By John Greiner and Michael McNutt
The Oklahoman

Senate Democrats rejected the governor's proposal to break a budget impasse Wednesday and offered an alternative that includes a tax reduction they said will benefit more Oklahomans.

Wednesday's latest development in the budget battle appears to push the Legislature closer to a special session.

But Senate leader Mike Morgan said legislators still can adjourn by the May 26 constitutional deadline if an agreement is reached by the middle of next week.

Besides a different tax reduction, the Senate Democrat plan would give teachers a $3,000 pay raise and higher education $130 million more than it received for the current fiscal year. The boost might forestall a tuition increase, Morgan said.

Senate Democrats want to increase the Oklahoma income tax's standard deduction to the federal level and eliminate the estate tax, Morgan said.

The announcement received a cool reception from the governor's office and Republicans in the House and Senate.

"The governor will not support any proposal that does not include a reduction in the state income tax rate," said Paul Sund, Henry's communications director.

Henry is sticking by his plan
While he will look at the Senate plan, Henry thinks he has put a workable compromise on the table that strikes a good balance between tax relief and state needs, Sund said.

State Treasurer Scott Meacham, the governor's chief budget negotiator, said the Senate Democrats' rejection of Henry's budget proposal makes it more difficult to get an agreement before the May 26 deadline to adjourn.

"What we tried to do was put an offer out there that was between where they were and where the House was," said Meacham, who also serves as the governor's secretary of revenue and finance. "Obviously, them being so far away from everyone else is going to make it much more difficult to get an agreement, but it's something that we're just going to have to work through."

The governor supports a 5-percent pay raise for state employees, which could be paid for using some of the $125 million remaining to be spent in the governor's compromise proposal, Meacham said.

"The governor was sending a letter to the House and Senate to basically tell them that," Meacham said.

Henry's tax plan, endorsed by House Speaker Todd Hiett, would cut the state income tax rate from 6.25 percent to 5.5 percent and phase out the estate tax.

Morgan touts alternatives
The governor's income tax proposal cuts too deep and "disproportionately benefits the wealthy," said Morgan, D-Stillwater.

"I'm not willing to throw the people of the state of Oklahoma under the bus," he said.

The current Oklahoma standard income tax deduction is $2,000 for an individual and $4,000 for a couple filing jointly.

The federal deduction is $5,150 for a single taxpayer and $10,300 for a couple filing jointly, the Senate staff said.

Morgan said Henry's tax cut proposals would reduce revenue by more than $300 million and didn't make sufficient investments in education, health care and public safety.

The Senate plan to raise the standard deduction to the federal level would reduce revenue $172 million and would benefit a majority of Oklahomans by giving them a larger tax cut than Henry's proposal, Morgan said.

A family of four with an adjusted gross income of $50,000 would have a tax savings of $532 under the Senate plan, compared to $173 savings under the governor's plan, Morgan said.

The state Tax Commission said 70 percent of Oklahomans use the standard deduction in computing their taxes.

Hiett, R-Kellyville, said the plan he worked out with the governor would be the largest tax cut in history and would make investments in priorities such as teacher salary increases.

He called Senate Democrats obstructionists and said their plan is "ridiculous."

Senate Republican leader Glenn Coffee of Oklahoma City said the Senate Democrat plan shortchanges Oklahoma taxpayers and is a big-spending budget proposal.

Education funding
Senate Democrats have pushed a $3,000 across-the-board pay raise for teachers since the legislative session began.

Teachers would get a $2,400 raise under Henry's plan.

Public school support workers also would get a pay raise under the Senate plan, Morgan said, while state employees would get a 5-percent pay raise.

The $130 million increase in funding for Oklahoma's colleges and universities exceeds the $123.1 million increase sought by higher education officials.

"The amounts they are proposing will allow for us to bring significant tuition relief to Oklahoma's college students and their families," said Ben Hardcastle, spokesman for Oklahoma State Regents for Higher Education. "It would also importantly bring the funding levels for our students closer to the national average and do things like providing additional full-time faculty, researchers, library services."

The Senate also proposes:

Investing $25 million a year into the Teachers Retirement System for the next 20 years to reduce its unfunded liability.

Providing $50 million more for state highways and bridges.

Providing $20 million for maintenance needs at Oklahoma's state parks.