Report: Oklahoma economy may not recover until 2014 (Associated Press)

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Oklahoma’s economy, battered from the fallout of a national recession and low oil and natural gas prices, likely will not fully recover until at least 2014, according to a report released Tuesday by a Tulsa-based state policy think-tank.

The Oklahoma Policy Institute’s report, titled “A New Fiscal Reality for Oklahoma,” projects that — without any new sources of revenue — lawmakers will face an estimated $400 million budget hole when they return to the state Capitol in February to craft a budget for the upcoming fiscal year. Combined with budget cuts from the previous two fiscal years, that would amount to a cumulative budget reduction of about $800 million, or 11 percent, over three fiscal years.

“The magnitude of the looming shortfall for the coming budget year, and the likelihood of prolonged financial distress, makes it urgent that we develop a serious plan that protects essential public services and uses resources more wisely,” said David Blatt, director of the institute.

State officials will meet in two weeks to approve a preliminary estimate of available revenue for the budget for Fiscal Year 2012, which begins July 1. That figure will be used by Gov.-elect Mary Fallin to prepare her budget recommendations for lawmakers.

The official certification for how much the Legislature will be able to spend will be made in February, just before the start of the 2011 session.

Although revenue collections have rebounded over the last year and the state’s economy is showing signs of improvement, that growth will be offset to a great extent because of spending obligations incurred by previous Legislatures and the loss of one-time funds like federal stimulus money and cash reserves that were used to plug budget holes the last two years, Blatt said.

“Our revenues are going to recover a lot more slowly, because we legislated tax cuts for next year, and we deferred payments on some tax credits that we’ll have to pay off in the next couple of years,” Blatt said. “It’s going to make the recovery a lot more difficult.”

If state revenue collections grow at least 4 percent from last year’s low point, which Blatt predicted will happen, that will trigger an automatic cut of one-quarter percent in the state’s top income tax rate for tax year 2012, which will cost the state an additional $100 million and hamper the state’s recovery, he predicted.

“This year’s Legislature could defer that tax cut further until revenues have fully recovered to pre-downturn levels, or they could just repeal it,” Blatt said. “We’re talking about a policy that was made five years ago during a completely different fiscal environment.”

But with strong Republican majorities in the House and Senate and a new Republican governor, repealing or even delaying tax cuts is unlikely.

Gov.-elect Mary Fallin and incoming House Speaker Kris Steele of Shawnee both have said they support allowing the tax cut to take effect if the 4 percent growth trigger is reached.

To offset the impact on the state budget, Steele said lawmakers may look at eliminating or reducing some of the estimated $5 billion in tax incentives and tax credits the state offers every year.

“We may have to look at certain tax credit programs that currently exist that may have outlived their usefulness or served their purpose,” said Steele, who is meeting this week with the House GOP caucus in Bartlesville to develop their legislative agenda for the upcoming session.

Among the other recommendations from the Oklahoma Policy Institute: eliminate inefficient tax breaks; develop new revenue streams for health care, prevention and treatment; consolidate state agencies; and reform the state’s prison and pension systems.

While it could be difficult to delay scheduled tax cuts, Republican leaders have expressed interest in merging state agencies and making cost-saving changes to the state’s prison and pension systems.

Steele has said he supports an end to the practice of granting automatic cost-of-living allowances, or COLAs, for state pensioners without a funding mechanism, as well as alternative sentencing options for non-violent offenders that ultimately could save the state in prison costs.

“There are going to be plenty of tough choices that have to be made as we deal with the budget this next session,” Steele said. “We’re looking at having to reduce our overall appropriations. The money’s just not there.”


Oklahoma Policy Insititute (OK Policy) advances equitable and fiscally responsible policies that expand opportunity for all Oklahomans through non-partisan research, analysis, and advocacy.

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