OKPOLICY.ORG
As Oklahoma settles into Fiscal Year 2027, which began July 1, advocates for education, health care, public safety, and other state services will begin trying to determine how much funding may become available for appropriation. The new Legislature will convene in February and write the FY 2028 budget in May.
This job has become more complicated in recent years because the Legislature has created various “reserve accounts” where they deposit money instead of appropriating most available funding to state services. In addition to the general revenue fund and cash carried forward from previous years, the Legislature can appropriate money from these reserve accounts.
The first of these recently created funds is the “Revenue Stabilization Fund,” which was created in 2016 to receive money during good revenue years from certain volatile sources such as the gross production tax on oil and gas and the corporate income tax. In 2019, the Legislature appropriated nearly $400 million to be held in the fund rather than used for state services. At present, the Revenue Stabilization Fund has a balance of $248.8 million.
Next came the “Rate Preservation Fund,” which was created in 2019 to protect Oklahoma Medicaid (SoonerCare) reimbursement rates if the Federal Medical Assistance Percentage (FMAP) declines. The fund is designed to prevent cuts to provider rates or services if the federal matching rate falls. Its current balance is $335 million.
The “Statewide Recovery Fund” was created in 2022 to serve as the primary mechanism for managing federal COVID-19 relief funds and other unrestricted appropriations. It has a current balance of $184.2 million.
Due to spikes in oil and gas prices following global supply disruptions in FY 2021–FY 2023, state revenues boomed. The Legacy Capital Financing Fund was created by the Legislature in 2023 to meet the state’s capital needs by providing no-interest loans to state agencies. The agencies repay the loans through annual appropriations over 20 years, allowing the fund to become self-financing.
The Legacy Fund received an initial $600 million appropriation in 2023 and has received $1.257 billion in total appropriations. Of that amount, $1.19 billion has been loaned to state agencies for capital projects, leaving a balance of $63.4 million.
This year, the Legislature advanced Gov. Kevin Stitt’s goal of eliminating the state income tax by appropriating $200 million to the new Taxpayer Endowment Trust Fund. The fund’s earnings, along with future appropriations, are intended to help make income tax repeal possible. It currently holds $200 million.
The Office of Management and Enterprise Services (OMES) announced last Monday that General Revenue Fund (GRF) collections for FY 2026 totaled $8.9 billion. This was $612.1 million, or 7.4 percent, above the estimate for the year.
Under the Constitution, the $612.1 million would normally be deposited into the Constitutional Reserve, or “Rainy Day,” Fund. However, because the Fund has reached its $1.3 billion constitutional cap, the money will instead be carried forward as cash.
The $612.1 million in cash will be added to the $414.1 million that became available at the end of FY 2026 because the state Constitution allows the Legislature to spend only 95 percent of the Board of Equalization’s estimate of available funds. Together, these amounts will give lawmakers more than $1.0 billion in new surplus cash to appropriate during the 2027 session.
This new $1 billion in cash is in addition to the $3.5 billion currently held in reserve accounts. These large cash reserves have resulted from the Board of Equalization underestimating available appropriations and from legislative decisions in recent years to place excess revenue in reserve funds rather than use it for state operations. These reserves are typically treated as “one-time” money that is not available for ongoing state operations.
The $1 billion in cash will be available for appropriation next session, along with any new funding certified by the Board of Equalization and any amounts lawmakers choose to draw from reserve funds.
Because state revenue depends heavily on oil and natural gas prices, lawmakers are understandably cautious about increasing operating budgets in ways that could lead to future shortfalls. If recent history is any indication, most, if not all, of this cash will be treated as one-time money for one-time projects, additional reserves, or tax cuts, with little likely to support ongoing state services.
However, one question needs to be asked: “How many billions do we need in reserve before we begin catching up on current state needs?”
