Early Revenue Numbers Paint Bleak Budget Picture, Senate Leader Warns of Possible Budget Cuts

With state revenue collections slumping in the first quarter of Oklahoma's fiscal year and an uncertain economic outlook facing the country, the leader of the State Senate is warning fellow policy makers to be prepared for a standstill budget or even budget cuts next year.

Senate President Pro Tempore Stratton Taylor pointed out that if current trends continue, Oklahoma will generate little in the way of growth revenue and could actually find itself facing a shortfall when the next state budget is drafted in 2002.

"It's still very early in the budget forecasting game, but all of the indicators point to a bumpy road ahead. Energy prices are slumping, the national economic outlook is very uncertain and state revenue collections are down. Anyone who is contemplating a big spending program should probably start thinking in terms of a standstill budget or budget cuts. I think it would be pretty risky to be anything but fiscally conservative at this point," said Senator Taylor.

According to the Office of State Finance, revenue collections have come in below estimates during each month of the first quarter of this fiscal year. Two of the four major state tax categories - motor vehicle and gross production levies - were significantly below projections, with the biggest decline registered in the energy sector.

High oil and gas prices bolstered the state budget for many months, but recent declines in prices have resulted in a corresponding loss in state revenue. For example, during the first quarter, gross production collections have come in 32 percent below the estimate or $32.3 million less than budget forecasters had anticipated.

"If that trend continues, it could blow a big hole in the state budget. As we learned in the 1980's, energy revenues can be just as much of a curse as a blessing. They pumped up our budget last year, but now that they're deflating, so is state revenue. We just need to be prepared to deal with consequences," said Senator Taylor.

The Senate leader noted that the national economic slowdown of the last year wreaked havoc on many state budgets around the country, forcing Legislatures to trim spending or enact standstill appropriations for state programs. Oklahoma managed to buck that trend thanks to booming energy revenues, but with oil and gas prices now on the decline, the national slowdown may have a delayed effect on Oklahoma in the months to come.

"The energy boom helped shelter Oklahoma from the national recession, but that shelter is gone now. We may soon find ourselves performing the same belt-tightening exercises that our counterparts in others states have performed in recent months," said Senator Taylor.

State policy makers and agency leaders should not look to the state rainy day fund to cushion any revenue downturn, according to the Senate leader. He said he was putting agency heads on notice that reserve funds won't prevent budget reductions, especially if public education is protected.

"If revenues go south, I will certainly want to protect education and that means there won't be enough money in the rainy day fund to head off budget cuts in other state agencies. Department heads need to begin planning for what could be a year of budget reductions," said Senator Taylor.

Taylor noted that he isn't the only Senate leader who is advising a cautious approach on budget matters. In response to a recent question about a proposed increase in teacher benefits, Senate Minority Leader Jim Dunlap told the Daily Oklahoman that state revenue collections may fall below estimates, making a suggested withdrawal from the rainy day fund risky.

"How can we spend hundreds of millions of dollars when we don't know if the money will even be there to pay for it? The Legislature cannot act like a teenager with a new credit card, spending freely without any regard to consequences," said Senator Dunlap.

Senator Taylor said he agrees with the minority leader.

"Sen. Dunlap is right when he advises against new spending, especially with money withdrawn from the rainy day fund. In uncertain times like these, we shouldn't be raiding our reserve funds or making spending commitments that we may not be able to keep. I hope other policy makers will share Senator Dunlap's caution," said Senator Taylor.