The Oklahoma Board of Equalization in late December estimated a $6,059,238,267 budget for the state for fiscal year 2017. That is $900,800,000.00 (13 percent) below the state budget estimate.
And the situation will likely get worse.
The Office of Management and Enterprise Services announced state agencies will receive a 3-percent cut for the remainder of Fiscal Year 2016,
The price of a barrel of oil fell to way below $40 – the lowest price since July of 2004 – that is having a dramatic impact on state tax revenue. And it is having a negative impact on employment in Oklahoma.
Oklahoma Secretary of Finance Preston Doerflinger predicted the deficit would go past $1 billion by February unless the price of oil rises sharply.
“It is going to be a very challenging budget year,” Oklahoma Gov. Mary Fallin said.
Fallin has informed state agencies to begin plans for a 10 percent across-the-board budget cut and to look for surplus property to sell to prop up the revenues.
Under state law, Fallin will use the estimate approved in December to build the executive budget that will be presented to the Legislature when it convenes Feb. 1.
All major tax categories are trending down for FY 2017 following an oil price drop of 70 percent in the past 18 months that has caused Oklahoma to shed 11,600 energy jobs and shutter 59 percent of its oil and gas rigs.
The board will meet again in February to make a second estimate that will be used by the governor and legislators to determine FY 2017 appropriations levels for state agencies.
“As always, February’s number matters more than December’s,” said Doerflinger. “We don’t expect it to get better, so we’ve been fully engaged since summer with agencies and legislators to partner in rising to this challenge.”
By law, Rainy Day Fund appropriations and certain revolving fund authorizations are not factored into the board’s estimates. With those spending areas considered, there will be nearly $1.1 billion less to appropriate next session than was appropriated for FY 2016.
“The board’s number today is $900.8 million, but in reality this is a hole of over a billion dollars that probably grows in February unless there is a dramatic oil price turnaround,” Doerflinger said. The board also received an updated FY 2016 revenue estimate that projects a shortfall for the fiscal year, which began July 1 and ends June 30, 2016. The updated estimate projects collections will miss the official estimate by 7.7 percent, or $443.3 million.
By law, if GRF collections are projected to fall more than five percent below the estimate for the remainder of the fiscal year, the OMES director must declare a revenue failure and initiate mandatory appropriation reductions to end the shortfall and maintain a balanced budget.
“Each agency receiving monthly general revenue allocations will see those allocations reduced between two and four percent. When the precise amount is determined later this month, my office will formally declare revenue failure and cause allocations to be reduced accordingly beginning in January,” Doerflinger said.
To end the projected shortfall, at least $157 million will need to be cut through an across-the-board reduction of monthly general revenue allocations to agencies. Most, but not all, appropriated agencies receive monthly general revenue allocations.
Doerflinger is director of OMES, which works with the Oklahoma Tax Commission to prepare the revenue estimates that are presented to the Board of Equalization.
“Today’s certification of revenue figures makes clear that the state faces a difficult budget situation, and that the Legislature must act to ensure that we do not face such a challenge in future years,” said Senate President Pro Tempore Brian Bingman, R-Sapulpa. “The Senate stands ready to make the tough decisions that will be necessary to guide the state through these difficult times, and reduce the likelihood of future shortfalls.
“The Legislature must move away from a reliance on using one-time monies to fund ongoing expenditures, and we must address the structural issues that are reducing the amount of revenue available to the Legislature for discretionary spending. Additionally, we will continue our efforts to review ineffective tax credits and tax exemptions, eliminating those exemptions that are not providing us with a return on our investment.”