DALLAS – Oklahoma awaits a verdict from rating agencies on a legislative session that raised revenues and cut spending to help close a nearly $900 million budget shortfall.

Legislative leaders reached agreement with Gov. Mary Fallin on a $6.8 billion budget shortly before the end of the regular 2017 session on Friday.

"Yet again we have crafted a budget that only fixes some of the defects in our funding formula,” said Oklahoma Gov. Mary Fallin.
"Yet again we have crafted a budget that only fixes some of the defects in our funding formula,” said Oklahoma Gov. Mary Fallin.

“This plan keeps our government from shutting down,” Fallin said in a statement on the budget agreement. “It puts some recurring revenue on the table, but does not address the structural budget challenges that I have been working to fix since I took office.

“Year after year, I have repeated my warning about our reliance on one-time funding and our eroding tax base,” Fallin added, “and yet again we have crafted a budget that only fixes some of the defects in our funding formula.”

Moody’s Investors Service has a negative outlook on Oklahoma’s Aa2 rating, while S&P Global Ratings returned its outlook to stable after downgrading the state to AA from AA-plus on March 1.

"The downgrade reflects our view that persistently weak revenue collections -- leading to a declared revenues failure for the remainder of fiscal 2017 -- have further compounded the state's challenge to achieve structural balance in fiscal 2018," said S&P Global Ratings credit analyst Oscar Padilla.

"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," Padilla added.

Fallin echoed ratings analysts in her disappointment with the one-time revenue measures used in the approved budget.

“When legislators return next year, they will already face a $400 million hole caused by one-time funds and $100 million of obligations coming due over the next 12 months that will need to be paid,” the governor said.

“Hopefully, in the months that follow they will begin putting together a real plan to address the budget to fill that hole when they return in February of 2018 – an election year when we know it is difficult to pass revenue measures,” she added.

Some lawmakers fear that the $6.8 billion budget that Fallin agreed to would not pass constitutional muster.

The state constitution also prohibits lawmakers from considering revenue measures in the final week of the session.

"I do not believe these bills are constitutionally compliant, and I'm hopeful the courts will overturn them," said Rep. Jason Murphey, R-Guthrie.

Among the revenue measures considered in the last week of the session was a $1.50 per pack cigarette tax increase.

House Bill 2429, approved by the legislature, raises the gross production tax rate on oil and gas wells drilled between 2011 and 2015. The rate would go to 4% from the current 1%.

On Thursday, Fallin approved a $58.5 million bond package to build a new public health lab. She also signed another bill that would let the Office of Juvenile Affairs build a new campus to hold mid-security juvenile offenders.

Oklahoma declared a revenue failure on Feb. 21 as revenues were estimated to be $701.5 million, or nearly 10.5%, less than appropriated for fiscal 2017, not including additional budgetary authorizations.

General revenue fund revisions through June 30 showed revenues declining below the 5% threshold, at 5.7%, or $296.4 million, requiring a budget reduction equivalent of 0.7% to restore balance.

Since the December revenue estimate, personal income tax and corporate income taxes were revised downward by $72.3 million or 3.8% and $16.6 million or 15.4%, respectively.

Despite upward revisions on sales and gross production gas taxes, general revenue funds were projected to be down $64.9 million more than December's estimate.

Fallin's proposed fiscal 2018 budget proposed no one-time revenues to achieve structural balance but hinged on broadening the sales tax base by applying the levy to services and increasing motor fuel taxes and cigarette taxes, among other revenue enhancers. The proposed budget also eliminated corporate income taxes and sales tax on groceries.

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