OKLAHOMA CITY -- Gov. Brad Henry said Wednesday he hopes to spend some of the $400 million surplus expected for the upcoming fiscal year on economic development, research and teachers' retirement.

"We want to invest these funds with the future in mind," the governor said.

The money is part of about $1 billion in additional growth, excess revenue and cash that state leaders will be making plans for during the upcoming legislative session.

The $400 million-plus surplus is what will accrue above the "rainy day" fund cap. This marks the second year in a row the state is expected to have excess revenue.

The governor announced Wednesday that he wants $300 million split among a new economic development fund, a research endowment and lowering the unfunded liability of the Oklahoma Teachers Retirement System.

Henry announced earlier that he wants to divide the other $100 million evenly between repairs for the worst state and county bridges.

Speaking at the annual Associated Press Legislative Workshop, Henry said he wants to use $100 million to create an Economic Opportunity Fund, modeled after a similar fund in Texas.

Henry said such a fund would give the state an almost immediate way to offer business and industry prospects financial incentives for locating in Oklahoma.

"Many times when Oklahoma or one of its communities makes the short list of contenders in a job competition, we can't react fast enough to provide requested incentives," said the governor.

Most major financial incentives Oklahoma offers must be approved by lawmakers, an additional step many states do not require.

"I think the governor should have pretty wide latitude," Henry said, adding that he understands the Legislature will want some oversight.

Henry said leaders might consider a separate panel of economic development professionals, business leaders and the like.

Henry said the incentives would ultimately have to be paid back.

The governor also wants to add $100 million to the initial $92 million in surplus placed into the Economic Development Generating Excellence research endowment fund last session.

Henry is taking a wait-and-see stance on general tax cuts proposed for this session.

The governor is proposing some targeted tax cuts that he thinks will help the economy. He said last session's rebates did the state's economy some good, because taxpayers tended to spend them.

For this session, Henry is supporting a back-to-school sales tax holiday during the first weekend in August. The proposal carries a price tag of about $3.8 million.

He also wants to expand the retirement income tax exemption.

Under Henry's proposal, all retirement income would be exempt from taxation for single pensioners with incomes of $25,000 or less and married couples with incomes of $50,000 or less.

Current law gives a $10,000 exemption for single retirees with incomes of $37,500 or less and couples with incomes of $75,000 or less.

This would cost $13.9 million in fiscal year 2007 and $34.75 million for a full year.

Henry also wants to expand the current estate tax exemption to collateral heirs, such as brothers and sisters. These individuals would receive an exemption half that of the exemption of lineal heirs such as children.

This would cost about $23.4 million per year.

The governor urged leaders to be careful in making decisions on how to spend the state's financial largesse this session.

"It's true that we have growth revenues this year," he said. "The economy is booming. But that will not always be the case, and you can bank on that."

Henry pointed out that when he took office three years ago, the rainy day fund was depleted and the state faced about a $700 million shortfall.

Henry is proposing increasing the cap on the rainy day fund from 10 percent of the previous year's certified general revenue to 15 percent.

The governor also unveiled an initiative to help counties, including $18.5 million to reimburse them for revenues lost due to property tax breaks granted to manufacturers and $5.2 million to reimburse counties that house inmates and juvenile offenders. Henry previously announced a $50 million proposal for repairing county roads and bridges and $11 million in state emergency funds to pay counties for amounts spent for previous disasters.

Marie Price (405) 528-2465
marie.price@tulsaworld.com