Oklahoma finance officials predict $868-million budget hole

After two consecutive years of deep cuts to state programs, including public education, the Oklahoma Legislature will again be grappling with another budget hole, estimated to be about $868 million, or more than 12% of state spending, finance officials announced Tuesday.

State Secretary of Finance Preston Doerflinger, the governor’s chief budget negotiator, released budget projections that show state revenue collections won’t be enough to trigger a further cut in the state’s individual income tax rate from 5% to 4.85%.

The shortfall means that unless the Legislature comes up with new sources of revenue, such as increased taxes, the state will have to make further cuts to services such as public schools, healthcare and public safety.

“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, and I think you will see that in the governor’s executive budget.”

The declining revenue is largely the result of plunging oil and natural gas prices and the ripple effect that has had on Oklahoma’s energy-based economy, but it also stems from tax cuts and generous tax subsidies put in place for businesses and industries, including oil and gas companies.

Although Doerflinger said he generally supports a low-tax environment, he indicated a willingness to delay any further cuts to the state’s income tax rate.

“I’m not sure right now is the best time to be cutting the income tax,” he said.

The budget hole is significantly more than the $600 million Gov. Mary Fallin projected last week, but Doerflinger said Fallin’s estimate was made before final figures were calculated.

The state Board of Equalization, led by Fallin, will meet at the Capitol on Wednesday to certify an initial estimate of how much the Legislature will have to spend on the budget for the fiscal year that begins July 1. The total amount expected to be certified will be about $6 billion, which is $692 million less than the Legislature appropriated for the current fiscal year.

But Doerflinger said the actual budget hole will be about $868 million when calculated to include one-time revenues that were used to make up the current budget, including $144 million from the state’s Rainy Day Fund and $32 million from various agency revolving accounts.

Fallin will use the amount certified Wednesday to build her executive budget, which is typically used as a starting point for budget negotiations with the Republican-controlled Legislature. The final revenue figures used to build the fiscal 2018 budget will be certified in February.