Budget & Tax

Ray Carter | December 12, 2019

State savings may increase even in flat budget year

Ray Carter

State lawmakers will likely face a flat budget in the 2020 session, with possibly less revenue than what was certified last year.

But state savings could increase, nonetheless.

“I think the biggest thing we’re going to be hit with this year is the Revenue Stabilization Fund,” said Senate Appropriations Committee Chairman Roger Thompson, R-Okemah. “Once we hit $6.6 billion, that’s an automatic deposit of an estimated $209 million. So whatever surplus you’re running, it could go into savings right off.”

In 2016, lawmakers voted to create a Revenue Stabilization Fund that would hold any oil-and-gas tax collections that exceed a rolling five-year average. While the pending budget year’s revenue collections are expected to be unchanged or lower, the window used to calculate the five-year average trigger for the revenue fund will shift, which could result in triggering the savings-deposit law.

“We’re going to be over $6.6 billion, so I look for that to be triggered,” Thompson said.

The Oklahoma State Board of Equalization will meet later this month to certify the amount of revenue available for lawmakers to appropriate. The board will meet again in February to finalize the revenue certification that will guide the appropriation process in the 2020 session.

Mike Mazzei, Gov. Kevin Stitt’s secretary of budget, has previously said officials “may be lucky to just be working with the same revenue scenario that we had last year, let alone any growth.”

Even though $209 million may be placed into savings in a year of an otherwise standstill budget, lawmakers could benefit elsewhere from other unspent funds that become available for appropriation this year.

Once the Oklahoma State Board of Equalization certifies revenue, lawmakers are restricted to appropriating no more than 95 percent of the projected amount. As a result, a 5-percent “cushion” is built into the system to help with cash flow needs at the beginning of the next fiscal year and so that budget cuts are not required if actual tax collections fall short of the certified estimate. It is only when collections fall below 95 percent of estimates that budget cuts become mandatory.

Under the state’s finance system, when revenue collections exceed 100 percent of the estimate, the surplus is deposited into the state’s “rainy day” savings fund.

But when collections run between 95 percent and 100 percent of estimates, the cash captured in that 5-percent “cushion” is used to help with cash flow needs for the beginning of the year and can carry over and be spent in the subsequent budget year. For the current state budget, the 5-percent cushion translates into as much as $360 million to help with cash flow and that could be available for lawmakers to spend in the FY21 budget that will be drafted during the pending legislative session.

The state budget year begins in July and runs through June of the following year. House Appropriations and Budget Chairman Kevin Wallace, R-Wellston, noted collections for the current budget year have mostly been on pace with projections.

“Currently, through the first quarter, we were just above 100 percent of the estimate,” Wallace said. “So realistically, we want to be at 100 percent. That means everybody did a great job on the estimate, dollars are there for the budget.”

Lawmakers could prevent the $209 million deposit by changing the trigger law that requires placing money into the Revenue Stabilization Fund. Lawmakers have made similar changes in the past.

However, Gov. Kevin Stitt has made increased state savings a priority of his administration.

At a forum in April, Stitt said, “My goal at the end of four years is to have $2 billion in savings. Two billion in savings will allow Oklahoma to weather another downturn where we won’t have to cut core services. It’s so important for our state. Two billion is not very much when you think about the size of our overall budget. We spend about $18.9 billion.”

Mazzei recently said Stitt wants to improve the state’s credit rating and that the major credit-rating agencies all say Oklahoma needs to “keep adding to reserves” to achieve that goal.

In the meantime, legislative budget leaders concede the coming session will likely involve relatively little new money to spend overall.

Wallace said the “trend does seem to be down,” and noted Oklahoma “is an energy state” and the state government budget is “heavily based” on that industry doing well.

“The next cycle in budget will probably be reduced a little bit,” Wallace said. “I’m definitely watching. I do have concerns and for the last few months stated that I do not think we’ll come in way over estimate.”

Thompson said he is currently reviewing data that will be the basis for the Board of Equalization’s revenue estimate later this month.

“We’re about 5 percent above where we were last year,” Thompson said. “However, the last month, we’re only three-tenths of 1 percent ahead, and so it’s going to be a tight year.”

Ray Carter Director, Center for Independent Journalism

Ray Carter

Director, Center for Independent Journalism

Ray Carter is the director of OCPA’s Center for Independent Journalism. He has two decades of experience in journalism and communications. He previously served as senior Capitol reporter for The Journal Record, media director for the Oklahoma House of Representatives, and chief editorial writer at The Oklahoman. As a reporter for The Journal Record, Carter received 12 Carl Rogan Awards in four years—including awards for investigative reporting, general news reporting, feature writing, spot news reporting, business reporting, and sports reporting. While at The Oklahoman, he was the recipient of several awards, including first place in the editorial writing category of the Associated Press/Oklahoma News Executives Carl Rogan Memorial News Excellence Competition for an editorial on the history of racism in the Oklahoma legislature.

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