Current economic situation creates uncharted territory for state budget process (Capitol Update)

It seems a new conflict develops weekly now between the Governor and legislative leaders. This week the conflict again relates to the budget. Previously, the Governor had refused to sign a stopgap appropriations bill using money from the Rainy Day Fund to finish the remainder of the FY 2020 budget, which ends June 30. Although the measure became law without his signature, the Governor tried to stop the appropriation by refusing to call a Board of Equalization meeting. The meeting was required to declare a revenue failure freeing up the Rainy Day Funds. As it turned out, the Governor was piqued because legislators had failed to fully fund one of his priorities, which in turn was the result of the Governor’s office throwing cold water on a proposal by Speaker McCall for a plan for rural broadband coverage.

Fast forward to last Tuesday when the Equalization Board met. The Board, at the Governor’s request, decided to send a letter to legislators informing them of a perceived $1.3 billion shortfall for FY 2021, which begins on July 1. This was a gratuitous act neither prohibited nor provided for in the state constitution. 

The constitution provides for use of 3/8 of the Rainy Day Fund if the board’s February certification of funds available for appropriation is less than the previous year’s appropriations. It provides for use of 3/8 of the Rainy Day Fund in case of a current year revenue failure. And the final one-fourth is available in case of an emergency declared by the Governor or the Legislature. 

But the constitution does not provide for the event that is now happening: a collapse of the economy between February when the board makes its final certification and the end of May when the Legislature will use that certification to develop the state budget. It is obvious to the world that the certification is no longer valid, but there is no provision for the Equalization Board to meet again and set a new appropriations limit. 

This greatly complicates the appropriations process because there is no fixed target for appropriations. Thus, the conflict developed. Senate Pro Tempore Treat made it clear the Senate will not be bound by the letter from the Equalization Board. Implicit in his statement is that he considers the letter as the opening position by the Governor for negotiations, not a constitutional requirement. As the Governor later said, it is up to the Legislature to decide how much to appropriate and to the Governor whether he will sign it. 

I do not recall this situation happening before. I was on the conference committee in 1985 that hashed out the language creating the Rainy Day Fund and the method for certifying available revenue by the State Board of Equalization. Before 1985, the appropriation limit was automatically set by allowing a certain percentage increase or decrease in appropriations based on the previous five-year average of appropriations. This was too rigid because the wild swings in revenue due to oil and gas production allowed too much in appropriations in bad times and not enough “catch-up” appropriations as the economy got better. Since 1985, the Board of Equalization has set the limit through its certification using economic prediction models, which has worked remarkably well. But this year the system broke again because of the timing of the economic collapse. It will be interesting to see if legislators and the Governor can work it out without leaving too much blood on the field of battle. 


Steve Lewis served as Speaker of the Oklahoma House of Representatives from 1989-1990. He currently practices law in Tulsa and represents clients at the Capitol.

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