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Behind Oklahoma’s teacher strike: Years of tax cuts and an energy slump

Teachers pack the state capitol's rotunda on the second day of a teacher walkout in Oklahoma City last week. The strikes are continuing this week. (Nick Oxford/Reuters)

Thousands of Oklahoma teachers this week poured into the state capitol in a second week of a strike for more school funding and higher pay.

The strikes have their origin in more than a decade of tax cuts spearheaded by some Democrats and Republican legislators, as well as a downturn in global energy prices. Oklahoma is one of the nation's five largest producers of crude oil, and the energy sector accounts directly or indirectly for about one quarter of its jobs, according to at least one estimate.

The one-two punch of tax breaks and falling energy prices has triggered a series of a state budget crises over the past four years, forcing lawmakers to scramble for emergency revenue measures and reducing the pay of Oklahoma teachers to the second-lowest level of any state in the country, with an annual average of $45,276.

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About a decade ago, Oklahoma drew about an average amount of tax revenue per resident, compared with the rest of the country. But because of a series of budget cuts starting in 2005, tax holidays for the energy sector and the drop in global energy prices, the state now ranks 44th of the 50 states on this metric.

“Some states, like Kansas, just jumped right off the revenue cliff,” said David Blatt, who runs the Oklahoma Policy Institute, a think tank. “But we've been slowly sliding down the mountain.”

The strike and rallies at the capitol began after Gov. Mary Fallin (R) signed a bill in late March to boost teachers' pay by an average of $6,100 per year. But the state's fiscal problems are expected to persist. The law raised salaries but did little to create new positions or put more money for funding classroom supplies, key demands of the teachers. The state's budget remains flat in most other areas, according to the Oklahoma Policy Center.

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Oklahoma has seen the steepest cuts to per-pupil school funding over the last decade, according to the Center on Budget and Policy Priorities, a left-leaning think tank. Oklahoma has cut its per-student funding by 28 percent over the last 10 years, adjusted for inflation. The only other state that comes close to that reduction is Texas, which has had a 16 percent decline in per-pupil funding since 2008. (These numbers do not account for Oklahoma's teacher pay increase approved this March.)

Oklahoma lawmakers from both parties have been chipping away at the state's taxes for years, perhaps most notably from 2005 to 2007 when then-Gov. Brad Henry (D) made cuts to the top income bracket. Reductions in the state income tax have cost Oklahoma about $1 billion, 75 percent of which came from Henry's early rate cut, according to the Oklahoma Policy Institute.

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The wealthiest 20 percent of households — or those averaging over $246,000 a year in income — have benefited from 72 percent of the $1 billion income tax cut, with each affluent family gaining an additional $15,519, according to the Oklahoma Policy Center. The average Oklahoma household has seen its tax burden cut by $228 over the same period.

As a result, the amount of money available in state coffers fell by 35 percent over the last decade as a share of residents' income.

Part of this decline stemmed from the state economy's dependence on global energy prices, which took a nosedive in 2014. Oklahoma had been a key source of domestic oil production by the early 20th century but more recently saw its energy production soar, thanks to a boom in natural gas. The state's oil production grew by 10 percent in 2011, 20 percent in 2012 and then 30 percent in 2013, leading to what Reuters called “a drilling bonanza [that] minted millionaires and billionaires.”

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Hydraulic fracturing for natural gas helped mask the state tax cuts, as companies channeled money to state coffers even in the aftermath of the Great Recession. “Oklahoma was very much like Kansas in wanting to cut income taxes,” said Richard Auxier, an analyst at the Tax Policy Center. “They could get away with it when oil and gas revenue was high.”

In 2009, state tax collections from the oil and gas industry totaled $727 million, accounting for 13 percent of the overall budget, according to state data. But roiled by changes in international energy markets amid stronger foreign competition and weaker demand, that number fell steadily every year before hitting a low of $95 million in 2016 — an 86 percent drop. These tax collections now make up 3 percent of the state's budget.

The only states where lawmakers saw a greater decline in per-person state revenue available to them were Alaska, Wyoming and Louisiana, which are similarly dependent on energy prices. Oil and gas prices are expected to tick up next year and bring in more money — but probably not enough to make up for the overall trend.

“Oklahoma's problem is slumping oil and natural gas tax revenue,” said Scott Drenkard, of the Tax Foundation, a right-leaning think tank. “There is a narrative out there that 'tax cuts for the rich' are what is causing a revenue pinch, but the numbers don’t really bear that out.”

Others disagree. Some note that the state lowered the tax rate for new oil and gas production below its standard 7 percent to encourage more production, with the rate dropping as low as 1 percent. Analysts say the rate cut cost the state about $300 million to $500 million per year.

“Even when times were good we weren't getting more revenue from oil and gas producers,” Blatt said. “Public policy focusing on tax breaks was a big part of it.”

Some states that have also recently pushed through big income tax cuts, including North Carolina and Ohio, did so while also broadening their tax base, according to Meg Wiehe of the Institute on Taxation and Economic Policy. But until this year, Oklahoma did very little to balance rate reductions with increases in the tax base.

Oklahoma raised its cigarette tax and capped deductions as part of its bump in teachers' pay in March, the first time the legislatures pushed through any significant revenue increases in several years, according to Wiehe.