Oklahoma Closes Historic Budget Gap
May 31, 2016
Facing a $1.3 billion shortage in the next year’s state budget—the largest gap in Oklahoma’s history—the Oklahoma legislature wrapped up its regular session last week with the passage of a $6.8 billion budget. The budget appropriates 5 percent less than the previous year, and leaves a remaining $360 million gap in the budget. Governor Mary Fallin is expected to sign the budget, which includes a new bond issuance for transportation, a transfer from the Rainy Day Fund, and cuts to agency spending.
Oklahoma’s budget shortfall is widely regarded as a symptom of the energy downturn. One in 5 Oklahoma jobs are energy industry driven, and as oil prices have plummeted so have related tax revenues.
The state adopted several tax changes estimated to increase revenue by nearly $270 million:
- The earned income tax credit is no longer refundable, meaning that filers will no longer receive a refund if the value of the credit exceeded their tax liability. The state credit is equal to 5 percent of the federal earned and is claimed by 355,000 Oklahoma residents. With this change, it is estimated to increase state income tax collections by about $29 million in 2017.
- A “double deduction” for state income tax payers—Oklahoma taxpayers who itemized deductions on their federal income taxes could carry over those deductions to their state income taxes, including a deduction for state income taxes—was eliminated, which is estimated to save the state $90 million a year.
- The total credit available for low-producing oil wells was capped at $12.5 million, which is estimated to save the state $120 million in revenue.
- An additional annual tax credit cap of $25 million placed on the Investment and New Jobs Tax Credit, effective for tax years 2016 through 2018, is estimated to increase income tax collections by $14 million.
- The state expects to raise $18.5 million from the sale of new license plates. The legislature passed a bill requiring Oklahoma motorists to purchase new metal license plates at a cost of $5 each during the next fiscal year.
In total, the legislature considered more than $2 billion in revenue ideas this session, including a $1.50-per-pack tax on cigarettes to help fund the state’s health care system and an elimination of a wind energy company tax subsidy after 2017. Both measures failed in the House.
After this session’s one-time transfer—that leaves the state’s emergency fund with a $241 million balance—and bond financing, the State of Oklahoma still needs to consider long-term solutions for revenue stability.