Revenue collections finish strong year – but still face a steep upward climb

State Finance Director Preston Doerflinger yesterday announced that June General Revenue (GR) collections came in $78.1 million, or 15.7 percent, above last year and $66.2 million, or 13.0 percent, above the official certified estimate. The June collections brought to an end the 2011 fiscal year and confirmed the increasingly solid recovery of Oklahoma’s tax collections that has been apparent over the course of the year. As can be seen from the first chart, the final quarter of FY ’11 marked the second quarter in a row where revenues exceeded the prior year by over 12 percent and the fifth straight quarter of year-over-year quarterly revenue growth.

For the full year, General Revenue increased by $487.1 million, or 10.5 percent, from the depths of FY ’10. However, as we can see, revenue collections remain substantially below pre-downturn levels. This year’s GR came in 14.2 percent below FY ’08 and remains considerably below collections of five years ago, FY ’06.

As the Finance Director noted, by the end of the year, all the major revenue sources were showing signs of strength, including the personal income tax and gross production tax on natural gas, which had been lagging until recently. Again, however, if we extend our comparison further back, we see that the recovery remains partial and that we are still some distance from having recovered from the collapse of 2009 and 2010. Of the major state taxes that flow to GR, only sales tax collections have fully recovered to pre-downturn levels. Most notably, this year’s GR personal income tax collections remained 23.0 percent below FY ’06 and are at almost exactly the same amount as eight years ago. This reflects not only the severity of the 2008-09 recession but also the ongoing impact that tax cuts and tax breaks have had on weakening state income tax collections.

Thanks to revenue collections exceeding projections, the state will be able to make a substantial FY ’11 deposit of some $219 million to the Rainy Day Fund. Full-year collections also exceeded  the final revised estimate for the year certified by the Board of Equalization in February by $149 million, primarily as a result of income tax collections coming in much stronger than expected over the final months of the year. The strong finish to FY ’11 provides good reason to imagine that if current economic trends continue, we will see collections in FY ’12 outperform the official estimates developed five months ago (After adjusting for legislative changes, the Board of Equalization in June certified FY ’12 GR at $5.235 billion, which is only 2.5 percent above FY ’11 actual collections).  However, this will have little, if any, impact on the current year budget. So while revenues are on an upwards swing, this is too little and too late to spare state agencies from having to absorb more swings from the budget cutting axe.