Today, we conclude the series with House Bill 2763, which takes certain tax revenues and diverts them to a state savings account that can be tapped to avoid future budget shortfalls.
This year, Governor Fallin signed 394 pieces of legislation. I was the primary Senate author of 11 of those bills. Over 11 days, I have been telling the story of each bill – where it came from, how it progressed through the Legislature, and what it means to the people of Oklahoma. This is in keeping with my longstanding support of transparency, and hopefully you’ve found this exercise insightful.
When it became apparent that the state would be facing a $1.3 billion shortfall caused by a sudden and steep drop in energy prices, the crisis at hand began to dominate my thinking. There was obviously the challenge of addressing the shortfall as we prepared for a budget year that would begin July 1st. But it also seemed to me that it was a natural response to simultaneously ask ourselves, “How do we stop this from ever happening again?”
The reality was that this budget crisis was entirely predictable. Not the timing of it, perhaps, but its arrival was as inevitable as thunderstorms in Spring . The nature of energy prices is that they rise and fall. As Oklahomans, living in a state where the energy sector still dominates the economy, this was a pattern we knew all too well. And yet, somehow, it caught us off guard?
It just struck me as remarkably short-sighted that the state didn’t have adequate savings to smooth out these inevitable dips. So, I began to think about the problem. And I believed strongly that thinking about it in 2016, even in the midst of a crisis, was exactly the right time. Because, eventually, some part of the answer would be to save more money. But not spending money is the hardest thing government does. Trying to push that sort of proposal in a fat year might be impossible. Pushing it in a lean year, however, might be doable, because the downside of not saving enough was staring us in the face.
When considering reform, the obvious place was look was the state’s Rainy Day Fund. An excellent response to the 1980s oil bust, the Rainy Day Fund was a good thing. If it did not exist, the shortfall would be even worse. But it was also proving woefully inadequate to the challenge at hand. The Fund simply wasn’t big enough. This failure raised several interesting issues.
The first problem with the Fund is that it’s not getting enough money. The Rainy Day Fund is pretty much only funded when more tax revenues come in than the state was expecting that year. That is a slow way to build up a Fund. If we were perfect at estimation, the Rainy Day Fund would never get any money at all.
The second problem is that the Fund is capped at 15 percent of the total appropriated budget. That is actually up from 10 percent, the cap originally placed on the Fund. But the appropriated budget is less than a third of the total state budget. The total state budget had been something of a mystery until 2015, when for the first time the Legislature passed an annual budget that accounted for all dollars spent by the state. That number – $24 billion – ended up shocking a lot of people. But the appropriated amount (the amount the Legislature has discretion over each year) was only around $7 billion. And that $7 billion was the number that the Rainy Day cap was measured against. Wouldn’t it make more sense to measure the Rainy Day cap against the total state budget of $24 billion?
The third problem with the Fund is the downside of one of its greatest upsides. It is part of the state’s Constitution. By being part of the Constitution, it cannot be amended without a vote of the people, and therefore it is protected from desperate legislators seeking to loosen its purse strings. That’s the upside. The downside is that it cannot be reformed easily.
The inability to reform the Rainy Day Fund has led many to propose statutory savings funds that would act in concert with the Fund. Statutory savings funds would exist only in law, not in the Constitution, and so they could be adopted by the Legislature without a vote of the people, and could be amended by the Legislature as well. This flexibility could be good or bad, depending on the wisdom of the Legislature.
My first choice to try and reform our state savings plan was to keep it simple: Maintain the Rainy Day Fund as the state’s primary savings account, but make it better. Raise the cap and then find a way to fill the Fund. But both tasks would require a vote of the people, so it wasn’t easy to accomplish. Nevertheless, it was worth the effort, so I introduced Senate Joint Resolution 44 to call for a vote of the people in November to measure the Fund’s 15 percent cap against the total state budget, rather than the appropriated budget. This would have the effect of raising the cap on the Fund from around $800 million to over $3 billion. My thought was to get that done first, then turn to filling the Fund in 2017. I had learned after six years in the Legislature that stuff like this had to be attempted one little bite at a time.
SJR 44 passed the Senate almost unanimously and went to the House, where Rep. John Michael Montgomery of Lawton was my House author. John is young, in his early 20s, and has already established himself as someone who thinks creatively about policy solutions. I’ve spoken in previous episodes about how most bills are suggested by lobbyists. John is one of those legislators who also introduces bills that are original and reflect his own vision of where the state should be going.
