Budget & Tax

Lawmakers advance budget bills despite governor’s objection

April 7, 2020

Ray Carter

Members of the Oklahoma Legislature have sent three bills to the governor to address a shortfall in the current state budget, even though an apparent dispute with the governor led to the cancellation of a meeting of the committee that officially certifies shortfalls.

The state Board of Equalization was scheduled to meet on Monday, April 6, to certify a $416 million shortfall in the ongoing state budget year, which runs through June 30. The fiscal year 2020 (FY20) shortfall was driven by both falling oil prices and the economic impact of government-ordered business closures to suppress the spread of the COVID-19 virus.

Most of the statewide-elected officeholders who comprise the board's membership were awaiting the start of the meeting online when the cancellation was abruptly announced. (The meeting was being conducted through a video service due to virus concerns.)

Stitt’s office subsequently sent a release saying the meeting had been postponed because of an unnamed “technical issue in the legislation passed by the House of Representatives to address the revenue shortfall in the Fiscal 2020 budget” earlier that morning.

Stitt said he would sign Senate Bill 1053, which would take $201 million from the state’s Constitutional Reserve Fund, typically called the “rainy day” fund, and shift that money to the state’s Revenue Stabilization Fund to use in propping up agency budgets for the remainder of the current fiscal year.

However, SB 1053 was just one of three budget bills advanced.

“We have to resolve some additional items before the Board of Equalization can certify the full revenue failure of $416 million,” Stitt said. “I look forward to working with the House and Senate over the next week to negotiate the budget for the remainder of this fiscal year and for FY21.”

No date was immediately announced for the rescheduled Board of Equalization meeting.

Despite Stitt’s announcement, members of the Senate subsequently convened and approved all three budget measures approved by the Oklahoma House of Representatives earlier the same day, sending the bills to Stitt to be signed or vetoed.

When asked if Stitt would veto the other two bills, a spokesman responded, “That decision has not been made. Governor Stitt will review the bills once they are formally received.”

In addition to SB 1053, lawmakers also approved Senate Bill 199 and Senate Bill 617.

Senate Bill 199 moves three-eighths of the money now in the state’s “rainy day” fund, or $302 million, and places it in the state’s general revenue fund to address the FY20 shortfall.

Senate Bill 617 alters statutory language regarding the conditions and procedures for withdrawal of funds from the Revenue Stabilization Fund for FY20, allowing the director of the Office of Management and Enterprise Services (OMES) to withdraw up to one half of the highest balance during FY20.

The $503.9 million in combined funding withdrawn from the “rainy day” fund by SB 199 and SB 617 exceeds the expected $416 million shortfall for FY20. Senate Appropriations Committee Chairman Roger Thompson noted that $416 million figure does not include an expected shortfall to the state’s “1017 Fund,” which goes to public schools. He said that fund is expected to have an additional shortfall of $23 million to $42 million this year, although officials are not yet certain how big that shortfall will be.

“It is somewhat in flux,” said Thompson, R-Okemah.

Lawmakers in both chambers said placing money into the Revenue Stabilization Fund would allow policymakers greater ease in addressing shortfalls without additional legislation.

“By moving it over into the Revenue Stabilization Fund, it gives a great deal of flexibility for the director of the Office of Management, OMES, to be able to use whatever funds are needed to make sure education stays whole,” Thompson said.

Any money deposited into the Revenue Stabilization Fund that is not spent addressing the 2020 budget shortfall can be used for the 2021 budget shortfall or future needs, officials said.

“It’s not going anywhere,” said House Appropriations and Budget Committee Chairman Kevin Wallace, R-Wellston. “Our hands aren’t tied with it. And it’s really a good place to park it.”

Thompson said the state is expected to receive $1.5 billion from the federal government, and $844 million of that total can be used for virus-related spending at state agencies. However, those funds cannot be used to address shortfalls.

“When we talk about the federal money coming in with COVID funds, you need to keep in mind, members, that those cannot be used to backfill any budget holes,” Thompson said. “They’re used only for COVID-19/coronavirus expenses.”

Lawmakers could face significant challenges when drafting the budget for the 2021 budget year, which begins July 1. Officials are not yet sure how large the shortfall will be compared to the amount originally appropriated for FY20. Current economic conditions are driving tax collections well below earlier estimates.

“Certainly, we’re working on FY21, but we need probably until the first of May or so that we begin to see what the funds are actually going to be,” Thompson said.

He called current revenue projections for the 2021 budget year “a moving target.”

“Right now, we have oil that is down to about $27 a barrel,” Thompson said. “That’s underneath the estimate for this next year.”

He noted sales tax collections are also down and use taxes on online purchases have not significantly increased even though people are now confined to their homes and presumably ordering more goods online.

“We’re down a little over $13 million so far in sales tax,” Thompson said. “We don’t know what that’s going to look like the remainder of this particular year.”

Senate Minority Leader Kay Floyd noted that tobacco taxes are also coming in below projections and suggested that may be tied to tax hikes enacted in 2018.

“I notice that we’re also down on tobacco-product tax—$743,000,” said Floyd, D-Oklahoma City. “Do you think that’s a result of increasing the price of tobacco and cigarettes, the action we took two years ago?”

“That was our goal at that particular time to begin to move that population down,” Thompson said.

All three budget measures passed unanimously in the Oklahoma House of Representatives and each passed 39-1 in the Senate. Both chambers adjourned with no set date for reconvening.