- Associated Press - Tuesday, February 2, 2016

OKLAHOMA CITY (AP) - Republican Gov. Mary Fallin’s budget proposal for the upcoming year challenges state lawmakers to make fundamental changes to the way Oklahoma pays for vital public services including schools, health care and public safety.

The proposal outlined Monday by Fallin’s Secretary of Finance, Preston Doerflinger, calls for revamping the budgeting process to rely less on one-time funding sources, such as the state’s constitutional Rainy Day emergency fund, and more on recurring revenue. It aims to fix structural problems in the state budget that, combined with a dramatic decline in energy prices and tax revenue from the oil and natural gas production industry, have led to a projected shortfall of $900 million in the fiscal year that begins July 1.

The plan calls for the elimination of certain tax deductions, exemptions and credits, as well as a change to state sentencing guidelines for certain drug offenders - issues lawmakers have been reluctant to address in recent years.

“This is the biggest budget challenge we’ve faced in my five years,” Doerflinger said. “It is hard and it will require some hard work. We have to get better, starting now.”

Among other things, the proposal calls for the elimination of sales tax exemptions on many goods and services. The state does not charge sales taxes on items delivered electronically, such as digital music. Under Fallin’s proposal, sales taxes would be assessed on certain services that are subject to sales taxes in neighboring states.

The proposal also calls for a dramatic increase in the sales tax on cigarettes, from $1.03 a pack to $2.53 a pack. Doerflinger said that change would raise $181.6 million while helping to save lives, reduce health care costs and generate new revenue for core services.

Altogether, he said the plan would raise $910.5 million in recurring revenue sources.

“We’ve proposed a budget that is long on solutions … and zero on one-time funds,” said Doerflinger. He vowed to step down as Fallin’s finance secretary and chief negotiator if the budget lawmakers approve relies on two things: balancing the state budget on the back of the state pension system or using one-time funding sources instead of recurring funds to fill the budget hole.

“If either of these two things are in the final budget agreement, I will resign,” Doerflinger said. “That’s leaving the place in worse shape than we found it.”

Lawmakers from both parties expressed misgivings about elements of the plan.

Democrats criticized Fallin for proposing new taxes when a Republican-backed reduction in the income tax from 5.25 percent to 5 percent just went into effect on Jan. 1.

“Today she rolls out a tax plan that doesn’t roll back the tax cuts or the tax credits she’s offered up that put us in this mess,” said House Democratic Leader Rep. Scott Inman, of Oklahoma City. “Instead, she chooses to shift the tax burden from those folks in Oklahoma who can best afford it to some of the poorest and middle-class families in Oklahoma.”

The GOP leader of the state Senate, Senate President Pro Tem Brian Bingman of Sapulpa, hinted that both the proposed cigarette tax and the expansion of the sales tax would be a tough sell in the conservative Legislature.

“I would be cautious about such a leap in the tobacco tax,” Bingman said.

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This story has been corrected to show that Doerflinger would step down if the budget is in part balanced on the back of the state pension system, not prison system.

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