Saturday, April 25, 2020

OCPA column: Don't flatten THIS curve

Don’t flatten this curve
By Jonathan Small

Much effort has been put into “flattening the curve” of COVID-19 infections and hospitalizations. Success in achieving that goal is welcome. What Oklahoma should not do is “flatten the curve” on future economic growth as we emerge from the COVID-19 shutdown, yet it is likely special interest groups will advocate for policies that indirectly achieve that result through a misguided response to state budget challenges.

Current state budget year spending was originally set at $8.13 billion and has been maintained only by drawing down $459 million from savings. That still leaves $534 million in state savings. But even if lawmakers use every dime of savings in the 2021 state budget, they will still have to reduce spending by 7.5 percent. And in the 2022 state budget year, they will have to cut spending by another 8.2 percent based on current projections.

The state has $1.6 billion in federal COVID funding, but there are associated restrictions on those funds that complicate budget calculations.

Obviously, budget cuts must be part of the discussion, but those cuts can also be achieved in part through modernization. Policymakers should focus their efforts on reorganizing government through agency consolidation, reforms that reduce expenses, and deregulation that frees private enterprise while lowering the cost of associated agency enforcement efforts.

Unfortunately, the knee-jerk response of many special-interest groups will be to set aside modernization efforts and instead increase taxes. That was the pattern from 2015 to 2018 when an oil bust combined with poor budgeting practices led to repeated state shortfalls.

But one major difference between 2020 and those years is that any tax increase passed this year will have to be large and broad-based, hammering Oklahomans from all walks of life. Imposing taxes on favored targets like “big oil” or “the rich” will not generate much money when oil futures are in negative territory.

Lawmakers left many sensible modernization efforts on the table during the shortfalls of 2015-2018. Claims of “cut to the bone” agencies were more hyperbole than fact. Some agencies whose appropriations were reduced by up to 40 percent nonetheless experienced an increase in their total budgets.

Put simply, Oklahoma government is far from lean.

Sadly, the tax-increase train is already rolling as lawmakers discuss a “fee” on health care services to pay to expand Medicaid to cover able-bodied adults. In the middle of a pandemic, politicians may increase the cost of your health care treatment.

Additional tax increases will only add to the economic havoc and stunt future growth. Officials at the Oklahoma Tax Commission do not expect Oklahoma to return to pre-COVID levels of employment until the fourth quarter of 2022. Tax increases could push that date out even further.

The key to future economic prosperity in Oklahoma is not robust government spending, but robust private-sector growth. Lawmakers need to remember that the latter generates the former, not the other way around.

Jonathan Small serves as president of the Oklahoma Council of Public Affairs.


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