Oklahoma’s Challenges
Oklahoma is a rapidly aging state. It is projected that by 2035, the number of Oklahomans over 60 will outnumber the number of Oklahoma children. Rural Oklahoma, in particular, is being affected by this. The challenge for the future is how Oklahoma can keep its small towns and rural areas viable places to live. Schools in rural Oklahoma are particularly at risk. At some point, consolidation may occur, but there will still be children and schools that will need to be adequately funded. In particular, facility needs are difficult for rural schools to address.
Additionally, Oklahomans overwhelmingly support school choice. Currently, private school vouchers seem to be the focus of school choice advocates. I proposed that public charters, if held to appropriate standards, are a more equitable solution for giving families choice in education. Charters, however, face severe financial constraints in facility funding. Although, the Redbud fund provides some relief, the amount of money out of state foundation aid charters must use on facility upkeep and upgrades hampers what they can accomplish with students.
Facility funding is the greatest inequity in Oklahoma education. In a high‑valuation community, a manageable local effort can support a large project. In a low‑valuation community, the same project can demand a far higher local burden, or it can push districts toward lease revenue financing that exorbitantly increases interest costs. Over time, that gap compounds: deferred maintenance becomes more expensive, emergency repairs proliferate, and inequity becomes embedded in brick and mortar.
Local control is important to Oklahomans, but funding can be equalized without taking that control away. Oklahoma can preserve local decision‑making while removing the built‑in penalty for property‑poor communities by stacking three tools: (1) targeted facilities equalization grants, (2) state credit enhancement to reduce interest costs, and (3) a Guaranteed Tax Base (GTB) equalization model that makes local effort count the same up to a cap. I would also like to add a missing piece: a parallel equalization lane for charter schools, which generally do not have access to local ad valorem millage but still must house students and often finance facilities through leases or bonds.
How the three-part system works as one coherent stack
A facilities project becomes expensive for three reasons: the project size may exceed local cash capacity, the interest rate may be higher than necessary, and the local tax base may be too weak to carry the annual payment without extreme effort. The three-part system tackles these constraints in order—first shrinking principal, then lowering the interest rate, then equalizing the local burden on what remains.
1) Facilities Equalization Grants: reduce the amount that must be financed
The first lever is an annual state facilities grant program focused on essential work—HVAC, roofs, life-safety, ADA, security, and overcrowding relief. Grants are powerful because they reduce principal immediately. Every dollar that does not have to be financed is a dollar that does not accrue interest for 20 years. A wealth-adjusted match schedule can direct larger grant shares to districts (and charters) with the weakest local capacity, while still requiring local participation so the program reinforces responsibility rather than replacing it.
Importantly for Oklahoma, the grant program should be open to eligible charter schools as well. Charters have students in buildings too—often older or leased facilities—and they face the same aging‑infrastructure cycle. If the state is prioritizing health, safety, and adequacy, eligibility should follow students and facility condition, not governance form.
2) Credit enhancement: reduce the interest rate on what remains
After grants shrink the amount that must be financed, the next issue is borrowing cost. Property‑poor districts and small issuers often pay higher interest rates, which means more dollars are diverted to debt service. A state credit enhancement—such as a guarantee, reserve, or state-aid intercept—can reduce interest by lowering perceived risk to lenders and investors. Even a modest reduction (for example, 0.75%) can translate into significant annual savings over a 20‑year term.
For charter schools, credit enhancement is especially relevant because their facilities financing is frequently tied to lease-revenue structures or revenue bonds that are priced based on the stability of lease payments and state-aid streams. A properly designed state backstop can reduce financing spreads and keep more dollars in classrooms rather than interest.
3) Guaranteed Tax Base (GTB): equalize the local burden up to a cap
Finally, Oklahoma can address a structural inequity: a given amount of local effort does not buy the same facilities capacity everywhere because valuation per student varies so widely. A GTB model sets a target tax base per student (for example, the statewide average adjusted valuation per ADM). For districts below that target, the state pays a matching amount so that a capped level of local effort purchases comparable capacity. To protect state budgets, the program is capped—for example, equalizing only the first 10 mills worth of eligible facilities capacity and limiting eligibility to essential facility categories.
Adding charter schools: Ad Valorem Equalization Equivalent (AVEE) for facilities
A facilities equalization plan that only works for districts leaves a gap: charter schools typically do not have access to local ad valorem millage. Even when charters are high-performing and serving significant enrollment, they cannot ask local voters for a sinking fund levy to repay bonds the way districts can. Yet charter students still need safe buildings, and many charters finance facilities through lease-purchase agreements or revenue bonds, whose payments come from operating revenues.
To ensure charter schools receive the same type of assistance that below-average districts receive under the GTB model, Oklahoma can add an Ad Valorem Equalization Equivalent (AVEE) lane. AVEE does not pretend charters have taxable valuation. Instead, it treats facilities payments as an ‘equivalent tax effort’ and provides state equalization on the same capped basis used for districts.
How AVEE would work in practice
Under AVEE, an eligible charter’s annual facilities obligation (lease payment or eligible bond/lease debt service) is translated into an ‘equivalent mills’ measure using the same statewide target tax base used for districts. Conceptually, the state asks: ‘If this charter had access to the statewide-average tax base, how many mills would it take to generate the dollars needed for this year’s eligible facilities payment?’ The state then provides assistance analogous to GTB aid—up to the same cap (e.g., the first 10 mills of equivalent effort).
One way to implement this cleanly is to define a per‑pupil equivalent mill yield using the statewide target tax base: each 1 mill of equivalent effort equals (target valuation per ADM ÷ 1,000) dollars per ADM. If the statewide target is about $67,356 per ADM, then 1 equivalent mill is about $67.36 per ADM per year, and a 10‑mill cap equals about $673.56 per ADM per year. AVEE would reimburse eligible charters for the portion of their eligible facilities payment that falls within that capped band, subject to program rules.
