Prudent budgeting remains a necessity
TWO news stories in recent days underscore the need for Oklahoma lawmakers to take a cautious approach to budgeting for the next fiscal year. The temptation, on seeing that gross revenues to the treasury increased by more than $1.5 billion during the 2018 calendar year, could be to think crafting the FY 2020 budget will be a breeze — just take much of that growth revenue and spread it around to state agencies that have seen their state budgets decline in the past several years.
Firm numbers won’t be known until next month, when the state Board of Equalization meets to certify the amount the Legislature will be able to appropriate. Estimates are that lawmakers will have in the neighborhood of $600 million more to work with than they did in 2018.
The gross revenues report is encouraging, certainly. Treasurer Randy McDaniel’s office said the nearly $13 billion in gross receipts was a calendar year record, and $1.52 billion (13.2 percent) ahead of 2017.
Yet McDaniel provided a caveat.
“Gross receipts have improved significantly, while unemployment remains low,” he said. “These and other economic indicators point to a favorable outlook for the state, but could be restrained by the downturn in energy prices, global trade uncertainty and stock market volatility.”
That’s a significant “but” that shouldn’t be ignored. A story the day after the receipts report was issued further highlights this.
The state’s oil and gas industry slowed in November, according to the Oklahoma Energy Index, and the report’s author said he expects the slowdown to continue.
“As current budget commitments wind down and are replaced with more moderate budgets in 2019, oil and natural gas activity in the state will slow considerably,” said Russell Evans, head of the Steven C. Agee Economic Research and Policy Institute at Oklahoma City University.
Evans said the state could see an extended impact if conditions, which were mixed in November, don’t make a marked improvement. “A significant industry slowdown will extend to other areas of the economy, with a general slowdown in economic activity expected to materialize in the second half of the year,” he said.
Tax increases approved in 2018 helped drive up gross revenue receipts. The treasurer’s office said revenue from oil and gas gross production taxes, which were among the items whose rates were increased, grew 84 percent over the previous year. However, the downturn in oil prices during the final quarter of 2018 is sobering, or should be. Although Oklahoma has done much to diversity its economy during the past many years, the energy sector remains a central piece.
Entering the 2019 legislative session, the state is in a better place than it has been in some time, thank goodness, but prudence is required if Oklahoma is to avoid the fiscal roller coaster rides of the recent past.