By Constitution Staff

When the state Board of Equalization met in December, it projected a 4.4 percent drop in funds available for the state budget for the 2010 fiscal year which begins on July 1. The state budget would drop from the current $7.1 billion to $6.8 billion.

Lower prices for oil and natural gas will result in less money paid to the state from the Gross Production Tax. Reductions in individual income tax collections and motor vehicle tax collections are also expected to contribute to the shortfall.

Gov. Brad Henry will use the December revenue projections to craft his budget proposal which will be presented to the Legislature in February. But, final revenue projections will be certified when the Board meets again in late February. Legislative leaders will use those final figures to set agency budgets. Some expect the final projected budget shortfall to increase from the current $300 million estimate to as much as $500 million.

According to the National Conference of State Legislatures, Oklahoma is one of only ten states in the country not experiencing revenue shortfalls or significant budget gaps in the current year. While the national economy is experiencing the worst economic slowdown since the Great Depression, Oklahoma's General Revenue Fund collections for the month of December once again topped prior year receipts and last year's projections says State Treasurer Scott Meacham. Preliminary reports show General Revenue Fund collections for December totaled $567.4 million. That amount is $37.7 million or 7.1 percent above the prior year, and $56.2 million or 11 percent above the estimate.

"We should count our blessings," Meacham said in reaction to December's revenue reports. "We are building a comfortable cushion as we head into the new year, while most of the rest of the nation is being forced to make drastic cutbacks in essential governmental services as their economies suffer the effects of the global recession."

Meacham said the strong collection numbers reflect the important role the oil and natural gas industries play in Oklahoma's economy. "Gross production taxes on oil and natural gas are about 75 percent higher than December of last year and are close to double what was estimated to be collected," he said. But, Meachan warned that the increased collections from the Gross Production Tax masks the true revenue picture. "In fact, without the exceptionally high gross production tax collections, overall collections for the state would be below the estimate for the fiscal year."

However, Meacham said sales tax collections for the month (reflecting Christmas sales through the middle of December) show an increase from the previous year. "Sales tax collections grew by almost four percent over last December," he said. "Given what is going on in the national economy, this is great news for Oklahoma."

Meacham said personal income tax collections are becoming a growing concern as collections for December dropped below the prior year by almost six percent. "As the unemployment rate in Oklahoma inches up and Oklahoma companies tighten their belts, we are beginning to see a decrease in the amount of money state employers are withholding and sending to the state," he said. "Last month, withholding was down $3.6 million from last December."

Preliminary reports show General Revenue Fund collections for the first six months of FY 2009 totaled $3.069 billion. That amount is $224.8 million or 7.9 percent above the prior year; and $189.5 million or 6.6 percent above the estimate. The Gross Production Tax on oil and natural gas yielded $523.5 million during the six month period, which is $193.9 million or 58.8 percent above the prior year and $190.4 million or 57.1 percent above the estimate.

During the first half of the fiscal year, net income taxes produced $1.241 million, topping collections of one year ago by $18.8 million or 1.5 percent and exceeding the estimate by $51.9 million or 4.4 percent. Year-to-date personal income tax collections total $1.110 billion, which is $7.7 million or 0.7 percent above the prior year and $37.7 million or 3.5 percent above the estimate. Corporate collections for the same time period total $131.3 million, which is $11.1 million or 9.3 percent above the prior year and $14.2 million or 12.2 percent above the estimate.

The state sales tax produced $871 million for the period, which is $49 million or 6 percent above the prior year and $12.3 million or 1.4 percent above the estimate. Motor vehicle tax receipts, which come primarily from vehicle sales and licenses, produced $94.5 million in FY-09's first half. This is $31.4 million or 25 percent below the prior year and $27.6 million or 22.6 percent below the estimate.

Other revenue, which includes investment earnings along with taxes on insurance, alcoholic beverages and others, produced $338.4 million during the first half of the fiscal year. This is $5.4 million or 1.6 percent below the prior year and $37.5 million or 10 percent below the estimate.

The treasurer's earnings on investments for the first half of the fiscal year were $83.2 million, which is $1.1 million or 1.3 percent below the prior year.

Senate President Pro Tem Glenn Coffee (R-Oklahoma City), commenting on the budget projections said, "We're fortunate that our state is not in similar fiscal crises in which many states across the nation find themselves. But we will still need to look closely at all agency budgets and identify efficiencies to carry us through this period. This is an opportunity to find and cut fat and unnecessary programs while making our government more efficient in the long term."

House Republican leaders are optimistic that conservative fiscal policies currently in place will help Oklahoma withstand the budget shortfall. "There are many states in the country that face financial shortfalls larger than Oklahoma's entire $7 billion budget; this is no time for panic," said House Speaker Chris Benge (R-Tulsa). "Much of our good fortune to this point can be attributed to the fact we have followed a concept Oklahomans follow every day-living within our means. It is certainly going to be a difficult budget year, but I am confident that together our state leaders will pass a budget that will continue to move our state forward in a time when many other states are forced into drastic service and employee cuts."

House Budget Chairman Ken Miller (R-Edmond) noted that though the individual income tax collections are predicted to drop by over $100 million, the static numbers do not tell the whole picture. First, $54 million for the Oklahoma's Promise scholarship program and $190 million for the ROADS Fund came directly out of the personal income tax estimates prior to the certification. Those are two obligations the Legislature has met before the legislative session has even started, which makes estimated income tax collections appear lower than they truly are.

Also, the state sales tax is estimated to grow by $84 million, or a 5 percent increase. Rep. Miller said allowing taxpayers to keep more of their hard-earned dollars has resulted in Oklahoma families spending the money as they see fit, which has helped sales tax collections and employment. "Tax cuts are a fiscal stimulus and Washington would do well to follow Oklahoma's lead during these tough times," said Miller. "Just because money isn't rushing into the state treasury doesn't mean that money disappears. Those dollars stay with the Oklahomans who earned them for spending on necessities like utilities, tuition, groceries and gas -- and that spending creates jobs and income."

Lean budget years are also a good time to look for additional efficiencies within government, says Rep. Scott Martin (R-Norman), vice-chairman of the House Appropriations and Budget Committee. In recent years, government spending has been restrained by using surpluses mostly for one-time expenditures and not ongoing expenses, while state officials have also built a robust savings account in case of a financial emergency.

"Since Republicans have taken over the majority in the House, we have worked to streamline government and make it as efficient as possible for the taxpayers," said Martin. "In a year where there is less money to spend than the year before, we have to get creative in finding ways to save money while making sure our agencies are resourceful with the funds they do receive."

Some, including University of Oklahoma President David Boren, have suggested tapping into Oklahoma's Constitutional Reserve Fund to maintain appropriation levels, at least for education. Boren, a former governor and U.S. senator, said the fund was set up to help meet financial emergencies. This fund, which is often called, the Rainy Day Fund, currently has about $600 million. The fund is capped at 10 percent of prior-year receipts. Virtually every year, the Legislature finds "emergencies" that need to be paid from the fund.

Republican and Democratic leaders in the Senate joined a spokesman for Gov. Brad Henry in saying the fund should be preserved for what could be additional economic hardships. Paul Sund, Gov. Henry's communications director, said that in view of the uncertain economic conditions and potentially tougher times ahead, the governor thinks it makes sense to conserve state resources.

Once the Gov. Henry unveils his budget proposals and various groups begin to lobby legislators for a piece of the pie, the budget will likely become the number one issue for the Legislature.