Preliminary revenue estimates presented to the State Board of Equalization on Tuesday show the Oklahoma state budget may need to be cut by as much as $226 million in the next fiscal year.
The reduction will be in spite of an estimated $214.6 million or 4.4 percent projected increase in General Revenue Fund collections. The budget hole will be caused by the loss of federal stimulus funds, an empty Rainy Day Fund, an expected state income tax reduction and the extension of the federal tax cuts.
The tax-cut trigger would reduce the state income tax rate from 5.5 percent to 5.25 percent on January 1, 2012. The December findings are preliminary, with the official finding by the Board of Equalization made in February. If estimated revenue for the next fiscal year is four percent or higher than the final estimate of revenue for the current fiscal year, the trigger will cause the rates to be cut.
The tax cut trigger was the source of controversy at the Board of Equalization meeting. The board was asked to make a preliminary finding that FY2012 General Revenue Fund growth would be sufficient to trip the statutory trigger. Attorney General Drew Edmondson cast the only vote against the cut. After the meeting, legislative leaders and Governor-Elect Fallin voiced their support for the trigger. The tax rate reduction will cost state coffers approximately $61 million.
Earlier in the decade, before the revenue shortfall, state leaders passed an income tax cut that would trigger when revenue grew by at least four percent from the previous year. No one anticipated the deep budget hole from which the state would be recovering. Some policy analysts contend the intent of the law was to trigger the cut when revenue had grown from the high of the budget year it was passed, not the low point of the current budget.
“OPEA believes the intent of the tax cut was to measure growth from a high point, not a weak rebound from the bottom,” said OPEA Executive Director Sterling Zearley. “The loss of this revenue could jeopardize state services and pay raises in the next few years.”
“OPEA members should meet with their legislators and tell them the challenges they face in delivering core services to Oklahoma’s citizens,” continued Zearley. “Let them know a tax cut at this time would jeopardize your ability to perform your job.”