Oklahoma Cuts Agency Budgets as Tax Revenues Plummet

DALLAS - Oklahoma finance director Michael Clingman on Tuesday ordered an immediate 5% reduction in state agency budgets for August as tax revenues continued a six-month slide.

Revenues in July, the first month of fiscal 2010, totaled $366.7 million, which is $120.4 million less than in July 2008, a drop of 26.3%. Revenues in July were 18.1%, or $74.4 million, less than expected.

It was the sixth month in a row of double-digit declines in Oklahoma state revenues, and the second time in the last three months that state agency budgets were shaved. The state cut agency budgets by 1.4% in June.

The state constitution mandates across-the-board cuts if actual collections are less than the amount appropriated in the state budget. Lawmakers cannot allocate more than 95% of official revenue estimate by the Oklahoma Tax Commission.

Tax collections over the last six months are $640 million below expectations.

The 5% cut, which amounts to $21.9 million less for the agencies this month, would have been more severe but for $54 million that was available from a number of state bank accounts.

"The less than anticipated collections for the month of July have caused us to reduce August allocations by 5%," Clingman said. "The cuts would have been deeper, but we were able to minimize the impact by utilizing cash reserves."

Treasurer Scott Meacham met Wednesday with Gov. Brad Henry and legislative leaders to discuss how best to deal with the worsening fiscal picture in Oklahoma.

"We have several options," Meacham said. "These include potential use of the rainy-day fund, tapping additional federal stimulus money, and other responses. However, I would warn state agencies that additional cuts may very well be coming."

Oklahoma relied on $630 million of federal stimulus funds to balance the $7.2 billion general fund budget for fiscal 2010. The state set aside another $600 million for similar budget enhancement in fiscal 2011, but Meacham said those funds could be drawn on this year.

Oklahoma's budget stabilization fund currently totals $599.6 million. Meacham said the state constitution allows the use of 37.5% of the fund, or $223.7 million, to prop up the budget if the State Board of Equalization issues a revenue shortfall proclamation.

In a prepared statement, Henry said it was too early to determine a course of action.

"It is likely that revenue trends will improve in the months to come, but we may not have the luxury of waiting for that to occur if revenue conditions continue to deteriorate," Henry said.

The biggest decline came in the gas severance taxes, which have fallen steadily as natural gas prices and production have declined since their peaks in 2008. The tax generated $22.2 million last month, a drop of $67.9 million from July 2008 and $42.2 million less than predicted.

Total income tax collections at $132.5 million for July were down $23.5 million from July 2008 and $4.9 million less than expected.

The state sales tax generated $129.4 million in July, down $12.2 million from 2008 and $21.4 million less than the estimate.

Oklahoma's general obligation debt is rated Aa3 by Moody's Investors Service, AA-plus by Standard & Poor's, and AA by Fitch Ratings.

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