Guardrails so AVEE is fair, budgetable, and does not incentivize over-borrowing
Oklahoma can include guardrails that protect the state while preserving equity:
- Eligibility limited to essential facilities categories (life-safety, roofs, HVAC, ADA, security, capacity relief).
- A clear cap on assistance (e.g., reimburse only up to 10 equivalent mills of eligible annual payment per ADM).
- A maintenance-of-effort requirement: the charter must pay an initial share of eligible payments from its own funds (for example, a 2–5 mill equivalent) before AVEE applies, or must meet a minimum ‘facilities effort’ threshold.
- Standardized financial underwriting: charters must document lease/bond terms, demonstrate long-term affordability, and comply with reporting and audit requirements.
- If the state provides credit enhancement, require state-aid intercept provisions so payments can be made before a default occurs, protecting both students and taxpayers.
Why AVEE matters for equity and for statewide facility strategy
Without AVEE, Oklahoma would be equalizing facilities for one sector while leaving another sector—often serving high-need students—outside the core fairness mechanism. That creates predictable pressure points: charters may pay higher financing costs, occupy less suitable buildings longer, or divert more operating dollars to facilities. AVEE aligns the state’s goal with the student’s reality: safe, adequate facilities should follow public students, whether they attend a district school or a charter school.
Why the stack can save local property owners money
Facilities still cost money. What changes is the distribution of the burden and the efficiency of financing. In property‑poor districts today, local burden is often inflated in three ways at once: larger borrowing needs because there is little cash capacity, higher interest rates, and weaker valuation that forces a larger local effort to generate the same dollars. The three-part stack removes each inflation factor in turn. Grants reduce principal. Credit enhancement reduces interest. GTB reduces the local tax effort required to cover the remaining payment. That is measurable local taxpayer relief in districts that currently face the steepest effective burden.
The following table illustrates how these reforms would work in two comparably sized districts with very different tax bases: Seminole and Kingfisher.
Lease Revenue Bond Equalization Illustration
| Assumptions (illustrative) | |
| Financing | 20 years; base rate 4.50%; with state credit enhancement 3.75% |
| Grant policy | Seminole: 40% grant ($8.0M). Kingfisher: 20% grant ($4.0M). |
| GTB lease aid policy | Equalize up to the first 10 mills of lease payment capacity to statewide average valuation/ADM. |
| Statewide target tax base | Statewide average adjusted valuation per ADM = $67,356 (FY25 dataset). |
| Note on ‘equivalent mills’ | Lease payments are not automatically a new sinking fund levy; this translates annual payments into an equivalent ad valorem mill burden for comparison. |
| District | ADM | Adjusted valuation | Valuation per ADM | Annual payment (no reforms) | Eq. mills (no reforms) | Annual payment (after grant + CE) | State GTB lease aid (annual) | Net local annual payment | Eq. mills (net local) | Mill relief (equivalent) |
| Kingfisher | 1,298.09 | $142,150,233 | $109,507 | $1,537,523 | 10.82 | $1,151,394 | $0 | $1,151,394 | 8.10 | 2.72 |
| Seminole | 1,399.09 | $56,776,777 | $40,581 | $1,537,523 | 27.08 | $863,545 | $374,603 | $488,942 | 8.61 | 18.47 |
Annual homeowner savings (equivalent), based on taxable value
| Taxable value | Seminole: annual $ savings (from mill relief) | Kingfisher: annual $ savings (from mill relief) |
| $20,000 | $369 per year | $54 per year |
| $30,000 | $554 per year | $81 per year |
| $50,000 | $923 per year | $136 per year |
State fiscal impact for this single $20M project (simple sums, nominal dollars)
- Seminole: $8.00M grant + $374,603/yr GTB lease aid (10-mill cap) = about $15.49M over 20 years. Credit enhancement saves about $58,969/yr in interest (about $1.18M over 20 years) for local taxpayers.
- Kingfisher: $4.00M grant; no GTB aid (above target valuation/ADM). Credit enhancement saves about $78,625/yr in interest (about $1.57M over 20 years) for local taxpayers.
Interpretation: Seminole’s equivalent mill burden falls from 27.08 to 8.61, while Kingfisher falls from 10.82 to 8.10 under the combined stack.
What the Seminole/Kingfisher example illustrates—and what it implies for charters
In order to ensure equity, when two public systems pursue the same essential project, the financing system should not demand radically different local burdens simply because valuation differs. In the example, Kingfisher’s stronger valuation per student allows it to carry the obligation at a lower equivalent burden. Seminole’s weaker valuation per student makes the same obligation look far heavier—until the state applies the stack.
Charter schools face a different version of the same structural problem. They have no access to local mills, so the ‘burden gap’ shows up not as a millage spike but as an operating‑budget squeeze: a large lease payment that competes with instruction. AVEE brings charters into the same fairness framework by treating eligible facilities payments as an equivalent effort and equalizing that effort up to the same cap used for districts.
How to make increased school funding acceptable to an aging population by eliminating residential property taxes for Social Security recipients
Facilities equalization removes structural inequity in how Oklahoma pays for school buildings, but Oklahoma can further strengthen the plan by pairing it with a simple taxpayer protection: a residential homestead property‑tax elimination for households drawing Social Security. The policy goal is straightforward—protect fixed‑income households from being priced out of their homes or forced to vote against essential school improvements because of property‑tax volatility.
This is a companion provision, not a substitute for equalization. The grants, credit enhancement, GTB equalization (and the charter AVEE lane) focus on making essential facilities affordable and fair across the state. Senior homestead relief focuses on protecting households that are uniquely sensitive to property taxes because their incomes are often fixed or slow-growing. Bundled together, the state can pursue statewide facility adequacy while insulating vulnerable homeowners from the sharpest impacts of local tax change.