On the House floor, SJR 44 died. Thirty members didn’t even vote on it either way, and it fell seven votes short of passage. This was disappointing. But it was not the end of this story.
As it had turned out, I was not the only one who was thinking about these issues before the commencement of the 2016 legislative session. Rep. Montgomery was as well. So too was Senator Mike Mazzei of Tulsa. They had filed similar concepts, and they had decided to take the statutory approach. Their bills created new savings accounts that would divert revenues away from the gross production tax (a special tax placed directly on oil and gas exploration) and the corporate income tax. The resulting savings account would be an additional account the Legislature could turn to in years of shortfall. And John’s bill went even further. It attempted to create a legacy account that would work to build up enough savings to prepare for the day that Oklahoma no longer has natural resources. A legacy account had also been proposed for years by Senator John Sparks of Norman.
The Oklahoma Legislature is often (appropriately) criticized for its lack of long-term planning. The idea that we would think decades ahead and put in place measures that would take our own spending dollars away and give them to future legislators to protect the state from budget shortfalls is so foreign to our culture that it was refreshing to see so many legislators proposing to do just such a thing. But often, such high-minded proposals fall by the wayside as reality sets in.
For Senator Mazzei’s proposal, reality hit early. Due to term limits, Senator Mazzei was facing his last year in the Legislature. He had many legacies he still yearned to leave. The budget crisis presented him with opportunities for tax reforms he had sought to implement for years. Time is the most finite resource in the Legislature, and though Senator Mazzei’s bill made it out of the Finance Committee he chairs, he chose not to pursue his long-term savings bill on the Senate floor and instead focused on the tax reform issues.
Rep. Montgomery, however, had less on his plate and was doggedly pushing his proposal. He managed to get his bill, HB 2763, through the full House on a 72-22 vote. But he had to strike title. I explained in previous episodes how striking title sends the signal that a bill is still a work in progress, and so some legislators will vote for a bill with “title off” that they might not have voted for with “title on.” This willingness is partly because passing a chamber with title off means it has to come back and pass with title on. Each session, it is not uncommon to see bold proposals pass one chamber with title off, and then not advance further. Such small victories are what keep dreamers like me fighting another day.
With HB 2763 now in the Senate, it was in my hands. As John was House author of my SJR 44, I was Senate author of his HB 2763. He had joined my SJR 44 in January, but he had not asked me about HB 2763 until March, which was pretty late in the game to be getting a Senate author. He asked me via a text, which ends up being about the only way I can ever communicate in the hectic legislative sessions. And with a text that literally said “Sure, I’ll be your Senate author”, I casually and somewhat unwittingly joined a cause I’ll probably be proud of to my dying day.
To this point, I had not followed HB 2763 for obvious reasons. I was not even the official Senate author of it until the day it passed the House. So I was totally in the dark about its origins and evolution. When I signed up as Senate author, I was just endorsing the idea that we would do some long-term savings. At that point, SJR 44 had not yet died, so I still viewed that as my first choice. Now that I had HB 2763, it seemed like it could be a vehicle for any number of ideas in the area of long-term savings. Rep. Montgomery’s bill still included a legacy fund, so it occurred to me that perhaps Senator John Sparks might want to be a part of the conversaton. And the Pew Charitable Trust had entered the picture as well, with ideas of its own. Pew, a national non-profit and nonpartisan think tank, had hired a lobbyist, Gwendolyn Caldwell, to help push the idea of improving Oklahoma’s long-term savings plan. This was a rare case where a bill that didn’t benefit any particular business interest had a paid lobbyist working to support it. As I’ve said in previous episodes, lobbying support significantly increases the chances that a bill will make it through the process. With Pew’s help, the Governor and her budget advisors were also engaged in the conversation.
So now I had the bill. With so much at stake and so many parties involved, I knew this bill was probably going to conference committee, if for no other reason than to buy time to work everything out. I also knew that this bill had ramifications so great that the chances of it actually making it through to the end were probably no better than 20 percent.
