Budget & Tax

Senate leader: State budget was in trouble before virus

March 26, 2020

Ray Carter

When the State Board of Equalization approved the revenue estimates used by lawmakers for budget writing, the state faced a shortfall of $85 million. Things have gotten much worse since that February meeting due to the COVID-19/coronavirus event, but Senate President Pro Tempore Greg Treat said the budget’s downward spiral preceded even the virus outbreak.

“The oil and gas industry, even before this (virus) spread, was having difficult times across the globe, including here in Oklahoma,” said Treat, R-Oklahoma City. “So we were seeing some downward forecasting even from the February certification.”

He said the COVID-19 event has “worsened” the situation and Treat indicated lawmakers will effectively ignore official certification numbers and use far more conservative figures when drafting the 2021 state budget.

“We’re trying to be prudent and make sure that we forecast appropriately,” Treat said. “We cannot go back and recertify the February number because constitutionally that’s what we are using, but I think you’ll see us be much more prudent and use more realistic numbers on a going-forward basis.”

The state has a record of $1 billion in savings, divided between the Revenue Stabilization Fund and the Constitutional Reserve Fund, typically called the “Rainy Day Fund.” The latter fund holds $800 million, and the Oklahoma Constitution mandates that three-eighths of savings in that fund can be used only to make up a shortfall in the current year’s collections, while another three-eighths can only be used to address shortfalls in the pending-year budget, and one-fourth can be used for “emergency” spending.

In contrast, the $200 million in the Revenue Stabilization Fund can be tapped at any time.

“From a budgeting standpoint, the Rainy Day Fund has more parameters and more restrictions on being able to use that money,” Treat said. “We’re currently in those situations, so I think you will see us look at Rainy Day Fund to be able to help fill some of these gaps.”

He expects a “revenue failure” will be declared that allows the use of “rainy day” money to address shortfalls in the current budget year.

“As far as the amount, that’s still in flux,” Treat said.

The figures discussed publicly indicate the combined shortfalls for the 2020 and 2021 budget years may total in the $700 million to $800 million range.

It’s possible the shortfall could grow in the weeks ahead, depending on how long the government-ordered shutdown of economic activity continues during the pandemic. That could lead lawmakers to delay action on the state budget until closer to the constitutionally mandated end of the legislative session in late May in order to ensure revenue estimates reflect reality as much as possible.

But Treat said challenges associated with the virus complicate not just financial estimates, but logistics.

“That’s a real difficult calculation at this point,” Treat said. “We’re trying to listen to health care experts about when the wave will continue. As we’re flattening this curve it pushes the time frame out as far as I can see of how long the virus will be with us, which is a good thing that it’s not peaking and overwhelming our health care resources. But it pushes that curve out and there are some estimates that it may be worse at the end of May, early June, which would be very close to sine die time. So there’s a balancing act of making sure that we have the best information available when we pass a budget, but also not waiting so long that the virus is actually at a worse point when we come back into the Capitol.”

Lawmakers have not been in session at the Capitol since March 17 and Treat said it is not known when they will return. But whenever they do, he said lawmakers will address both policy issues and budget legislation.

“It’s not just limited to the budget,” Treat said. “We are interested in making sure that Oklahoma’s economy performs well.”

Treat said senators are in the process of identifying policy measures that “must get to the finish line” to address the state’s most pressing needs this year.

“A lot of this is still in flux,” Treat said. “I don’t know when we’re going back to the Capitol, but we are very much mindful that there’s not going to be a lot that goes to the governor’s desk this year.”

Members of the Oklahoma House of Representatives have authorized proxy voting, which will allow a handful of members to vote for nearly all members of the 101-member chamber. Treat said similar action is not being considered in the Senate.

“At this point, I don’t have any intention of doing that,” Treat said. “I want to make sure that when we have the meeting that we take appropriate precautions as far as distancing and those types of things, but we are not entertaining proxy voting at this time.”