Not a pretty picture: National outlook for state budgets looks a lot like Oklahoma's

We’re nowhere close to being out of the woods. That’s been our message of late on the state’s budget outlook (you can take a look here at our blog post analyzing of the most recent monthly revenue collections and here at the memo (PDF) on the budget we distributed to candidates). While revenue collections over the past 8 months have rebounded 5 to 10 percent from the previous year, they remain well below pre-downturn levels. And even though revenues are recovering, the use of over $1 billion in non-recurring revenues from the federal stimulus bill and state Rainy Day Fund  in this year’s budget to avert catastrophic budget cuts ensures that Oklahoma policymakers will face substantial shortfalls in building next year’s budget.

A new report (PDF) on state revenues from the highly-respected Rockefeller Institute indicates that Oklahoma’s revenue picture is rather similar to that of most other states. Their report, based primarily on data from the U.S. Census, looks at state revenues through the 2nd quarter (April – June) of Calendar Year 2010. Looking at the past twelve months as a whole, they say, “it is not a pretty picture.”  Nationally, total tax collections for the four quarters corresponding to SFY ’10 were down 3.0 percent compared to SFY ’09 and by 16.9 percent compared to SFY ’08. Comparing SFY ’10 to SFY ’09, Oklahoma’s revenue collections fell 12.7 percent, which was third worst among the states, behind only Louisiana and Wyoming. The likeliest explanation here is that like other oil and gas producing states, Oklahoma’s revenues held up better through the early stages of the national recession before falling steeply towards the end of SFY ’09 and the first half of SFY ’10.

Looking just at the most recent quarter, the picture is somewhat brighter. As the national economy continued its slow emergence out of the recession, overall state tax revenues rose 2.3 percent in the second quarter of Calendar Year 2010 from the same quarter in 2009. Thirty-four states reported revenue growth in the 2nd quarter of CY 2010; Oklahoma’s increase of 4.1 percent ranked 21st among the states. Unlike for the nation as a whole, Oklahoma personal income tax collections for the quarter remained down from 2009 (-9.3 percent), while both corporate income tax collections (+7.0 percent) and sales tax collections (+6.1 percent) performed relatively well.

Even though revenues are back on an upswing, the Rockefeller Institute report clearly points out that the recovery is far from complete. Despite two consecutive quarters of growth, total state revenues remained almost 15 percent lower in the 2nd quarter of CY 2010 than in the same quarter of 2008. (Although Rockefeller did not provide state-level comparisons of 2010 to 2008, our data shows that Oklahoma General Revenue collections for the 2nd quarter of 2010 were 23.1 percent below two years prior). Looking ahead, the report is quick to caution of a steep uphill climb:

Even though the national economy is beginning to somewhat brighten, indicating a recovery from the 2007 recession, several factors such as continued weakness in employment and retail sales indicate that state fiscal recovery will be exceptionally slow and much longer compared to the prior recession.

As Nick Johnson of the Center on Budget and Policy Priorities wrote in a blog post commenting on the report:

The combination of sluggish revenue growth, diminishing federal aid, and rising costs means that states will face their biggest fiscal challenges ever next fiscal year, which starts next July in most states.  Already, states are projecting $112 billion in shortfalls for fiscal year 2012, as we reported earlier this month, and we expect that figure to grow.

Johnson concludes, “In short, the worst is far from over.”  What remains to be seen is what actions states, including Oklahoma, will consider in order to bring their budgets into balance in the coming year. With reserve funds largely exhausted and the prospects of further assistance from the federal government hovering between “fat chance” and “ha!”, the options are as bleak as they are limited.  There seems little doubt, as the Rockefeller Institute concludes, that:

Many states will be forced to make more budget cuts – and to consider further increases in taxes and charges – in the coming year.


Former Executive Director David Blatt joined OK Policy in 2008 and served as its Executive Director from 2010 to 2019. He previously served as Director of Public Policy for Community Action Project of Tulsa County and as a budget analyst for the Oklahoma State Senate. He has a Ph.D. in political science from Cornell University and a B.A. from the University of Alberta. David has been selected as Political Scientist of the Year by the Oklahoma Political Science Association, Local Social Justice Champion by the Dan Allen Center for Social Justice, and Public Citizen of the Year by the National Association of Social Workers.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.