Oklahoma’s new governor Kevin Stitt comes into office Monday after a year of record revenue, but the Republican successor to Gov. Mary Fallin is urging lawmakers to budget with caution as lower oil prices threaten another downturn.
“We are going to look at ways to be better savers, so we don’t knock on core services — like education — when energy prices or commodity prices take an unexpected turn for the worse,” Stitt wrote in a recent op-ed piece for the Tulsa World. “Just look at oil this past year, at one point we’ve seen $75 a barrel, and today we have $48 a barrel.”
Stitt listed obligations of more than $200 million that include property tax reimbursements to counties, education costs and new interest payments for state-issued bonds.
In advance of the 2019 session of the Oklahoma Legislature, the state's Board of Equalization certified a record $8.2 billion in revenue available for budget year beginning July 1. That represents an increase of about $612 million over the current year's spending levels.
Stitt called the additional revenue “an important key to unlocking the turnaround mandate I was elected on.”
“Oklahomans want change in their government,” he said. “They want us to do the hard work to address a system built on a broken budget, unaccountable agencies and an outdated tax code. This momentum gives us the cushion to make the hard, structural changes with the next generation in mind.”
Stitt’s plea for structural balance echoes years of
In September, Moody’s Investors Service lifted its negative outlook to stable on Oklahoma’s Aa2 rating, citing the improved revenues and legislative measures to restore balance.
“Oklahoma’s economy has survived the worst of the oil-sector downturn and has since turned the corner,” analyst Joshua Grundleger wrote. “After contracting for six consecutive quarters at an average rate of -3.1% year-on-year, in the second quarter 2017 Oklahoma’s economy registered positive growth (0.6%) for the first time since the third quarter 2015.”
S%P Global Ratings and Fitch Ratings have stable outlooks on their AA issuer rating for Oklahoma. S%P downgraded the state from AA-plus in March 2017. Fitch Ratings made a similar move four months later.
In a report this week, state Treasurer Randy McDaniel announced that gross receipts grew at a double-digit pace, increasing by more than $1.5 billion, during calendar year 2018.
Gross receipts for 2018 were slightly less than $13 billion and grew by 13.2% compared to calendar year 2017 collections. In December, total receipts topped $1.1 billion and were up by more than $135 million, or 13.4%, compared to December 2017.
“Oklahoma’s economy has been performing admirably,” McDaniel said. “Gross receipts have improved significantly, while unemployment remains low. 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.”
Every major revenue stream expanded during 2018 at rates ranging from 84% for gross production taxes on oil and natural gas production to 2.5% for motor vehicle taxes.
For December, every major revenue source except individual income tax receipts showed growth. The tax commission reports a 1% reduction in individual income tax collections was likely due to one less remittance deadline for withholding taxes this December compared to last.
Officials continue to closely watch gross production tax collections due to the recent downturn in crude oil prices. December gross production collections of $118.4 million are up by $62.2 million, or 110.7%, compared to December 2017.
However, December collections reflect oilfield activity from October when West Texas Intermediate crude oil at Cushing, Oklahoma, averaged $70.75 per barrel. Collections in January will reflect November production, when oil prices averaged $56.96 per barrel.
Revenue generated by increased tax rates approved in House Bill 1010 during special session last year added $62.6 million to monthly collections, 5.5% of December gross receipts.
The largest share, $38.5 million, came from the increase from 2% to 5% in the incentive tax rate on oil and natural gas gross production. Higher tax rates on gasoline and diesel fuel generated $9.5 million, and the $1 per pack hike in cigarette taxes added $14.6 million to December’s total.
Fallin appointed McDaniel state Treasurer as of Jan. 1. After signing off on her last revenue estimate, the two-term governor goes out on a positive note after years of shortfalls that followed tax cuts in 2014, the year oil prices began their 60% plunge.
“Lawmakers approving this year’s historic revenue package and our depositing $381 million into the state’s Rainy Day Fund, combined with our state’s improving economy, are helping our economic outlook,” Fallin said. “Thanks to structural changes implemented the past couple years, our budget is a much more fiscally prudent product.”