A workable design can be written to be both fair and budgetable: eligibility based on receipt of Social Security retirement, survivors, or disability benefits and occupancy as a primary residence; scope limited to the homestead (not second homes, rentals, or commercial property); and guardrails such as annual re‑certification and an optional value/acreage cap to address outliers. Most importantly, the state reimburses districts for the exempted school‑levy amount so the facilities equalization plan is not undercut by a shrinking base.
That reimbursement feature keeps schools whole. Without reimbursement, districts with higher senior ownership could lose meaningful revenue capacity. With reimbursement, the exemption becomes a state policy choice—funded at the state level—rather than a local revenue collapse. In practice, this can also reduce bond-election conflict by reassuring older homeowners that the state is sharing the cost and that they are protected from facility-driven tax spikes.
Benefits to large landowners and businesses
A facilities equalization system is often framed as help for “property‑poor districts,” but it also functions as a stabilizer for the local tax burden on the largest valuation holders. In many Oklahoma communities, a meaningful share of total valuation is concentrated among a relatively small set of owners—major employers, utilities, manufacturers, energy assets, large commercial property holders, and large agricultural landowners. When a district must finance a major facilities package under the status quo, the incremental local cost is not spread evenly; it falls most heavily on large valuation accounts because they pay the majority of the ad valorem tax base.
The three-part stack (grants, credit enhancement, and GTB equalization) reduces that pressure in a direct, mechanical way. Grants lower the amount that must be financed, which lowers annual payments and reduces total interest over a 20‑year term. Credit enhancement lowers the interest rate on the remaining financed amount, trimming annual cost further. GTB equalization (or the charter AVEE equivalent) then backfills a capped portion of the remaining annual obligation where local capacity is below the statewide target, so the district does not have to solve the problem by pushing local effort to extreme levels.
This matters to business planning because predictability is a real economic value. Large employers and major landowners make multi‑year investment decisions—equipment purchases, expansions, hiring, and long‑term leases—based partly on stable cost conditions. In property‑poor districts, the same facility project can require far higher local effort, creating sharp changes in local tax burden from one election cycle to the next. A capped, formula-driven equalization program smooths those spikes by sharing a portion of the cost statewide, making local tax environments more predictable for investment.
There is also an indirect workforce benefit. Businesses rely on strong schools to attract and retain employees, and facility quality is a visible signal of school stability. When buildings are unsafe, outdated, or overcrowded, communities can lose families and struggle to recruit, which weakens the local labor pool. By making essential repairs and expansions financeable sooner and at lower cost, the equalization stack improves the community’s ability to compete for workers without requiring the business community to absorb outsized tax increases to get there.
Finally, equalization can reduce conflict around facilities decisions. When the financing system feels unfair, proposals can become arguments about who pays rather than focused decisions about what students need and what assets will last. A transparent state partnership—grants for urgent needs, interest-rate relief through credit enhancement, and capped equalization—shifts the conversation toward planning and accountability: what is being built, why it is essential, the expected service life, and how costs are shared. That increases the odds that necessary projects move forward on time, avoiding the higher long-run costs of deferred maintenance that ultimately hit taxpayers, including major landowners and employers.
Economic development
Oklahoma’s current pattern of funding school facilities creates a hidden economic-development problem: in property‑poor communities, major capital needs can translate into outsized local effort and unpredictable tax pressure concentrated on a small number of valuation holders. That volatility makes long‑range business planning harder and can push communities toward “one-off” incentive negotiations—often long-term property-tax abatements—to compete for investment. A statewide facilities equalization system offers a different model: instead of trading away the local tax base for decades, the state reduces the underlying drivers of tax volatility and strengthens the fundamentals businesses repeatedly cite—workforce, quality of life, and predictable operating conditions.
Site-selection evidence: workforce and education quality repeatedly rank among the top factors businesses use for choosing where to locate. Site-selection surveys and practitioner summaries emphasize skilled labor, the education and training pipeline, and the overall operating environment as core location drivers. A summary of Area Development’s consultant survey (2024 results, published 2025) lists skilled labor as universally important and also ranks responsive state/local government highly. Site-selection commentary similarly notes that quality of education—especially K‑12 and technical education—fits within the quality-of-life and workforce package that attracts and retains employers. A facilities program that upgrades buildings, addresses safety and overcrowding, and stabilizes local tax burdens strengthens these fundamentals statewide.
Property-tax abatements and long-term exemptions are often justified as the price of competition, but policy research warns against assuming incentives cause all observed investment and notes that firms sometimes negotiate incentives after selecting a location—creating a risk of paying for activity that would have happened anyway. The Lincoln Institute of Land Policy’s review of property-tax incentives highlights this “after-the-fact negotiation” problem and discusses how incentives can miss their goals or create inequities. The Federal Reserve (Boston Fed) likewise emphasizes that incentive evaluations should use probability ranges rather than assuming 100% of investment is caused by incentives. A strategy that improves statewide workforce infrastructure (including schools) and stabilizes local cost conditions can win investment while reducing reliance on deals that erode the tax base.
The facilities stack I propose reduces the annual facilities obligation that must be solved locally and spreads a capped portion of that obligation statewide. That reduces the likelihood of sudden local tax increases or operating-diversion debates that can destabilize community planning. Predictability matters to investors: stable, transparent financing for public infrastructure signals competent governance and lowers the risk premium businesses associate with a community’s future costs and workforce pipeline.
Empirical research links school facility investment to improved student outcomes and community value under certain designs. Research on a large California school facilities program found substantial returns when considering household value and longer-run benefits, and other syntheses note that targeted infrastructure investments can produce measurable improvements. Businesses do not hire buildings, but they do hire people—so strengthening the reliability and quality of the education environment supports talent attraction and retention.
Oklahoma can credibly reduce long-term abatements by offering something businesses value that also protects the public interest: (a) predictable facilities financing, (b) modern and safe schools across regions, and (c) a stable tax environment that does not require special exemptions to make projects feasible. This shifts economic development from negotiating narrow carve-outs to investing in statewide capacity—while still allowing targeted, transparent, time-limited incentives when evidence shows they are cost-effective and necessary.
