aWhat we know: The new fiscal year begins July 1 and Oklahoma legislators went home last month without approving a budget.

What's new: House and Senate leaders Thursday agreed to a budget framework.

What's next: Budget subcommittees will begin appropriations work Friday; the special session may be wrapped up a week later.

House, Senate strike budget deal

n Includes $3,000 teacher pay raise, but not across the board

State government will not start the new fiscal year July 1 without a budget, thanks to a belated budget agreement Thursday that gave House Republican and Senate Democrat leaders what they wanted.

With the framework announced Thursday, budget subcommittee members can begin making their appropriations on Friday.

House Speaker Todd Hiett, R-Kellyville, expects the full Legislature to resume special session Wednesday and have the entire business wrapped by June 23.

“You didn’t think we’d get here, did you?” said Senate President Pro Tempore Mike Morgan, D-Stillwater, in noting the wait for a budget agreement

House Republicans are thrilled the agreement will include tax cuts exceeding $612 million by 2010. The state income tax rate will fall gradually from the present 6.25 percent to 5.25 percent four years from now, and the estate tax will be phased out over three years.

The estate tax exemption will climb from $1 million to $2 million next year and $3 million in 2008 before its repeal in 2009.

Hiett noted the $150 million tax reduction from last year was the state’s largest, and the new agreement more than quadruples it.

The agreement will boost funding for state roads and bridges by an additional $270 million and will double funding for county roads and bridges from $85 million to $170 million. That was an area where Hiett and Morgan apparently agreed early in the process.

“Absolutely, without question, this will rev up the Oklahoma economy,” the House speaker said.

Morgan, who said weeks ago he wouldn’t cut taxes if he had his way, fought for and succeeded in raising the standard deduction for state income taxes up to the federal level. That, too, will be phased in, but the Senate leader said it will allow 45,000 moderate-income households in Oklahoma to not owe state income taxes.

Teachers will get the $3,000-per-year raise the Democrats wanted, but that will be the average instead of across the board. Morgan said $147 million will be budgeted for the raises, but legislative committees will decide how it will be spent.

State employees will receive a 5 percent pay increase beginning Oct. 1, and school support staff will get a 50 cent-per-hour raise.

Higher education will get a $210 million increase, though $40 million of the $120 million the University of Oklahoma and Oklahoma State University were going to get for research will be shifted to regional universities for one-time capital projects.

Morgan often talked of not wanting to throw Oklahomans under the bus with the budget. Before explaining budget details, he said residents now “own the bus.”

Hiett and Morgan both but separately - they held separate press conferences - described the negotiation process as long, difficult and contentious.

Gov. Brad Henry ordered a legislative special session on May 25, the next to last day of the Legislature’s regular session, after all hope ended of House and Senate majority leaders agreeing to a budget during the regular session.

Hiett’s priority was to end the estate tax and reduce the top income tax rate from 6.25 to 5.5 percent. Morgan sought a $3,000 across-the-board raise for teachers and a 5 percent raise for state employees, among other things.

The governor proposed a budget compromise on May 15 that included $2,400 pay raises for teachers, record spending for education, health care, public safety and other services, phasing out the estate tax and cutting the income tax rate to 5.5 percent.

Hiett endorsed it the following day, but Senate Democrats quickly rejected it.

Hiett and Morgan had off-and-on negotiating sessions since the regular session ended, with frustrations appearing to reach a new high last week. Leaders met throughout the day Thursday with a new sense of anticipation that an agreement finally might be reached.

By mid-afternoon, it was done.

James S. Tyree is CNHI News Service Oklahoma reporter.