HB 2763 was first assigned to Senate Rules Committee. This was because it had language in it that expressed what the intentions of the Legislature were. For whatever reason, about three or four years ago, the Senate got worked-up about what it called “intent language,” and created a process where such language would cause a bill to automatically get assigned to Rules. Rules is where bills are sent to definitely fail or definitely succeed, but rarely anything in the middle. I could get the bill reassigned to another committee (in this case, the natural fit was Finance), but only if I showed the Floor Leader a new version without the intent language. And so I did.
Meanwhile, it seemed like I was getting new versions of the bill from Rep. Montgomery almost every day. I began to call him the mad genius. I would get e-mail upon e-mail from him with all new concepts. Each e-mail would even promise at the end the things he expected to change in the next version he was going to send me. It got to where whenever I saw his name appear in my inbox, I would just smile. I loved that he was so excited about this concept, but I also knew that we were a long ways from the finish line and really weren’t at the point where the substance of the bill mattered all that much. I knew this bill was going to conference. If I could get it that far.
The Senate Finance Committee is chaired by Senator Mike Mazzei. As I mentioned, Mazzei had already passed through the committee a similar concept, so he was certainly willing to hear HB 2763. And since they had embraced his bill, I felt pretty good they would embrace mine. But on April 5th, as I stood before them in Room 535 of the Capitol, things didn’t quite go as planned.
I told the committee this was clearly a work in progress. I asked them not to get too attached to whatever was actually in HB 2763 today, because it was likely to change. I wanted them to think of this as a vehicle for a better long-term savings plan, details to be worked out later. But it began to be obvious some members of the committee were not too excited about the core idea. Several of them expressed concern that we might save money before we had returned spending levels to where they had stood before the energy downturn. I said that was good feedback and I would try to include that protection in a final version. But the questions kept coming. By the time it was my turn to make my final plea for passage, I was all but begging. Actually, I was begging. As the vote was called, several members said “nay.” Those who said “aye” included some of my 2010 classmates, who seemed to be throwing me a bone and delivered their “ayes” with the enthusiasm of a parent buying cotton candy for a whiny child. When Senator Mazzei delivered his “aye”, it made the count 6 to 5.
I have often thought back to this committee meeting as a great example of how often the Legislature skates along the edge of failure, frequently crossing over but occasionally skating back to success. In this case, 25 years from now, when a teacher keeps their job because our savings account kept the state from making budget cuts, they’ll never know that in an alternate universe somewhere, they are losing their job because one of my friends walked out of Finance Committee on April 5th, 2016 to use the restroom.
Having experienced this close call, I began to think to myself, “This bill isn’t going to become law.” And conditioned by so many previous unsuccessful efforts to make bold changes, I was probably more accepting of this than I should have been. Nevertheless, I soldiered on.
Meanwhile, the new versions of HB 2763 kept flying over from Rep. Montgomery. I grabbed one of them as they flew past and made it a floor substitute. (As I explained in previous episodes, a floor sub is simply a new version of the bill.) Though I planned to keep title off and send HB 2763 to conference committee, it still made sense to pass whatever was the latest version coming out of Rep. Montgomery’s laboratory. Also, I had to make sure the floor version dropped the legacy fund and just focused on the savings account. Mazzei didn’t want to pursue the legacy fund, and his voice was influential on this bill. So, on April 21st, I presented the new version on the Senate floor. This time, Gwendolyn had lobbied the Senators for days leading up to the vote, and that groundwork paid off with a far less dramatic 46-0 vote.
Not only that, Senators were now walking up to me to tell me how excited they were about this bill. Some were grabbing co-author slips. As I explained in a previous episode, signing up as a co-author doesn’t give you any authority over a bill, it’s just a way of saying you really like it. For the first time, I began to think there was something here; that maybe this could actually succeed.
As I explained in a previous episode, conference committee is just like starting over. You can completely redraft your bill, and then you go through committees again and both chambers. You just do it all in a far shorter amount of time.
Now that we were in conference, it was finally time to get serious about the substance of the bill. I began to shuttle between Mazzei and Montgomery while taking in feedback from the Governor’s budget staff, Pew, and legislative staff. Mazzei and I both saw the fundamentals in the same way. The versions of HB 2763 that had passed thus far were too complex and diluted. For example, the savings account could be spent on budget shortfalls OR capital infrastructure. The Governor’s budget folks believed (correctly) that the state doesn’t do enough to fund infrastructure, and they saw this as a way to start. But Mazzei and I saw it as a dilution of the key concept. This bill should be about budget shortfalls and nothing else. So we started to drive the conversation towards simplicity.