Sources referenced above
- UNC School of Government (Nov 7, 2025), “Perspectives on the Business Location and Site Selection Process” (summarizes Area Development consultant survey results for 2024): https://ced.sog.unc.edu/2025/11/07/perspectives-on-the-business-location-and-site-selection-process/
- Lincoln Institute of Land Policy (2012), “Rethinking Property Tax Incentives for Business”: https://www.lincolninst.edu/app/uploads/legacy-files/pubfiles/rethinking-property-tax-incentives-for-business-full_0.pdf
- Federal Reserve Bank of Boston (2013), “The Effective Use of Property Tax Incentives for Economic Development”: https://www.bostonfed.org/publications/communities-and-banking/2013/fall/the-effective-use-of-property-tax-incentives-for-economic-development.aspx
- Urban Institute, “State Tax Incentives for Economic Development”: https://www.urban.org/research/publication/state-tax-incentives-economic-development
- Lafortune, Rothstein & Schanzenbach (AEA), “The Impact of School Facility Investments on Students and Communities”: https://www.aeaweb.org/content/file?id=14772
- Brookings (Sep 6, 2024), “Targeted infrastructure spending can boost student outcomes”: https://www.brookings.edu/articles/targeted-infrastructure-spending-can-boost-student-outcomes/
How much does it cost and how does the state afford this?
For the state, the system is affordable because each lever has controls. Grants are a defined annual appropriation. GTB equalization is capped and limited to essential categories. AVEE applies the same capped concept to charter facilities payments, with underwriting and maintenance-of-effort rules that prevent over‑borrowing. Credit enhancement is administered with clear standards and often produces outsized savings relative to its administrative cost.
For communities, the payoff is clarity and fairness. Property‑poor districts stop paying a premium mill-equivalent burden for basic adequacy. Charters have greater access to facility funding, and Oklahoma gets a statewide facilities strategy financed in a more efficient, predictable, and equitable manner.
As shown in Appendix B: GTB and AVEE would cost around $110 million per year if every eligible school in the state utilized the benefit to its maximum capacity. The estimated cost is $30–60 million. Facility grants are estimated to cost between $150 million to $300 million. Property tax relief for seniors is more difficult to estimate, but it is likely to fall in the $300 million to $400 million range. Politically, this would likely have to be scaled down in the beginning to make it palatable. However, I believe more knowledgeable economists likely can show how, over the long term the tax savings to seniors and lower millage rates for seniors could increase revenues in other taxes.
The state has several mechanisms to pay for all of this. The projected fiscal impact of the .25 percent income tax cut for FY27 is $340.5 million. Restoring funding to FY26 levels provides the necessary resources to support property tax relief for seniors.
It likely will take multiple revenue streams to fully fund all the reform.
In practice, Oklahoma could combine multiple streams so that no single group bears the full cost. Below are realistic options that align with the principles of this proposal (stability, transparency, and protecting school operations). Where a ‘yield’ is shown, it is calculated from published statewide collections and should be interpreted as an illustration.
The proposed reforms have four distinct cost types: (1) formula equalization payments (GTB for districts and AVEE for charters), (2) a grant appropriation, a credit enhancement reserve/administration cost (mostly one-time or low annual), and Social Security homestead reimbursement. Revenue choices work best when matched to these cost types: stable recurring revenue for formula payments, flexible appropriations for grants, and one-time or capped revenues for reserves. In keeping with the theme of equity, the progressive/regressive nature of each stream must be considered.
1) Close or cap selected tax expenditures/credits
How it funds the reforms: Repealing, capping, or tightening underperforming exemptions/credits can free revenue without raising statutory rates. This is well-suited for funding the grant program (a legislative dial) and can also support equalization formula payments if the savings are stable. Distributional/regressivity: The distributional effect depends on the specific tax expenditure. Many business-oriented credits and high-income deductions can be progressive to reform (least regressive) if they primarily benefit higher-income households or narrow industries. Evidence caution: Research on incentives warns that some incentives are negotiated after firms select a location and may not ‘cause’ the investment, implying that reducing such incentives can raise revenue with limited economic harm (Lincoln Institute; Boston Fed). Design guardrails: Use the state’s incentive evaluation process and sunset/recapture rules; redirect a defined share of verified ‘low-return’ incentives into the Facilities Equalization Fund.
2) Income tax rate adjustment (across brackets)
How it funds the reforms: A modest, broad-based income tax adjustment can be dedicated (in whole or in part) to a Facilities Equalization Fund, providing stable recurring revenue for GTB/AVEE formula payments and a predictable annual grant appropriation. If lawmakers prefer flexibility, the increase can flow to the General Revenue Fund with a statutory formula appropriation for equalization. Distributional/regressivity: Income taxes are generally more progressive than sales and excise taxes because liability rises with taxable income. Oklahoma’s overall tax system is described as regressive largely due to reliance on sales/excise taxes, and policy analysts note that strengthening income-tax progressivity tends to reduce regressivity (ITEP Oklahoma ‘Who Pays’; OK Policy). Design guardrails: (a) Pair any rate increase with an expanded low-income credit or state EITC to protect the bottom quintiles; (b) consider a temporary ‘facilities equalization surtax’ with a sunset/review; (c) earmark only the portion needed for equalization, leaving grants to the annual budget process if desired.
3) Dedicate a fixed share of gross production tax
How it funds the reforms: Gross production tax (severance tax) receipts can be dedicated partially to a Facilities Equalization Fund to pay for statewide facilities infrastructure that supports the workforce pipeline. Because this revenue is volatile, it works best for (a) grants (especially one-time ‘buy down’ of principal), and (b) building/maintaining the credit enhancement reserve, with a smaller stable share supporting GTB/AVEE only if a smoothing mechanism is used. Distributional/regressivity: Severance taxes fall primarily on resource owners/producers and can be less regressive than sales taxes; the incidence can be shared through prices and wages depending on markets, but it is not as directly regressive as consumption taxes. Design guardrails: Use a multi-year average deposit rule (e.g., 5-year rolling average) with a cap-and-floor and a reserve (‘rainy day’) inside the Facilities Equalization Fund so program obligations are not whipsawed by commodity cycles.
