fierce resistance in the Republican-controlled Legislature.

The governor's budget also appropriates $178 million to pay for a permanent $3,000 pay raise for Oklahoma teachers, and she says some education savings could be realized by consolidating dependent school districts, which are typically those that have only kindergarten through eighth grade.

Under her proposed budget, most state agencies would see budget reductions of about 6 percent, but a handful of agencies were cut just 3 percent, including the Department of Human Services, Department of Health, Health Care Authority and Department of Public Safety.

She's also proposing increases in funding for the state's prison system, public education and the state's Pinnacle Plan for improving Oklahoma's foster care system. She wants legislators to approve a second bond issue to pay for improvements to the state Capitol.

Fallin also proposed several sweeping initiatives aimed at reducing the state's overcrowded prison system, including reducing penalties for many drug crimes and low-level property crimes from felonies to misdemeanors.

"Oklahoma's drug possession sentences haven't deterred substance abuse and have filled our prisons to over capacity," Fallin said.

By Sean Murphy, Associated Press. Copyright 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

The Gayly – February 1, 2016 @ 4:25 p.m.