Oklahoma’s Fallin Weighs Possible Effects of U.S. Defense, Education Cuts

U.S. spending cuts under President Barack Obama’s plan to reduce the national debt may curb military budgets and hurt the Oklahoma economy, Governor Mary Fallin said.

The state may also be affected by cuts in education aid and highway funding by the Joint Select Committee, said Fallin, 56, a Republican who took office in January. The committee is charged with finding $1.5 trillion of spending cuts over 10 years under a debt-reduction deal Obama reached with Congress.

Defense-spending cuts “will have an impact,” Fallin said in an interview at Bloomberg headquarters in New York. “We’re watching what Congress is doing. We have to be wise.’”

Federal civilian and military spending accounted for about 5.7 percent of Oklahoma personal income in 2009, according to the state’s 2010 financial report. The state also depends on manufacturing, including some military, for 8.2 percent of personal income.

State and local economies may be hurt by cuts in federal spending on Medicare, Medicaid and other so-called entitlement programs, said Natalie Cohen, senior analyst with Wells Fargo & Co. in a report dated Aug. 16. States derive 28 percent of their revenue from federal sources, according to the report.

Though Oklahoma takes funding for highways, Fallin has rejected $54.6 million of payments to establish insurance exchanges under Obama’s plan to overhaul the health-care system. The state is receiving $589.7 million under the National Highway Trust Fund, according to data compiled by Bloomberg Government.

Tax Cut

The state closed a $500 million deficit in its fiscal 2012 budget by cutting education spending and reducing allocations to other programs, Fallin said. Oklahoma also lowered its top personal income-tax rate by 0.25 percentage point, to 5.25 percent.

The governor has been visiting other states, such as Illinois, to try to lure companies to relocate by promoting the tax cut and other initiatives designed to attract new businesses. Oklahoma had a 5.3 percent unemployment rate in June, one of the lowest in the U.S.

To contact the reporter on this story: Darrell Preston in Dallas at dpreston@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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