DALLAS – As Oklahoma lawmakers race the clock to close a nearly $900 million budget gap, state agencies are bracing for severe cuts.

In an unprecedented move, the Oklahoma Transportation Commission last week suspended contracts on 12 projects due to the state’s ongoing budget crisis.

“We are not making progress fast enough,” said Oklahoma Gov. Mary Fallin.
“We are not making progress fast enough,” said Oklahoma Gov. Mary Fallin.

At its May 1 meeting, commissioners heard an update from the Oklahoma Department of Transportation on proposals being considered by the legislature that would affect transportation funding and the impacts to construction already underway.

Due to the uncertainty of state funding to pay current obligations, ODOT Executive Director Mike Patterson reported to commissioners that the department had asked several construction contractors not to start work on 12 projects that were awarded in previous months.

Patterson also asked the eight field division engineers to prepare a plan of how to safely and responsibly suspend work on more than 80 road and bridge projects already under construction in the event that the deteriorating state funding trends continue.

“Suspending current highway construction due to a proposed reduction in state funding is not something ODOT has ever been faced with, but we are preparing for it now,” Patterson said. “Without a reliable stream of revenue coming in, it wouldn’t be fiscally responsible to keep incurring construction expenses that we have an obligation to pay.”

A fuel tax increase is a revenue replacement proposal under consideration by the legislature that would partially offset the proposed cuts. Gov. Mary Fallin supports the proposal and other revenue measures, including higher cigarette taxes.

For ODOT, issuing new bonds to offset budget cuts is not a fiscally viable option as in previous years, Patterson said.

The agency has more than $485 million in outstanding bond debt, which costs about $57 million annually in debt service.

Since 2010, the legislature has authorized several ODOT bond issues to help offset funding diverted from transportation. Now, the agency's cash balance has been depleted to the point that ODOT is no longer able to cover the required payments up front necessary to receive bond proceeds.

Citing funding concerns, the commission voted to defer awards of new highway construction contracts for this month, approving contracts financed with only federal and county funds.

Commissioners did award 11 contracts totaling $18 million to improve county roads and bridges in nine counties. Contracts were awarded for projects in Beaver, Caddo, Choctaw, Coal, Garfield, Johnston, Kingfisher, Nowata and Pawnee counties.

With less than two weeks left in the current legislative session, Fallin is increasing pressure on lawmakers to resolve the shortfall in the fiscal year beginning July 1.

“We are not making progress fast enough,” Fallin told a Wednesday news conference. “Nothing has come to my desk. No substantial measures to solve our budget crisis.”

Without legislative action, state agencies will face funding cuts of 18%, state officials said.

After lawmakers asked state agencies to prepare for a 15% cut, heads of the agencies said the cuts would be catastrophic.

The Oklahoma Department of Public Safety would furlough officers, impose a hiring freeze, and employees would lose their jobs if the agency had to impose the cuts.

“It’s unacceptable for a highway patrolman to tell us, Department of Public Safety, that they’re going to have to limit the amount of miles they drive per day because they’ve got to cut down on gasoline costs to save a little bit of money,” Fallin said.

Declaration of a revenue failure in February prompted S&P Global Ratings to drop Oklahoma’s general obligation rating to AA from AA-plus on March 1, the first S&P downgrade of the Sooner State in 30 years.

"While the revenue failure alone, in our view, is nominal relative to previous revenue failures, collectively the state's financial position has deteriorated to a point that further precludes the state from building up reserves in subsequent fiscal years, and as such, we believe that, relative to a year ago, the state is more vulnerable to broad regional or national economic weakness," S&P analyst Oscar Padilla said.

Moody’s Investors Service has assigned a negative outlook on Oklahoma’s Aa2 rating since June. Fitch Ratings also placed a negative outlook on its AA rating in February.

Majority Republican lawmakers are having trouble finding means they will accept to raise $878 million to bridge the state’s budget gap and fund a pay raise for teachers.

Last week a joint House and Senate budget committee found agreement on 10 revenue bills designed to generate $37.5 million for fiscal year 2018.

The largest revenue-raising bill known as the “big bill,” would increase the cigarette tax by $1.50 per pack, raise motor fuel taxes by 6 cents per gallon and end several oil and gas incentives, including a rebate for at-risk oil wells. Ending the rebates would provide $50 million, officials estimate.

The “big bill” would raise more than $340 million and close one-third of the shortfall.

Passing the bill is expected to be difficult because Oklahoma’s constitution requires revenue-raising bills to pass with three-fourths votes in both chambers. By the most recent count, there are not enough votes to clear the hurdle.

Democrats and some Republicans oppose the bill.

Meanwhile, some positive news emerged from Oklahoma Treasurer Ken Miller’s office as the April gross receipts report showed a $34.1 million or 2.9% increase in revenues compared to the same month last year.

The report marked the third time in four months that revenues have grown, Miller said.

“Coupled with falling unemployment, increasing oil field activity, and rising consumer confidence and business conditions, indications are the Oklahoma economy is on the upswing,” Miller said.

All major revenue streams except corporate income taxes rose in April compared to the prior year.

Gross production tax collections from the oil and gas industry are higher than the prior year for a seventh consecutive month, Miller said. In April of last year, gross production receipts, at $20.8 million, were the lowest monthly total since May 1999. The most recent figures showed gross production yielded $41.2 million, an increase of 97.5%.

Individual income, sales, and motor vehicle taxes showed increases ranging from 2.6% to 0.5% during the month.

Over the past 12 months, gross receipts of $10.8 billion are less than the total from the previous period by $458.3 million, or 4.1%, Miller said. However, gross production collections are higher than the previous 12 months for the first time since March 2015.

Oklahoma’s unemployment rate in March was lower than the U.S. rate, the third straight month in which the state jobless rate fell below the national figure. Until then, Oklahoma jobless rates ran higher than the national rate for eight months in a row. The state jobless rate in March was set at 4.3%, while the U.S. rate was reported as 4.5%.

The Oklahoma Business Conditions Index, predicting economic activity for the next three to six months, was set at 61.2 in April, up from 58.2 in March. It marks a fourth consecutive month above growth neutral following seven months of negative ratings. Numbers above 50 indicate anticipated economic expansion.

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