4) Earmark a portion of use-tax growth
How it funds the reforms: Dedicating a portion of growth in use-tax collections (especially from remote/online purchases) can provide a politically feasible add-on stream. Because growth is uncertain, this works best as a supplement to grants or to build reserves, rather than as the primary support for formula equalization. Distributional/regressivity: Use taxes function like sales taxes and therefore share regressivity concerns, though dedicating only incremental growth can avoid large rate hikes. Design guardrails: Dedicate only ‘growth above baseline’ so existing budgets are not destabilized and pair with low-income offsets if the use-tax share is substantial.
5) Small state sales tax change
How it funds the reforms: A small increase in the state sales tax rate can generate substantial recurring revenue that is easy to administer. This works well for GTB/AVEE formula payments and grants because it produces steady monthly inflows. Distributional/regressivity: Sales taxes are widely recognized as regressive because lower-income households spend a larger share of income on taxable consumption. ITEP analyses and Oklahoma policy commentary cite heavy reliance on sales/excise taxes as a key reason Oklahoma’s tax system is regressive (ITEP ‘Who Pays’; OK Policy). Design guardrails: If sales tax is used, pair it with an automatic offset such as (a) a refundable sales-tax credit, (b) an expanded state EITC, or (c) targeted rebates for low- and middle-income households, so the net package is less regressive.
6) Tobacco/vape or other excise taxes
How it funds the reforms: Excise taxes are commonly dedicated for specific purposes, and a small dedicated facilities share can help fund grants, safety/security upgrades, or matching funds. Distributional/regressivity: Excise taxes are typically regressive because consumption is not proportional to income and can be higher in lower-income groups. Additionally, excise bases erode over time as consumption falls, so they are not ideal as the primary funding stream for long-term formula payments. Design guardrails: Use excise taxes only as a minor supplement and avoid building core GTB/AVEE obligations on a declining base.
7) One-time surplus transfers for the credit-enhancement reserve
How it funds the reforms: Credit enhancement programs often need a reserve more than large annual appropriations. Seeding the reserve with one-time surplus transfers (or a dedicated share of volatile revenues) lets the state unlock lower interest rates while keeping annual operating costs low. Distributional/regressivity: This is not a tax increase, so regressivity depends on what would otherwise be done with the surplus; it can be paired with progressive or neutral ongoing revenue for formula payments. Design guardrails: Statutorily ring-fence the reserve, require conservative underwriting and state-aid intercept features, and publish annual reserve adequacy reviews.
Which options are least regressive
Regressivity refers to whether a tax requires lower-income households to pay a higher share of income than higher-income households. Analyses of Oklahoma’s tax structure find it regressive largely because sales and excise taxes weigh more heavily on low-income households, while income taxes are comparatively more progressive (ITEP ‘Who Pays’; OK Policy). The ranking below assumes no offsets; pairing regressive sources with refundable credits can materially change the net effect.
| Rank (least → most regressive) | Revenue stream | Regressivity rationale and guardrails (offsets) |
| 1 | Reform/cap selected tax expenditures and credits | Often the least regressive (and sometimes progressive) when reforms target benefits concentrated among higher‑income households or narrow industries. Use sunset/recapture and the Incentive Evaluation process; redirect verified savings to facilities equalization. |
| 2 | Income tax rate adjustment (across brackets) with low‑income protections | Generally more progressive than consumption taxes. Pair with/expand refundable credits (state EITC and/or sales‑tax credit) to protect low‑income filers; consider a time‑limited “facilities equalization” surtax with review/sunset. |
| 3 | Dedicate a fixed share of gross production tax (with smoothing) | Incidence primarily on production/resource owners; typically less regressive than sales/excise taxes but volatile. Use a multi‑year average deposit rule, cap/floor, and a reserve so formula obligations aren’t tied to commodity cycles. |
| 4 | Earmark a portion of use‑tax growth (online/remote purchases) | Use taxes function like sales taxes, so they carry regressivity concerns (moderate‑to‑high). Dedicate only growth above a baseline and pair with refundable credits if the earmark is substantial. |
| 5 | State sales tax rate increase | Broad‑based but regressive because lower‑income households spend a larger share of income on taxable consumption. If used, pair with refundable rebates/credits to reduce the net burden on low‑ and middle‑income households. |
| 6 | Tobacco/vape or other excise tax increases | Typically the most regressive and the base erodes as consumption falls. Best used only as a small, targeted supplement—not for core, long‑term equalization obligations; consider low‑income offsets. |
Note: One-time surplus transfers to seed the credit-enhancement reserve are not ranked here because they are not a tax increase; they are best matched to the reserve component.
