DALLAS – Even in an improving economy, Oklahoma will end the year without knowing how the state government will pay its bills.

With a second special legislative session still trying to balance the current budget, lawmakers reconvene in the regular session in 2018 with a murky picture of revenues available in the regular session.

"There still will be a need for additional revenue," Oklahoma Gov. Mary Fallin said after revenue estimates for fiscal year 2018.
“It would be an incredible statement to the public that Republicans and Democrats can work together to solve problems," said Oklahoma Gov. Mary Fallin.

The Legislature is expected to resume the current special session in January after taking a holiday break. Gov. Mary Fallin called the special session Dec. 18 after a first special session failed to garner enough votes to close a $220 million budget shortfall.

"They will recess after this week, and then we'll find an agreed-upon date with an agreed-upon solution to hopefully fix the hole and put us on a stable path," Gov. Mary Fallin said in a prepared statement last week.

The state Board of Equalization last week reported on how much revenue is likely to be available for the regular session starting in February.

The revenue picture is clouded by uncertainty about whether the special session will be able to patch a budget hole created by an adverse state Supreme Court ruling. When the court struck down a “smoking cessation fee” passed in the last week of the 2017 regular session, the decision created a $220 million revenue shortfall. Rising revenue has trimmed the shortfall to about $110 million, but the budget gap would be larger in the 2019 fiscal year.

The board certified nearly $6 billion in revenue for the fiscal year beginning July 1. The legislature will be authorized to use $5.69 billion of that figure, though that could change if additional revenue is approved in the special session.

At a Dec. 20 presentation, the board showed next year's revenue estimate at $330 million above the current fiscal year.

“I’m glad to see today’s estimate submitted to the Board of Equalization and acted on the board shows some revenue growth for the 2019 fiscal year,” Fallin said. “Even with that revenue growth, there still will be a need for additional revenue to address the combination of one-time funds currently in the budget, the current fiscal year shortfall from the loss of cigarette fee revenue of about $110 million, spending obligations as of today for the 2019 fiscal year of approximately $148 million, and money to give our teachers and state employees a much-needed pay raise. These items taken together will be hundreds of millions of dollars.”

In the first regular session, lawmakers fell five votes short in the house of a 75% supermajority needed to pass a revenue-generating measure. Fallin has been negotiating with legislative leaders in hopes of clearing that daunting threshold in the second session.

“We are operating in a very volatile political environment nationally as well as in our own state,” Fallin said. “It would be an incredible statement to the public that Republicans and Democrats can work together to solve problems.”

Before the Christmas break, the Oklahoma Senate approved $17.7 million in funding for the Oklahoma Health Care Authority to prevent provider rate cuts. The Senate also approved $26.5 million in additional funding for the Department of Human Services to make up a portion of the agency’s funding struck down by the courts.

“Provider rates were in jeopardy of being cut after the budget agreement reached during the first special session was vetoed,” said President Pro Tempore Mike Schulz, R-Altus. “Protecting provider rates is essential to ensuring Oklahomans, especially rural Oklahomans, have access to their doctors and other health care providers.”

The Oklahoma Supreme Court in August struck down a $1.50 per pack smoking cessation fee resulting in $215 million in lost funding for three health care agencies: DHS, OHCA, and the Oklahoma Department of Mental Health and Substance Abuse Services. The funding approved by the Senate on Dec. 20 ensures OHCS and DHS have enough funding through April. ODMHSAS already has enough funding to make it through the end of April.

Schulz said the Oklahoma Senate will continue working on long-term solutions to fund these three health care agencies through the end of the fiscal year.

The budget uncertainty comes as Moody’s Investors Service considers lowering Oklahoma’s Aa2 rating. In November, analysts cited the budget impasse as a negative credit factor for a state whose credit already had a negative outlook.

“The budget impasse comes amid a period of low oil prices that has weakened the state’s tax revenue base and contributed to a significant structural budget imbalance,” Moody’s noted. “The state has reduced appropriations by 5.3% ($387 million) in the three years since the peak in fiscal 2015, which has helped narrow the structural deficit. Neither the governor nor most in the statehouse support additional spending cuts.”

Analysts also looked askance at the number of one-time fixes used to balance budgets in recent years and the daunting requirement of a 75% super-majority to raise taxes.

“These exacting constitutional structures, alongside a lack of policy agreement on viable revenue measures, leave the structural deficit unresolved and weigh on Oklahoma’s credit quality,” Moody's analysts said.

Oklahoma Treasurer Ken Miller has given lawmakers reason to hope for better times ahead.

On Dec. 6, Miller reported that revenue soared more than 12% for the month of November compared to the same month last year. The November figures extended to eight the consecutive months with year-over-year growth, Miller said.

“Gross Receipts to the Treasury, insomuch as they indicate general economic activity, paint an encouraging picture as we enter the holiday period,” Miller said. “Sales tax collections, a measure of consumer confidence, are up by double-digits and the bulk of holiday shopping including Black Friday is not yet measured with this report.”

Sales tax receipts grew by 11.4% in the November report. The three other major revenue streams – gross income, gross production, and motor vehicle taxes – also increased during the month compared to November of last year.

Treasury receipts for the past 12 months are up by 4.7% compared to the prior 12 months with all major revenue sources showing growth.

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