Capitol State leaders avoid 20-pct cut, settle on 5-pct reduction for now

September 16, 2009

OKLAHOMA CITY – State leaders have managed to stave off a 20-percent across-the-board cut in September agency allocations by tapping $80 million in cash reserves, state Treasurer Scott Meacham said Tuesday. Agencies will have to cope with a 5-percent reduction, however.

Officials said discussions continue as to how to address the state’s financial difficulties, stopping short of calling for a special legislative session.

Meacham said it is possible allocations will have to be reduced as much as 5 percent each month through June of next year. They were cut 5 percent last month.

He said that, once again, state government’s fiscal woes were fueled in large part by the plunge in natural gas prices. Gross production taxes on natural gas yielded only $20.8 million in August. That was $75.8 million or 78.5 percent below the same month last year and $48.3 million or 69.9 percent below the estimate.

State finance Director Michael Clingman notified agencies of the reduction Tuesday afternoon.

“As we did last month, we were able to minimize the impact of the collections shortfall this month by transferring cash reserves,” Clingman said.

Meacham said this may have marked the last month state leaders have to move cash around to balance the books. He said most of the $160 million in cash used in August and September must be replaced by the end of the fiscal year, next June 30.

Revenue collections for August totaled $335.2 million, which was $154.9 million or 31.6 percent below last August and $131.3 million or 28.3 percent below the official estimate, which is used to set the state budget.

“It actually was a little bit worse than last month,” the treasurer said.

Gov. Brad Henry said Tuesday’s numbers were not unexpected.

“For the past several months, we have warned state agency directors to prepare for the possibility of continued reductions, depending on monthly revenue performance,” the governor said. “Still, we know these cuts will not be easy to implement, particularly after the budget reductions we authorized in the last legislative session.”

For the first two months of fiscal year 2010, general revenue collections amounted to $672 million. That was $275.3 million or 29.1 percent below July-August of last year and $209.7 million or 23.8 percent below the estimate.

Meacham said officials continue to monitor monthly collections closely.

“Until state revenues begin to rebound, we are making plans to ensure government services are not adversely impacted,” he said.

Meacham said the state may be able to make it to the regular session, which begins in February, without tapping the Rainy Day fund or remaining federal stimulus money. Each account contains about $600 million.

However, he said state leaders could decide to come into special session and address the fiscal problem sooner.

“They’re going to have to act before the end of the fiscal year,” Meacham said.

The state treasurer said he thinks it is likely the Rainy Day fund will eventually be tapped.

“I think most people feel that a rainy day has occurred,” Meacham said.

Net income taxes for August produced $120.2 million, which was $35.8 million or 22.9 percent below last year and $36.8 million or 23.5 percent below the estimate.

Meacham said income tax refunds were up $13.5 million for the month, while withholding was down about $19 million for the month.

State sales taxes yielded $127.5 million in August. That was $25.4 million or 16.6 percent below August 2008 and $35.4 million or 21.7 percent below the estimate.

Meacham said the drop in sales taxes may be fueled in part by the ripple effect of the downturn in the energy sector, as sales tax-generating supplier transactions are affected.

Motor vehicle taxes produced $7.8 million, which was $10.3 million or 57 percent below the same month last year and $6.7 million or 46.5 percent below the estimate.

Meacham said it remains to be seen whether the federal “Cash for Clunkers” program will result in healthier motor vehicle tax revenues.

Other revenue totaled $59 million for the month. That was $7.6 million or 11.4 percent below the previous August and $4.1 million or 6.6 percent below the estimate.

“I still don’t think we’ve really seen the bottom yet,” Meacham said.

On one optimistic note, Meacham said state revenue is about to enter into months that historically see better collections. He also said that retail sales have held up fairly well.

Meacham said he believes the entire Rainy Day fund is open to help close the state’s financial gaps. He said three-eighths of the $600 million became available when the revenue certification was revised in February, with another three-eighths becoming available if the State Equalization Board certifies a shortfall. Meacham said the remainder could be tapped in the event a fiscal emergency is called.

Henry said it is premature to say what the ultimate course of action will be, as talks with legislative leaders continue.

Senate President Pro Tem Glenn Coffee, R-Oklahoma City, said, “There had been no signs that the economic climate had improved from July to August, and that was confirmed today.”

House Speaker Chris Benge, R-Tulsa, said officials are keeping financial options open.

“We are now only two months into our current fiscal year, and given the continued global recession and depressed natural gas prices, we want to take a prudent approach to our budget options and not make any rash decisions,” the speaker said.

The Oklahoma Public Employees Association called for cuts to private contractors, urging state leaders to convene in special session.

OPEA Executive Director Sterling Zearley said Oklahoma spends $1.4 billion a year in contracts with private providers.

“There is no reason state agencies should be forced to shoulder this burden alone,” he said.

Zearley said the state cannot continue to make cuts in agency budgets without it beginning to affect all Oklahomans.

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