Evidence references for regressivity statements (transparency)
- ITEP: Oklahoma ‘Who Pays? 7th Edition’ (tax inequality index / regressivity context): https://itep.org/oklahoma-who-pays-7th-edition/
- Oklahoma Policy Institute summary of regressivity drivers (sales/excise reliance vs. income tax): https://okpolicy.org/new-analysis-low-income-taxpayers-in-oklahoma-pay-more-than-twice-the-tax-rate-paid-by-the-richest-oklahomans/
- Lincoln Institute of Land Policy (property tax incentives cautions): https://www.lincolninst.edu/app/uploads/legacy-files/pubfiles/rethinking-property-tax-incentives-for-business-full_0.pdf
- Federal Reserve Bank of Boston (incentive evaluation cautions): https://www.bostonfed.org/-/media/Documents/cb/effective-use-of-property-tax-incentives.pdf
Sources used for the funding calculations (transparency)
- Oklahoma Tax Commission, 2025 Revenue & Apportionment Report (FY2025 collections; includes individual income tax net of refunds and major tax categories): https://oklahoma.gov/content/dam/ok/en/tax/documents/resources/reports/annual-reports/otc/AR-2025.pdf
- Oklahoma Legislature, HB 2764 Revenue Impact Statement (estimates FY27 decrease of $340.5M; provides a calibration point for rate changes): https://www.oklegislature.gov/cf_pdf/2025-26%20SUPPORT%20DOCUMENTS/impact%20statements/fiscal/Senate/HB2764%20CS%20FI.PDF
- Oklahoma Tax Commission, Businesses—Sales and Use Tax (confirms 4.5% state rate): https://oklahoma.gov/tax/businesses/sales-use-tax.html
- Oklahoma Tax Commission, 2023–2024 Tax Expenditure Report (catalog of exemptions/credits and estimated revenue impacts): https://oklahoma.gov/content/dam/ok/en/tax/documents/resources/reports/tax-expenditure/TaxExpenditureReport-2023-2024.pdf
- Oklahoma State Treasurer, State Tax Revenue Report (12‑month totals used for context, including use tax and gross production tax): https://oklahoma.gov/content/dam/ok/en/treasurer/documents/inside-the-office/economic-reports/tax-revenue-reports/2025/December%202025%20State%20Tax%20Revenue.pdf
Appendix A: What each cell in the handout table means
The embedded handout translates a lease revenue bond payment into an “equivalent mills” burden so the local effort can be compared across districts with different tax bases. Because lease revenue bonds are repaid through annual lease payments (not automatically through a dedicated sinking fund levy), the “equivalent mills” columns are a translation tool: they show how large the lease payment is relative to each district’s adjusted valuation.
Column definitions
District: The district being compared (Kingfisher vs. Seminole).
ADM: Average Daily Membership. Used to measure valuation capacity on a per-student basis and to scale equalization targets fairly.
Adjusted valuation: The district’s taxable property valuation (from the FY25 dataset) used to translate dollars into mills.
Valuation per ADM: Adjusted valuation ÷ ADM. This is the central “tax base per student” measure that drives whether a district is above or below the statewide target.
Annual payment (no reforms): The annual lease payment required to finance the full $20,000,000 over 20 years at the base interest rate (4.50%) with no grant, no GTB/AVEE aid, and no credit enhancement.
Eq. mills (no reforms): Annual payment converted into an equivalent mill burden: (Annual payment × 1,000) ÷ Adjusted valuation. This shows what the lease payment ‘means’ in property-tax terms for that district.
Annual payment (after grant + CE): The annual lease payment after (a) the state grant reduces principal and (b) state credit enhancement reduces the interest rate (assumed 3.75%).
State GTB lease aid (annual): The annual state equalization payment under the Guaranteed Tax Base concept (adapted to lease payments), up to the program cap (10 mills equivalent in this illustration). Districts above the target receive $0.
Net local annual payment: What remains for the district to cover after state supports: (Payment after grant + CE) − (State GTB lease aid).
Eq. mills (net local): Net local payment translated into an equivalent mill burden: (Net local payment × 1,000) ÷ Adjusted valuation.
Mill relief (equivalent): How much local burden is avoided due to the reforms: (Eq. mills no reforms) − (Eq. mills net local). This is the clearest ‘property-tax’ expression of the combined state supports.
What are “equivalent mills”?
Even though a lease revenue bond is paid through an annual lease payment rather than a dedicated sinking fund levy, it is still a real annual cost the district must cover. “Equivalent mills” answers: ‘If this lease payment had to be raised from the local tax base, how many mills would it take?’ This translation is what makes it possible to compare burden fairly across districts, because one mill yields far more in a high-valuation district than in a low-valuation district.
Appendix B: State fiscal impact and funding framework
This section estimates the order of magnitude of what Oklahoma would need to fund from state-level revenue to implement the reforms. Two important cautions apply: (1) equalization payments (GTB for districts and AVEE for charters) are demand-driven and only flow when a district/charter has eligible annual facilities obligations; (2) the size of the facilities grant program is a deliberate legislative budget choice. Accordingly, the figures below are presented as planning ranges with explicit assumptions.
1) GTB facilities equalization (districts): annual formula cost (planning range)
Using the FY25 ADM + adjusted valuation dataset and a 10‑mill equivalent cap, the maximum statewide cost if every below-target district fully utilized the cap is approximately $96,999,509 per year. In practice, not every district will have eligible annual lease or debt payments that require the full cap in every year. A reasonable planning range is therefore presented at 25%, 50%, and 100% utilization of the cap.
| Program component | Low (25% utilization) | Mid (50% utilization) | High (100% utilization) |
| GTB (districts) – 10 mill cap | $24,249,877/yr | $48,499,755/yr | $96,999,5d09/yr |
| AVEE (charters) – 10 mill equivalent cap | $3,404,743/yr | $6,809,485/yr | $13,618,971/yr |
| Total equalization (GTB + AVEE) | $27,654,620/yr | $55,309,240/yr | $110,618,480/yr |
Interpretation: The table above is an equalization-only estimate. It represents the state dollars needed to make a capped level of local facilities effort “count the same” across districts and to provide a comparable equalization lane for charter facilities payments. Actual costs will be lower than the 100% case unless every eligible entity consistently draws the full cap each year.
2) Facilities equalization grants: annual appropriation options
Facilities grants are the largest controllable spending lever in the package because they are appropriated deliberately. A simple way to budget the program is to choose an annual grant budget and then allocate it by a need-based formula (facility condition, enrollment pressure, and valuation/ADM), with higher grant shares for lower-capacity communities. Below are illustrative annual appropriation levels:
- Modest grant program: $150,000,000 per year (enough to buy down principal on a meaningful set of essential projects statewide).
