Oklahoma’s state revenue has peaked, and projections show significant declines in
available funds for the next fiscal year. In light of these challenges, state leaders must
adopt a cautious fiscal strategy to safeguard economic stability.
As a small business owner, I follow a similar approach by planning for downturns while
striving for growth. When planning the annual budget for our business, I always assume
a 3% to 5% drop in revenue. Then, we work hard to achieve 8% to 12% growth. This
strategy has served us well over nearly three decades through both up and down
business cycles. As a result, I’ve never had to lay off employees during bear markets or
recessions.
Similarly, caution is warranted when considering the financial condition of the state of
Oklahoma and the newly released revenue estimates for the next fiscal year. According
to projections, state revenue has peaked after a wave of monetary inflow following the
COVID-19 pandemic.
This influx of federal money created a surge in state revenue, akin to an ATM endlessly
spitting out cash. But now, the federal “ATM” has been turned off, and state leaders
must be careful with spending.
The Board of Equalization’s preliminary estimate indicates the state will have $152
million less to spend in the next fiscal year. Additionally, current fiscal year collections
are projected to fall $124 million short of expectations.
At first glance, these drops may not seem alarming, especially with a reported $4.6
billion in state savings. However, this savings figure includes federal and education set-
asides, leaving a real balance of $3.4 billion. Maintaining reserves of $3 billion to $5
billion is essential for fiscal stability, so there isn’t much extra money available.
Another factor that could negatively impact Oklahoma’s economy is a potential shift in
U.S. energy policy. Policies promoting increased oil production, like the "drill baby, drill" agenda, could lead to lower oil prices. While cheaper oil benefits consumers and helps
reduce inflation, it poses challenges for Oklahoma’s oil-dependent economy.
To match last year’s spending of $12.4 billion, the Legislature and Governor would need
to withdraw nearly $200 million from savings—a risky decision when revenue has
peaked.
Tax relief, a much-discussed priority, can proceed but only if paired with spending
reductions or reforms to eliminate some of the $2.4 billion tied up in sales and income
tax exemptions, deductions, and credits.
Core state government spending has increased by 45% since FY 2020, making
Governor Stitt’s proposal for flat spending entirely reasonable. House and Senate
appropriations leaders face a challenging task, but the best strategy is to reduce low
priority spending items, modernize the tax code, and avoid new corporate welfare
schemes. By adopting fiscal discipline, Oklahoma can weather current challenges and
secure a stable financial future for its citizens.
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