Budget & Tax

Oklahoma budget shortfall looms

March 20, 2020

Ray Carter

In the past year, Oklahoma state government’s total savings have reached $1 billion, a historic level. But much of that money may soon be gone due to the economic repercussions of declining oil prices and the COVID-19/coronavirus event.

“This is the reason that last year I forced us to save an extra $200 million,” Gov. Kevin Stitt said. “If we wouldn’t have done that—and now we have the largest savings account in state history—we would be in a world of hurt this year.”

Stitt made those comments during a recent Facebook live event hosted by Dr. Larry Bookman, president of the Oklahoma State Medical Association.

Lawmakers were already expected to face a shortfall of $85.5 million for the 2021 budget that they will draft during this year’s legislative session, but that number has increased dramatically since that time, and Stitt said collections are also expected to fall short of the amount budgeted for the current budget year.

“We’re looking at a potential revenue shortfall for fiscal year 2020,” Stitt said. “We had budget meetings today on that.”

At the same time, he said officials are looking at a “fiscal recast” for the 2021 budget, which is the budget lawmakers will draft during this session. When lawmakers announced they were restricting access to the Capitol and potentially adjourning for an extended period of time in response to COVID-19/coronavirus, officials were asked where budget estimates stood. House Speaker Charles McCall, R-Atoka, only said that “budgeting teams” were “already looking at what the numbers will likely be at the end of the 2020 budget. Those are being considered and those numbers are being calculated.”

According to The Oklahoman, Senate Appropriations Chairman Roger Thompson, R-Okemah, now says the shortfall for the 2021 budget may be another $450 million to $500 million. Combined with the $85.5 million shortfall certified in February, that would bring the total decline for the 2021 budget to nearly $600 million.

The projected shortfall for the 2021 budget does not appear to account for the new spending mandated by Medicaid expansion. The governor has said Medicaid expansion will cost $150 million more per year, but a prior state report showed it could cost up to $374 million annually.

Thompson previously told The Journal Record that a $100 million shortfall is possible for the 2020 budget.

Stitt did not cite specific numbers during his interview with Bookman but said state savings will be tapped to address the shortfalls.

“I’m planning on dipping into that,” Stitt said. “Because my whole goal with protecting and putting (money in) the savings account is so we never cut core services, or when we do we can do it less than you’d have to without the savings. That’s absolutely what it’s there for is to smooth out earnings, and smooth out expenses.”

Of the $1 billion now held in reserve, $200 million was placed into the state’s Revenue Stabilization Fund last year. Money in that fund can be spent with little restriction.

However, the other $800 million in savings is in Oklahoma’s Constitutional Reserve Fund, often called the “Rainy Day Fund.” The Oklahoma Constitution mandates that three-eighths of savings in that fund can be used to make up a shortfall in the current year’s collections, while another three-eighths can be used to address shortfalls in the pending-year budget, and one-fourth can be used for “emergency” spending.

Under the Oklahoma Constitution, emergency spending requires a declaration by the governor that emergency conditions exist, and two-thirds of lawmakers in the House of Representatives and Senate must support the appropriation, or a joint declaration of emergency conditions can be issued by the Speaker of the House of Representatives and the President Pro Tempore of the Senate. In that instance, three-fourths of the members of the House of Representatives and Senate must support the emergency spending.

That means $300 million in the Rainy Day fund can be used for any shortfalls in the 2020 budget that occur before the end of June, while another $300 million can be used to address any shortfalls in the 2021 budget, and $200 million can be used for an “emergency” appropriation.

Stitt’s decision to place an additional $200 million into savings during the 2019 session was strongly opposed by some interest groups and lawmakers, including one senator who said during a May 2019 debate, “I don’t believe we’ll have another economic downturn over the next few years.”

By placing money into savings, Stitt and lawmakers restricted spending growth in state government. The governor said that decision is paying off today.

“The best time to save is when we have budget surplus,” Stitt said, “because revenue doesn’t just always increase every single year, and here we are 12 months later facing this situation.”