- Moderate grant program: $300,000,000 per year (aggressive acceleration of HVAC/roof/safety backlogs).
- Large grant program: $450,000,000+ per year (rapid statewide modernization, depending on statewide facility backlog).
3) Credit enhancement / bond guarantee: reserve and contingent exposure
Credit enhancement typically has a relatively small direct annual operating cost but may require a reserve fund and careful underwriting. A common budgeting approach is to build a reserve (for example, around 1% of guaranteed par amount) and require state-aid intercept features and financial covenants to reduce default risk. Illustration: supporting $500,000,000 in guaranteed par could imply a ~$5,000,000 reserve target, plus administrative costs.
4) Senior homestead relief for Social Security recipients: reimbursement cost framework
Eliminating residential property taxes for Social Security recipients requires a reimbursement mechanism so schools are not financially harmed. Because eligibility counts and current tax bills vary, the cleanest way to express this fiscal impact is as a formula with transparent assumptions:
Annual state cost ≈ (Number of eligible Social Security homesteads) × (Average reimbursable school-levy property tax per homestead).
Below are illustrative scenarios for reimbursing only the school-levy portion. These can be replaced with more precise Oklahoma-specific counts and average school-levy bills when available.
| Eligible homesteads (illustrative) | Avg reimbursable school levy | Annual state cost | Interpretation |
| 200,000 | $700 | $140,000,000/yr | Lower-bound style scenario |
| 300,000 | $800 | $240,000,000/yr | Mid-range planning scenario |
| 400,000 | $900 | $360,000,000/yr | Higher utilization / higher bill scenario |
Key design note: A full exemption can be paired with guardrails (primary-residence only, re-certification, optional value cap or circuit-breaker design) to keep costs targeted and predictable. The reimbursement appropriation should be separated from the facilities equalization fund so policymakers can see and control each commitment clearly.
Putting the pieces together: annual cost ranges
To combine the reforms, add: (a) equalization formula costs (GTB + AVEE), plus (b) the chosen annual grants appropriation, plus (c) any reserve/administration for credit enhancement, plus (d) the chosen senior-homestead reimbursement design. Because grants and senior relief are policy dials, the total range depends mainly on those two choices.
| Package scenario | GTB+AVEE equalization | Grants appropriation | Credit enhancement (reserve/admin) | Senior school-levy reimbursement | Total annual state cost (illustrative) |
| Example A (lean): | $55,309,240 | $150,000,000 | $5,000,000 | $140,000,000 | $350,309,240/yr |
| Example B (moderate): | $55,309,240 | $300,000,000 | $5,000,000 | $240,000,000 | $600,309,240/yr |
| Example C (large): | $110,618,480 | $450,000,000 | $10,000,000 | $360,000,000 | $930,618,480/yr |
These totals are presented to show scale and how each policy dial affects the overall cost. The equalization numbers are grounded in the FY25 valuation/ADM dataset with a 10‑mill cap; the grants and senior-relief costs should be set using Oklahoma-specific project pipelines and homestead data.
Appendix C: State cost compared to taxpayer savings (district taxpayers and Social Security households)
This appendix compares what the state pays (from statewide revenue) to what local taxpayers and eligible Social Security households save. Most of the facilities equalization package is a transfer: state dollars replace local dollars, which shows up as lower local burden. The main additional savings beyond the transfer comes from lower interest costs produced by credit enhancement (assuming the state can reduce rates).
C.1 Project-level comparison: $20,000,000 project financed with 20-year lease revenue bonds
| District | State cost: grant | State cost: GTB aid (20-yr sum) | Total state cost (20-yr sum) | Local annual payment (no reforms) | Net local annual payment (after reforms) | Local savings (20-yr sum, nominal) |
| Kingfisher | $4,000,000 | $0 | $4,000,000 | $1,537,523 | $1,151,394 | $7,722,587 |
| Seminole | $8,000,000 | $7,492,055 | $15,492,055 | $1,537,523 | $488,942 | $20,971,609 |
Reading this table: the state’s costs shown here are the grant dollars and equalization (GTB) dollars that replace what would otherwise have to be paid locally. The local savings shown is the reduction in what the district/community must cover annually (and over 20 years) compared to the no‑reform case.
C.1a Additional savings created by lower interest rates (not a one‑for‑one transfer)
| District | Interest savings over 20 years (nominal) | Assumption |
| Kingfisher | $1,572,495 | Rate reduced from 4.50% → 3.75% on the post‑grant financed amount |
| Seminole | $1,179,371 | Rate reduced from 4.50% → 3.75% on the post‑grant financed amount |
These interest savings represent an efficiency gain: they reduce total payments without requiring the state to write an equal-sized check. The state’s direct cost for credit enhancement is usually a reserve/administration amount that is much smaller than the savings it can unlock, assuming careful underwriting.
C.1b What the “mill relief” means for a homeowner (illustrative)
| Taxable value (home) | Seminole annual $ savings (mill relief = 18.47) | Kingfisher annual $ savings (mill relief = 2.72) |
| $20,000 | $369 | $54 |
| $30,000 | $554 | $81 |
| $50,000 | $923 | $136 |
This homeowner table is an equivalency illustration. Lease payments are not automatically levied as mills, but the equivalent mills translation shows the local burden being avoided relative to each district’s tax base.
C.2 Social Security homestead relief: state cost equals household savings (by design)
If Oklahoma eliminates residential property taxes for eligible Social Security households and reimburses districts for the exempted school‑levy amount, then the state’s cost is essentially the same as the household savings (plus administration). The fiscal question becomes: how many eligible homesteads, and what average reimbursable school‑levy amount per homestead?
| Eligible homesteads (illustrative) | Avg reimbursable school levy | State reimbursement cost (annual) | Household savings (annual) |
| 200,000 | $700 | $140,000,000/yr | $140,000,000/yr |
| 300,000 | $800 | $240,000,000/yr | $240,000,000/yr |
| 400,000 | $900 | $360,000,000/yr | $360,000,000/yr |
C.3 Statewide comparison: equalization costs vs. local savings
For GTB/AVEE equalization, the state’s annual cost is primarily a transfer that replaces local dollars. Under the mid‑utilization illustration in Appendix B (50% utilization of the 10‑mill caps), the state would pay about $55,309,240/year in equalization. That same amount is, by definition, approximately the statewide reduction in local burden across participating districts and charters.
