Lawmakers expect state revenue outlook will improve

By:  Steve Metzer The Journal Record April 30, 2020

OKLAHOMA CITY – The reopening of Oklahoma businesses and infusions of federal relief funding should help offset some of the impact of major revenue declines projected as a result of the COVID-19 pandemic and steep losses in the energy industry, several senior state lawmakers said.

After reviewing current trends in revenue streams such as oil and gas production tax collections and sales and payroll tax receipts, the Oklahoma Tax Commission projected earlier this month that the state would have $1.366 billion less to spend in fiscal year 2021 than it had in FY20.

With the new fiscal year set to begin on July 1, state lawmakers have only a few weeks left in this year’s abbreviated legislative session to hammer out a spending plan. Senate President Pro Tempore Greg Treat, R-Oklahoma City, said a priority will be to find out how pandemic relief funding provided for by the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act might play into protecting state services.

While the CARES Act allocated aid to states, including $1.25 billion for Oklahoma, rules stipulated that the money was not to be used to plug holes in budgets not related to pandemic response. The National Conference of State Legislatures has called for clearer guidance and more “robust, flexible assistance” to be made available to states and local governments.

“That’s one of the things that hasn’t really been considered yet. Where does that money go and how does it offset any loss of revenue?” Treat said. “What we need on that from a state legislator’s perspective is transparency. We need to make sure the public knows where those monies are going and how they are being utilized.”

Gov. Kevin Stitt said Thursday that chief financial officers of state agencies have been instructed to document all COVID-19-related expenses. He said money spent on overtime, computers for people to work at home, personal protective equipment and anything else COVID-19-related should be reimbursable.

Stitt added that some federal relief funding is specifically earmarked for municipalities.

“We’re standing up a process for them to send in their expense reports, (and) we’ll funnel money to the cities and municipalities,” he said. “We’re going to set up a team of folks from rural Oklahoma, from urban Oklahoma, from all over to figure out how to get those (dollars) out, but basically it’s going to be COVID-related expenses.”

Treat and other lawmakers, including Senate Appropriations Chairman Roger Thompson, R-Okemah, expressed some optimism that the state’s revenue picture will improve more rapidly than was projected by the Tax Commission. Income tax receipts that have been down by 25% and sales taxes down by 12% should rebound as the state’s economy begins to reopen. High rates of unemployment should decline as well, and things should turn around somewhat for the energy sector as commerce picks up again and demand for oil and gas rises.

“We all know there’s been adverse economic impact (with) COVID-19 and also with the depressed oil and gas numbers, (but) the magnitude of the $1.3 billion was a surprise,” Treat said.

Gov. Kevin Stitt’s budget secretary, Mike Mazzei, said the revenue projections were based on sound data.

“This methodology, although imperfect, is driven by economic analysis which looks at unemployment levels and massive declines in oil and gas prices,” Mazzei said in an emailed statement. “We believe these apolitical revenue revisions should be taken very seriously,” he added.

Thompson said that while some percentage decreases in state agency budgets are likely in the coming fiscal year, money still held in reserve and additional monies, such as $160 million allocated to the state from a federal education stabilization fund, should preclude the need for deep cuts of 7.5% or more as projected by the revenue forecast.

“I think we’ll have some tough decisions moving forward, but I don’t think it will be as dire as that $1.3 billion number,” he said.

Senate Minority Leader Kay Floyd, D-Oklahoma City, said economic symptoms of the pandemic should ease over time.

“I think what we’re seeing with the $1.36 billion is quite possibly a worst-case scenario based on the historic drop we saw in oil prices,” she said. “Is it going to be a rough budget year? It certainly is, but I think now more than ever we need to fully fund our front-line services,” she said.

House Speaker Charles McCall, R-Atoka, said in a statement that fully funding core services must be a priority as the state continues to battle the COVID-19 pandemic.