May 14—State lawmakers and Gov. Kevin Stitt have agreed to an $8.3 billion state budget for the upcoming fiscal year that increases education funding, socks away roughly $800 million in savings, and cuts corporate and personal income taxes.

In a news conference Thursday, legislative leaders stood alongside Stitt to announce the proposed budget for the fiscal year that begins July 1.

An unexpected surge in state revenues means that instead of having to cut budgets, like the Oklahoma Legislature did last year, state leaders can make targeted investments and increase state agency budgets by 7% on average.

The proposed budget is roughly a half-billion-dollar increase from the $7.8 billion budget for the current year that included 4% cuts to most state agencies.

Thursday’s announcement was in stark contrast to the state budget legislative leaders announced last year without Stitt present. At the time, the governor complained about being cut out of budget negotiations and vetoed several major budget bills — vetoes the Oklahoma Legislature quickly overturned.

This year, Stitt had nothing but praise for the budget proposal.

“Today, we delivered on the People’s Agenda,” Stitt said. “I am proud of the Legislature’s collaborative efforts to propose a budget that cuts taxes for Oklahomans and businesses, makes the largest investment in education in state history and deposits around $800 million into our state’s savings accounts, replenishing our $1 billion in savings.”

The budget proposal includes cuts to Oklahoma’s personal income and corporate income tax rates.

The state’s top personal income tax rate will decrease from 5% to 4.75%, and the state’s 6% corporate income tax rate will be cut to 4%.

The corporate tax cut doesn’t go as far as a proposal from House Speaker Charles McCall, R-Atoka, that sought to phase out the state’s corporate income tax altogether.

Unlike McCall’s plan that could be undone with a simple majority vote of the legislature, undoing the tax cuts included in the budget would require three-fourths votes in both chambers of the legislature.

Lawmakers don’t want to return to where they were a few years ago when they had to raise taxes to fund teacher pay raises, McCall said. He also was optimistic that with adequate savings and increased tax revenue, the legislature won’t have to raise revenue in the coming years.

“I’m optimistic that we will soon invest in the right things in the state of Oklahoma and, going forward, that we will expand our economy and we will see more tax dollars in the state of Oklahoma,” McCall said.

The budget would also restore the refundable aspect of the earned income tax credit, often referred to as a tax credit for working families, that state lawmakers eliminated in 2016 to fill a budget shortfall.

The corporate income tax cut will cost $48 million in the upcoming year and $110 million annually thereafter. The reduction in the personal income tax rate will cost $63 million in the upcoming year and $170 million in the years after.

The corporate tax cut will result in Oklahoma having the eighth-lowest corporate tax rate in the country, said House Appropriations Chairman Kevin Wallace, R-Wellston.

State leaders touted a “historic” investment in education in the proposed budget.

Common education will see a $178 million increase in funding, which will trigger a provision in state law that caps class sizes for kindergarten and first-grade students. In total, the budget would appropriate $3.2 billion for common education.

“After such a very challenging year in the wake of the pandemic, the budget agreement announced today is tremendous news for students, teachers and, in fact, all Oklahomans who benefit from a strong educational system,” State schools Superintendent Joy Hofmeister said in a statement. “An additional $137 million for the school funding formula and $60 million for textbooks will go a long way toward ensuring our children are on track academically.”

The budget would also increase the cap on the Oklahoma Equal Opportunity Scholarship fund, a tax credit for donations to schools, to $50 million, which would be divided equally for public and private schools.

Currently, the cap is at $3.5 million for private schools and $1.5 million for public schools.

After the passage of State Question 802, the budget will fund Oklahoma’s 10% share of Medicaid expansion costs.

Lawmakers are constitutionally required to fund the expansion that will cost $164 million next year.

Initially, the Oklahoma Health Care Authority will fund the expansion using additional federal revenue amassed in-house. The Legislature announced a stair-step approach to increase from 2.5% to 4% a fee assessed on hospitals to cover expansion costs in the long-term.

The budget in no way prevents Stitt and the Health Care Authority from moving forward with plans to outsource care for most Medicaid recipients to four insurance giants through third-party managed care.

Some lawmakers suggested that one way to prevent Stitt from implementing third-party managed care was by not funding the contracts in the state budget.

Senate Pro Tem Greg Treat, R-Oklahoma City, said legislative discussions about managed care are ongoing, but those policy decisions are separate from budget negotiations.

The budget proposes socking away $800 million in savings to replenish accounts that were depleted during the pandemic.

A priority for Stitt and legislative leaders, the cash infusion once again will boost state savings accounts to over $1 billion.

As of February, state savings accounts held about $230 million.

House Democrats introduced their own budget proposal this week, but most of their priorities did not make it into the final budget agreement.

Because of the Republican supermajorities in both chambers of the Legislature, Democrats have little say in budget talks. Several Democrats attended Thursday’s news conference to find out what was in the budget.

However, restoration of the refundability aspect of the earned income tax credit has been a top Democratic priority for years. Although, earlier this week, House Democrats panned tax cuts for wealthy Oklahomans and corporations.

“We’re proud to say that we are investing in Oklahomans, while also making sure that they get to keep more of their hard earned money,” said House Minority Leader Emily Virgin, D-Norman. “One of the most important ways that we do that is through restoring and increasing the earned income tax credit.”

House Democrats said their $9 billion budget proposal was centered on helping Oklahoma’s working families. The plan that included slight tax increases on Oklahomans making in excess of $100,000 a year proposed getting rid of taxes on groceries, offering hazard pay to first responders and increasing the minimum wage.

The proposed budget also includes:

— $35 million in new economic development funding

— Creation of a new film tax incentive with a $30 million cap

— $42 million for broadband expansion, offered as a tax incentive for internet providers

— Creation of a children’s mental health unit at OU Health, at a cost of $9.9 million over three years