Just six days after Gov. Mary Fallin predicted the state would face a $600 million budget hole, her finance secretary said Tuesday it actually will be a lot bigger.
Preston Doerflinger said at a state Capitol news conference that current projections show the state will have $6 billion to spend next year. That means that when the Legislature gathers in February to start work on a new budget, they will be looking at an $868 million shortfall.
Lawmakers will be forced to seriously consider ways to bring in more revenue if necessities are to be funded adequately.
Short on revenue amid tax cuts, oil industry declines and generous corporate tax credits, the state has not been able to maintain funding for priorities like education, health and public safety.
Teachers are among the lowest paid in the nation and have been demanding raises, the state is low on a number of metrics for public health, furloughs are looming for the Oklahoma Highway Patrol and prisons are short-staffed even as they overflow with inmates.
"I think it's important for everybody to realize you're not cutting your way out of this situation," Doerflinger said. "We have to have a serious conversation about revenue in this state."
One-time money
For the last few years, Doerflinger and State Treasurer Ken Miller have emphasized the state needs to rely more on recurring revenue like taxes and fees and less on so-called one-time sources of money like agency savings accounts and the state's emergency cash reserve fund.
Gov. Mary Fallin wanted lawmakers this year to broaden sales and use taxes and approve a new tobacco tax. They shot down her requests.
She may make similar suggestions next year.
Doerflinger said some surrounding states tax services that are exempt from sales tax in Oklahoma.
"Our economy has changed to a services-based economy," he said. "I think we have to realize that and have a serious conversation about sales and use tax exemptions, or services that aren't taxed today."
On the table
Rep. Earl Sears, R-Slaughterville, said that given the size of the budget hole, a broad range of proposals will need to be examined.
"With the size of the hole that we have and the journeys we've taken on previous budgets, there is no question that all options considered last year need to be considered this year," he said.
"Everything should be on the table."
Tax cut
Under a measure approved by the Legislature, growth in state revenue would trigger another tax cut, reducing the state income tax rate from 5 percent to 4.85 percent.
Since that growth is not present, it looks like the cut will not take place, Doerflinger said.
The budget projections released Tuesday by Doerflinger will be used by the state Board of Equalization on Wednesday to set the amount of money the Legislature can spend next year.
Budget hole
Doerflinger said there are two ways to look at the budget hole for next year. For the board meeting, projections will show that the Legislature has $692 million, or 10.3 percent, less to spend next year than it spent this year.
But he said it is more accurate to characterize the hole as $868 million because that figure takes into account one-time money like the constitutional reserve fund and agency revolving funds that were used this year.
The hole forms when state revenue doesn't keep pace with spending. Oil price declines and industry layoffs have decreased that state revenue.
The new general revenue projections for the current fiscal year are off $231 million compared to projections made on June 20, including a $188 million decrease in corporate income tax.
(c)2016 The Oklahoman
