Budget & Tax

Ray Carter | August 5, 2020

Tax collections raise concern about budget gamble

Ray Carter

This year’s state budget debate centered on savings. The Republican-controlled Legislature wanted to drain most state government savings and leave little in reserve for next year, while Gov. Kevin Stitt called for reining in spending to preserve greater savings for next year.

Lawmakers ultimately prevailed, overriding Stitt’s veto to accomplish their goal and gambled that a rapid economic recovery would soon replace the one-time funding they used to prop up this year’s budget.

So far, tax collections indicate that is not happening.

While Gross Receipts to the Treasury jumped in July, State Treasurer Randy McDaniel cautioned that the increase is the result of technical changes, not strong economic growth.

“While July collections were strong, a different picture emerges when taking into account the delay of income tax filing,” said Treasurer McDaniel. “The details show the positive bottom line is concealing some less than favorable developments.”

Among the policy changes enacted in response to the spring’s COVID shutdown was to delay the state income tax filing deadline from April 15 to July 15.

As a result, July receipts from all sources totaled $1.43 billion and exceeded collections from July 2019 by $306.1 million, or 27.2 percent.

However, July’s increase in income-tax payments was less than the decline recorded in April. Gross income tax collections in July were up by $360.5 million from the prior July, but April’s income tax collections fell $414.4 million year-over-year, translating into a net reduction of $53.8 million.

At the same time, the oil-and-gas industry that is the foundation of much state economic activity continues to struggle. July collections from the gross production tax on oil and gas extraction totaled $22.9 million, down by $57.8 million, or 71.6 percent, compared to the same month last year. The latest employment data show the state has shed 16,100 oilfield jobs in the past year as prices and demand have fallen.

Motor vehicle collections also contracted slightly in July. Other collections composed of some 60 different sources, including taxes on fuel, tobacco, medical marijuana, and alcoholic beverages, produced 5.2 percent less than last July.

The only bright spot was that sales tax receipts rose by a modest 1 percent, an increase of just $4.1 million from July of last year.

Since the start of the national recession, McDaniel reported that cumulative Gross Receipts to the Treasury are down by $411.8 million, or 5.9 percent, compared to the same six months of 2019.

Twelve-month collections, an indicator of economic performance over a one-year period, are down by 2.8 percent, with all major revenue streams except corporate income tax and use tax showing a pullback.

McDaniel’s gross-receipts report is considered an indicator of broad economic activity in Oklahoma. The General Revenue Fund, the state’s main operating account, receives less than half of the state’s gross receipts with the remainder paid in rebates and refunds, remitted to cities and counties, and apportioned to other state funds.

Unless current trends change significantly, a significant state shortfall is likely when lawmakers reconvene in 2021 to draft the next state budget.

Stitt has criticized the 2020 budget drafted by the Legislature for having “a billion-dollar structural deficit” while leaving relatively little in savings to address next year’s expected shortfall.

Officials with the Oklahoma State Board of Education have noted that roughly $550 million, or around 20 percent of appropriations provided to public schools, came from one-time funding sources that will have to be replaced in the next two years.

McDaniel noted a few positive economic indicators exist amongst the otherwise bad data. The unemployment rate in Oklahoma was 6.6 percent in June, down from 14.7 percent in April. Oklahoma’s unemployment rate is significantly lower than the U.S. unemployment rate of 11.1 percent in June.

Also, the Oklahoma Business Conditions Index in July remained above growth-neutral for a second month. The July index was set at 69, up from 53.1 in June. Numbers above 50 indicate economic expansion is expected during the next three to six months.

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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