DALLAS - Oklahoma will continue cutting taxes after its budget shortfall for the coming fiscal year doubled to $611 million, officials said.
Gov. Mary Fallin said that despite falling revenues and layoffs in the state, Oklahoma has a strong economy and plenty of money in its $535 million rainy day fund to cover operations while cutting taxes.
"With a healthy savings account and a robust economy, we are in a good position to face this challenge and overcome it," Fallin said in a statement after the new figures were reported on Feb. 17.
The state has about $6.6 billion available for next year's budget, which represents a drop of 8.5% from the current year's budget of $7.2 billion, the State Board of Equalization said.
Finance Secretary Preston Doerflinger attributed the falling revenues to the domino effect caused by oil prices that have fallen by half since their 2014 peak.
"The large decline, double what the state projected in December, is the latest data point in a credit-negative trend of some energy states experiencing financial strain owing to decreased oil prices and production," Moody's Investors Service analysts Julius Vizner and Brien Wigand noted in a special comment Feb. 26.
The major factor in Oklahoma's declining revenue is income tax collections, which the state now projects will fall by $249 million in fiscal 2016, according to Moody's.
At the same time, the state projects that oil tax revenues will decline by $45 million, or 30%. Oil prices remain at half of their peak 2014 levels and are affecting the underlying economy.
Wages in Oklahoma are more dependent on the oil and gas sector than many of the other energy- producing states in the U.S.
"At the same time, Oklahoma does not rely as much on gross production taxes in its budget as some other energy states do," the analysts said. "This distinction has spared Oklahoma from the worst of the global decline in oil prices."
Gross production taxes on oil make up 4% of Oklahoma's general revenues, compared with 90% in Alaska, which will have to make significant draws on its reserves to balance its budget.
By comparison, Louisiana production taxes on oil contribute 16% to the state's general revenues. Louisiana recently reduced revenue projections by a combined $330 million for the fiscal years ending 30 June 2015 and 2016, and now faces a gap of $1.6 billion, or 18% of its operating budget, in fiscal 2016.
"Although the direct budgetary effect of oil price fluctuations may be less in Oklahoma than in other energy states, the recent slide in prices is clearly taking its toll there," the Moody's analysts said. "If oil prices continue to stay at these low levels, oil producers in the energy states will continue to cut back capital expenditures and reduce costs, further weakening state revenues."