Facilities grants behave similarly: a $300M annual grant appropriation is $300M less principal that locals must finance, plus the interest that would have accrued on that principal. Credit enhancement adds a separate layer: it can create interest savings that exceed the state’s direct reserve/administration cost, producing net efficiency gains.
| Component | State fiscal impact | Who benefits | Savings vs. state cost | ||||
| GTB equalization (districts) | Annual formula aid (demand-driven; capped) | Local district taxpayers | Mostly transfer: state cost ≈ local savings | ||||
| AVEE equalization (charters) | Annual formula aid (demand-driven; capped) | Charters (less operating diversion) | Mostly transfer: state cost ≈ local savings | ||||
| Facilities grants | Annual appropriation (budget dial) | District/charter communities | Transfer + avoided interest (savings ≥ state cost) | ||||
| Credit enhancement | Reserve/admin; contingent exposure | Borrowers (lower interest) | Efficiency gain: savings can exceed direct outlay | ||||
| Social Security homestead relief | Reimbursement appropriation | Eligible Social Security households | Direct transfer: state cost ≈ household savings | ||||
| Scenario (annualized) | Annual state cost (illustrative) | % of FY25 net individual income tax | Income tax change needed (pp) using HB2764 calibration | Implied new top rate (if top rate = 4.50%) | Notes | ||
| Facilities only (moderate grants) | $360,309,240 | 7.3% | 0.26 pp | 4.76% | Covers equalization + grants + credit enhancement (excludes senior homestead) | ||
| Example A (lean, incl. senior relief) | $350,309,240 | 7.1% | 0.26 pp | 4.76% | Includes senior homestead reimbursement scenario shown earlier | ||
| Example B (moderate, incl. senior relief) | $600,309,240 | 12.2% | 0.44 pp | 4.94% | Includes senior homestead reimbursement scenario shown earlier | ||
| Example C (large, incl. senior relief) | $930,618,480 | 18.9% | 0.68 pp | 5.18% | Includes senior homestead reimbursement scenario shown earlier | ||
| Potential revenue stream | Illustrative annual yield | Why it fits | Design notes (guardrails) | ||||
| Income tax rate adjustment (across brackets) | ≈ $340M per ~0.25 pp (FY27 calibration); see table above | Broad base; grows with economy; can be targeted with low-income credits if desired | Could be temporary “facilities equalization surtax” with sunset/review; maintain triggers/guardrails | ||||
| Dedicate a fixed % of gross production tax to a Facilities Equalization Fund | $101,972,812 (10% of FY25 gross production collections) | Energy revenues already fluctuate; dedicating a share can stabilize long-run infrastructure investment if paired with smoothing | Use a multi-year average or cap/floor to avoid boom-bust; keep GRF protected with reserve rules | ||||
| Small state sales tax rate change | +0.10 pp ≈ $77,859,811/yr; +0.25 pp ≈ $194,649,528/yr (based on FY25 state sales & use) | Broad base; easy to administer; pairs well if you want to minimize income-tax reliance | Because sales taxes are regressive, pair with targeted rebates/credits or exempt necessities (food already exempt at state level) | ||||
| Close or cap selected tax expenditures / credits and redirect savings | Varies; depends on which expenditures are reformed (see OTC Tax Expenditure Report) | Reduces need for long-term abatements by investing in statewide fundamentals (schools) instead | Use the Incentive Evaluation Commission process; sunset/recapture underperforming credits; protect truly high-return programs | ||||
| Earmark a portion of use-tax growth (out-of-state and internet purchases) | Illustrative: 5% of the $1.2B use-tax stream reported in 12‑month totals would be ~$60M/yr | Ties funding to modern commerce growth; politically easier than raising rates | Use ‘growth above baseline’ rather than base amount to avoid destabilizing existing budgets | ||||
| Increase tobacco/vape or other health-related excise taxes with a dedicated facilities share | Varies | Aligns revenue with public-health externalities; often used for dedicated purposes | Dedicate only a portion (excise bases erode over time); pair with stable sources | ||||
| Bond/credit enhancement reserve funded from one-time surplus transfers | One-time seed (e.g., $25M–$100M) rather than annual | Credit enhancement often needs a reserve more than ongoing operating dollars | Statutorily ring-fence the reserve; independent actuarial review; conservative underwriting | ||||
| Revenue option | Regressivity (no offsets) | Best use in this package | How to make it less regressive | ||||
| Reform/cap high-income or narrow tax expenditures | Least regressive (often progressive) | Grants + equalization | Target reforms to credits/deductions concentrated at top incomes or narrow industries | ||||
| Income tax adjustment with low-income protections | Low regressivity (more progressive) | Equalization + grants | Add/expand refundable credits (EITC/sales tax credit), protect low-income filers | ||||
| Gross production dedication with smoothing | Moderate (incidence mainly on production; volatile) | Grants + reserves; limited equalization | Use smoothing + avoid replacing stable funding with volatile sources | ||||
| Use-tax growth dedication | Moderate-to-high (similar to sales tax) | Supplement grants/reserves | Dedicate only growth + pair with refundable credits | ||||
| Sales tax rate increase | Most regressive | Equalization + grants (if used) | Pair with refundable credits/rebates; consider exemptions/credits for essentials | ||||
| Excise taxes (tobacco/vape) | Highly regressive + eroding | Small targeted supplements | Keep small; pair with low-income offsets; do not fund core obligations | ||||
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