At the same time, my other legislative projects were starting to dwindle as the session neared its conclusion. I was sensing that the bill had real traction, and I had become a believer, like Rep, Montgomery, that HB 2763 was historic and important. On a list of bills I was still working on, I wrote the words “highest priority” next to HB 2763.
Then, as is so often the case in the Legislature, cold water came crashing down on us. The morning of May 2nd, I was having breakfast in the Governor’s Mansion with the Governor and other legislators. Moments after she spoke highly of HB 2763, Montgomery texted me an image of an e-mail Gwendolyn (the lobbyist for Pew) had received from Senator Mazzei. He expressed strong concerns with the bill as currently written and concluded by saying he was too busy with tax reforms and could envision “no scenario” where he would support this bill in 2016.
Technically, we didn’t need Mazzei’s support, if you just viewed him as one vote. We were already past the point where his willingness to give it a hearing mattered or not. But he had been a part of this endeavor from the beginning and his voice would be so influential on this topic I could envision “no scenario” where we could pass the bill over Mazzei’s objections.
Montgomery was upset by the e-mail, and I wasn’t thrilled, but I was also infused with the confidence that six years in the Senate provides. Having pulled a few miracles out my hat through the years, this problem seemed manageable. My office in the Capitol adjoins Mazzei’s, so I paid him a visit. I told him that I would do whatever it took to satisfy his concerns, and if his time management was the issue, then I would be his right hand and run down whatever he needed. He seemed satisfied, and I reported to Montgomery that we should be fine. Ultimately, I felt that when Mazzei wrote that e-mail, he was feeling what a lot of us feel during session: overwhelmed. All he needed was for me to offer to be his lifeline on this topic, and he would return to us. And he did. For the remainder of the process, he was an enthusiastic supporter.
Drafts continued to fly as we pared HB 2763 down to a simple but powerful concept. We now had a bill that did exactly what we wished someone had done for us 20 years ago. HB 2763 created a Revenue Stabilization Fund. It would be filled by dollars that came in through the gross production tax and the corporate income tax that exceeded the five year average of each of those two funding streams. If there was a revenue failure (when the state doesn’t even bring in enough money to fund the budget it adopted), then the director of the Office of Management and Enterprise Services (OMES) could spend a quarter of the fund (particularly useful if the Legislature is out of session). The Legislature could also spend a quarter of the fund if there was a revenue failure. And then to address an upcoming year’s budget shortfall (i.e. the $1.3 billion hole we faced this year), the Legislature could spend up to half the fund. No savings would occur until revenues had returned to their recent high water mark of 2015.
There followed a few days of hammering out obscure but important details of the bill, because even though the concept was simple, I’m glossing over extremely complex issues related to implementation that only the state’s best budget experts would understand. But with that work done, our version of HB 2763 was simple and effective at its core. Pew had modeled it and felt it could eventually create hundreds of millions of dollars in savings available to smooth out the fluctuations in energy prices. It seemed that everyone involved liked where the bill had ended up. Senator Mazzei seemed especially thrilled and we exchanged some hearty handshakes of mutual congratulation.
So, it was time to take it to the conference committees. Rep. Montgomery got his signatures and then I got mine. As I explained in previous episodes, Senate conference committees have seven members, including five Republicans and two Democrats. I briefed the Democratic Caucus personally on the bill, but they declined to sign the conference report. I was not concerned though, as I knew they would do the right thing, and ultimately they did largely support it on the floor.
Being that it was a House bill, the House had to consider it first. On the second-to-last Friday of session, Rep. Montgomery got it through on an 86-3 vote. On the last Tuesday of session, I ran it in the Senate. By now, and without me even trying, it had 14 Senate co-authors. It passed 42-2. The only two “no” votes were Democrats who felt the savings should not commence until the revenues were even higher than they were in 2015.
The Governor’s folks had been at the table, so we had no concerns about a veto. And she signed it on May 27th, the final day of the 2016 legislative session.
I had to sit back in a bit of amazement at what we had done. For much of session, I had little confidence this bill would become law, partly because it was so bold and forward-thinking. But it had, thanks especially to the persistence of Rep. Montgomery. And I knew that even though no one would ever remember our names, we had accomplished something that would benefit the state for the rest of its days.
This is the final episode of #11BillsIn11Days. To read all the episodes, click here.