The fact that state revenues in April were down more than 11 percent than projected is one more reason to stop the income tax cut scheduled to take effect this coming January.
State officials recently announced revenues for April dropped by $87 million or 11.4 percent below the projection and $17.2 million below last year’s collections. Overall, revenues were at $673.3 million.
The worldwide oil and natural gas glut, which has reduced production and drilling in Oklahoma and thus lowered gross production tax collections, was blamed for the steep drop.
Meanwhile, the state faces a $611 million budget shortfall for this coming fiscal year, which begins in July.
Given the bleak scene the state currently faces, it only makes sense to stop the income tax cut from 5.25 to 5 percent, which was triggered by a rosier revenue forecast in December 2014. The legislature must pass legislation to stop the tax cut, but the Republican-dominated Oklahoma House, along partisan lines, already voted against a proposal to halt it. That was before this latest information surfaced, however.
No cuts are expected this fiscal year because of a budget cushion, but that could change. What’s less sure is what this new information means for budget forecasts for next fiscal year. Oil prices have begun to rise to around $60 a barrel after dropping to below $50 a barrel. That’s down from more than $100 a barrel last summer. But some analysts still believe oil will eventually drop again to the $40 a barrel range.
Oklahoma’s state budget is always affected by the collection of gross production taxes and part of the state’s boom-and-bust cycle, but that’s not the only pressure on the budget. Tax cuts in recent years, combined with dedicated funding in certain areas, have left the state scrambling to fund core services. Even when oil prices were high last year, the state still found it difficult to balance the budget, according to the Oklahoma Policy Institute.
As I mentioned in my last post and in several posts over the last two years or so, Oklahoma has cut education funding more than any other state since the Great Recession began in 2007. From fiscal years 2008 to 2015, the state cut education 23.6 percent, according to the Center on Budget and Policy Priorities.
The tax cut scheduled to take place in January will deplete the budget by $50 million and then $100 million annually after that. It is estimated by OK Policy that the average tax cut will be $31 for middle-class households. Only the wealthiest Oklahomans will truly benefit from it.
This latest news about April revenues shows again that the prudent action would be to stop the tax cut.