By Constitution Staff

On December 19, the state Board of Equalization officially certified $6,958,045,775 of revenue available for the governor to prepare her executive budget proposal for the coming fiscal year. The Legislature will consider the governor's proposed budget in the session which begins on February 3rd, and must pass the budget for FY 2015 which begins on July 1, 2014. Due to a variety of mostly noneconomic factors reducing state revenues, the amount certified is $88.8 million (1.3 percent) less than what the board last December determined as available for the governor's FY 14 executive budget, and $170.8 million (2.4 percent) less than the $7.1 billion that was actually approved by the Legislature for FY 14.

"Barring a big revenue increase, it looks like the next state budget will be slightly smaller than this year's or flat. Agencies should be realistic and prepare now for the potential of reduced or flat budgets," said Secretary of Finance, Administration and Information Technology Preston L. Doerflinger. The board will meet again in late February to make a second estimate that will be used in negotiations between the governor and legislators to determine appropriations levels for state agencies. "As always, February's certified figure is usually larger and carries far more weight than this December exercise. In any event, it's time to accept that next year will be tight and continue exercising fiscal discipline," Doerflinger said.

Doerflinger is director of the Office of Management and Enterprise Services (OMES), which works with the governor's office to build the annual executive budget. OMES, in conjunction with the Oklahoma Tax Commission, prepares the revenue estimates that are presented to the Board of Equalization.

The board voted to adjust certified revenues to reflect the December ruling by the Supreme Court which overturned House Bill 2032. The court declared the law to be unconstitutional because it included provisions creating a fund for state Capitol building repairs. The state constitution prohibits covering more than one topic in a single bill. The court ruling resulted in a $102.7 million revenue increase that had to be added in to the revenue estimate due to the board's constitutional requirement to certify funds based on current law. "The vote wasn't a policy decision, but a necessary step at this time to comply with the constitutional requirement that the board certify revenues based on current law. The board has the authority to adjust the estimates and it exercised that authority Thursday to comply with the Constitution," Doerflinger said.

Board members were told the state is not expected to have funds available for deposit into the state Rainy Day Fund at the close of the current fiscal year. The fund currently contains $535.2 million.

About 80 percent of the projected revenues the board considered are projected collections to the General Revenue Fund (GRF), state government's main operating fund. The GRF is the key indicator of state government's fiscal status and the predominant funding source for the annual state budget. It is where all taxes and fees flow that are not dedicated to specific programs. Collections to the GRF represent funds available for discretionary spending, meaning policymakers have total control over how the funds are spent.

While gross revenue collections have continually increased in recent years, collections to the GRF as a percentage of gross collections have been on a steady decline as various revenue policies have slowly redirected collections away from the GRF to specific purposes such as education, transportation, employee pensions and energy industry tax provisions. Other portions of gross revenue collections are rebated or refunded to tax filers pursuant to tax law or apportioned to counties, municipal governments and other recipients.

In FY 2007, 55.2 percent of gross revenue collections went to the GRF. In FY 2013, 48.4 percent of gross revenue collections went to the GRF, while 44.6 percent of FY 2014 year-to-date gross revenue collections have gone to the GRF. "Policymakers now control less than half the revenue collected by government because the general revenue fund is losing ground each year. Even though most of the redirected funds are going to necessary, noble purposes, the trend should still cause pause," Doerflinger said. "It's important, particularly when revenues are tight like they are now, to ensure that general revenue diversions don't choke the ability of policymakers to engage in discretionary spending to meet the needs of the day."

While most of the reasons revenues are decreasing are noneconomic, multiple economists have reported a softening in the Oklahoma economy in recent months. "In addition to these noneconomic revenue issues, there has certainly been a small hit to our economy from all the uncertainty Washington D.C. created over the past year with its prolonged fiscal fights. It obviously spooked consumers and businesses into spending less, and tax revenues decreased some as a result," Doerflinger said. "Oklahoma's economy is still a national leader and adding great jobs, but we're also under the constant threat of job-killing federal policies that place needless burdens on states like ours that have worked tirelessly to restore prosperity after the recession." Doerflinger added: "If we didn't have the pro-growth policy climate we do, we would be in a far more precarious position today. Our best defense continues to be a good offense, so we need to stay the course and continue pursuing policies that are helping our citizens prosper."