Budget & Tax
Stitt committed to state savings effort
April 29, 2019
In 2016, state lawmakers voted to create a Revenue Stabilization Fund that would hold any oil-and-gas tax collections that exceed a rolling five-year average. It’s possible the savings fund could receive a deposit of as much as $400 million next year.
But Gov. Kevin Stitt says some lawmakers already want to reduce and redirect those savings.
“Some of the legislators are telling me, ‘Now, governor, don’t worry about it. We’ll just change the law and we won’t put that in there.’ And I’m like, ‘No. No. That’s not good.’ Because this five-year average was put in place for a specific reason: to smooth out our ups and downs,” Stitt said. “So just trying to get everybody to think farther than just one session is so important.”
Sen. John Michael Montgomery, R-Lawton, authored the law that created the Revenue Stabilization Fund when he was serving in the House. He said projections were done at that time to suggest how much would have been deposited annually if the law had been in place in prior years. The pending deposit exceeds what any of those projections showed, which is why some lawmakers now want to revisit the plan.
But he argues the fund is a better savings mechanism than Oklahoma’s Rainy Day Fund, which receives deposits only when collections exceed projections.
“The averaging mechanism, the five-year average, is extremely important, because really and truly that’s the only savings mechanism as opposed to the Rainy Day Fund,” Montgomery said. “If we under-project revenue, that’s how we put money into the Rainy Day Fund. Rainy Day Fund is an accident.”
The potential $400 million deposit into the Revenue Stabilization Fund is in addition to money now in the Rainy Day Fund. In addition, Stitt has called for setting aside another $200 million of this year’s $574 million surplus and holding it in reserve.
“We are so fortunate to have more revenue this year, but we have got to make sure we save money, because we do not have the savings account we need in our state right now,” Stitt told attendees of an Americans for Prosperity-Oklahoma Reform Oklahoma town hall held in Kingfisher on April 26.
Stitt said the $200 million is just a down deposit.
“My goal at the end of four years is to have $2 billion in savings,” Stitt said. “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.”
He noted that North Dakota has $5.8 billion in savings and a total state budget of just $4 billion.
“They have over one year’s worth of savings set aside,” Stitt said.
The Oklahoma Policy Institute (OPI), which advocates for higher taxes and increased government spending, recently declared Oklahoma may be “saving our way to the poorhouse” and called for lawmakers to revise the Revenue Stabilization Fund.
David Blatt, OPI’s executive director, wrote that “while building up savings is important, we must be mindful of tilting the balance too far in the direction of saving at the expense of urgent needs.” He said putting money into the Revenue Stabilization Fund was comparable to a family increasing retirement contributions while struggling to pay monthly bills.
Stitt concedes the financial discipline created by the Revenue Stabilization Fund is substantial, noting that under it lawmakers could have $400 million less to appropriate next year even if all tax collections remain constant. But he said the fund would also reduce the volatility of state revenue and spending that has harmed Oklahoma government so much in recent years.
Montgomery notes current oil prices, in the range of $60 to $70 per barrel, are “about average.”
“We go much higher,” he said, “we’re definitely on the spike.”
But a state boom in energy revenue is tied to more than just oil prices. Montgomery noted that gross production taxes are contingent upon production volumes.
“Right now, we’re setting oil and gas production volume records in our state,” Montgomery said. “We are way above where we were in the mid-2000s, the ‘90s, and obviously the 1980s and ‘70s when we had the previous records. That production curve, it’s a massive spike. Everybody looks at the price of oil and gas. It’s not just that. It’s production. When that drops off, and it will, that itself is also a problem for us, the school districts who rely on those revenues, and the county governments that rely on that revenue.”
Montgomery said he is “open to some dialogue” on tweaking the Revenue Stabilization Fund, but stressed, “I don’t want it watered down.”
Recent polling conducted by Cole Hargrave Snodgrass & Associates for the Consumer Coalition of Oklahoma found 73 percent of Oklahoma voters support Stitt’s call to set aside $200 million for savings, even though the poll question was phrased as a choice between saving money or spending the cash to make up for past underfunding. Among Oklahoma Republicans, support stood at 84 percent.
Stitt conceded his call to both save $200 million and preserve the Revenue Stabilization Fund isn’t fully embraced by all legislators, but he predicts they will see the wisdom over time.
“A little bit of discipline this year will pay dividends next year,” Stitt said. “They will really thank me next year.”