DALLAS – A budget agreement between Oklahoma Gov. Mary Fallin and legislative leaders would cover a $215 million revenue gap while also providing raises for public school teachers.

The agreement announced Monday came in a special session that Fallin called in the wake of a state Supreme Court ruling that struck down a cigarette tax as improperly enacted. The state constitution forbids passage of revenue-generating measures in the last week of a regular legislative session.

Mary Fallin, governor of Oklahoma, speaks to members of the media in the lobby of Trump Tower in New York, U.S., on Monday, Nov. 21, 2016.
Oklahoma Gov. Mary Fallin announced a state budget agreement. Bloomberg

The new plan would levy a tax of $1.50 per pack of cigarettes and raise the state fuel tax by 6 cents per gallon. Taxes on alcoholic beverages would also be adjusted, and the earned income tax credit would be restored.

Teachers would receive $3,000 annual pay increases and state employees would earn $1,000 more per year as of next Aug. 1.

Fallin said that unpredictable revenue streams from one-time budget fixes since the oil and gas slump began in mid-2014 showed the need for more reliable sources of income.

“We need to seek long-term sustainability and stability as opposed to unpredictability and volatility,” Fallin said. “This agreement makes more recurring revenue available, helps us stop balancing our budget with one-time funds, and provides a teacher pay raise as well as a raise for our hard-working state employees, who have not had an across-the-board pay increase in eleven years.”

In working out the deal with fellow Republicans, Senate President Pro Tempore Mike Schulz said he “stressed to senators the importance of long-term thinking and planning. This deal gives us the chance to deliver on that, and institute reforms that will have a tremendous impact on our state for years to come.”

House Speaker Charles McCall said that the plan provides recurring revenue for transportation infrastructure and that restoring the earned income tax credit “more than offsets any increased consumption costs for low-income earners.

“We believe this plan gives us the best opportunity to pass the House and Senate, and provide the state with needed revenue to stabilize mental health and substance abuse programs, keep rural hospitals open, and provide a pay raise that would make Oklahoma teachers the highest paid in the region for starting pay,” McCall said.

The Oklahoma Department of Transportation earlier this month had to downsize its eight-year capital improvement program after $840 million in state funding cuts over the last seven years.

As legislative committees discussed the budget plan Tuesday, the Oklahoma Supreme Court struck down another fee passed in the regular session, but the ruling has far less impact on the revenue forecast than the cigarette tax. A fee on all-electric cars to compensate for loss of revenue on the fuel tax would have only provided about $500,000 per year, officials said. The fee was found unconstitutional on the same grounds as the cigarette tax, officials said.

In July, Fitch Ratings downgraded Oklahoma’s general obligation rating to AA from AA-plus, citing “a decline in financial resilience over the past several years as the state has struggled with the economic and revenue effects of the downturn in energy markets.”

Fitch analyst Marcy Block added that “The state has been unable to address its fiscal challenges with structural and recurring measures and revenue collections continue to reflect subdued energy prices.”

The Fitch action matched that of S&P Global ratings, which lowered Oklahoma’s general obligation rating to AA from AA-plus on March 1. Moody’s Investors Service has a negative outlook on its Aa2 rating.

State revenues are beginning to recover from a prolonged slump due to the collapse in oil prices three years ago. Oil and gas represents a third of the Oklahoma economy.

State Treasurer Ken Miller reported in July that revenue for fiscal year 2017 indicate the state’s treasury began recovery at the midpoint of the fiscal year and continued through June.

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