Revenues: Despite improvements, next year’s die is cast… unless the Legislature acts

Today’s announcement of the monthly General Revenue collections brought incontestable good news:

State revenue collections in March topped prior year collections for the first time since December 2008 and the official estimate for a second consecutive month, State Treasurer Scott Meacham announced today.

Collections beat the official estimate by an impressive $81.4 million, or 25.5 percent. For the third quarter of FY ’10, collections fell short of the estimate by just 2.4 percent; by comparison, for the second quarter, revenues were more than 27 percent below the estimate.

Compared to the same month in 2009, collections in March were $6.4 million, or 1.6 percent, higher. The chart below, which we have been using in recent months to put this year’s collections in a longer-term perspective,  reveals the extent to which March marks a sharp and decisive upturn in revenues. The month’s collections were back to just over 90 percent of the average collection for the same month over the past five years.  In each of the previous nine months, collections remained mired below 85 percent of their five-year average.

The upturn is important in several respects. Improving gross production and personal income tax collections indicate the economic recovery is taking hold in the state, as the Treasurer noted in his press release and a media availability I attended. The rebound will help the state repay funds that were borrowed in prior months to keep the budget balanced and ensure that deeper cuts to this year’s budget, beyond those already agreed to and implemented, will be unnecessary.  It also gives policymakers some confidence that the worst is truly over and that they have less need to safeguard against a recurrence of this year, when revenue estimates proved overly optimistic and agencies were forced to absorb repeated cuts once the new fiscal year began. This could factor into decisions about whether to use the full amount left in the Rainy Day Fund ($374 million) to shore up next year’s budget, rather than leaving a portion in reserve for FY’11 and FY ’12.

However, it must be emphasized that regardless of how strongly revenues recover during these latter months of FY ’10, it has no bearing on the amount of revenue that is available to the Legislature for appropriation in FY ’11. The final, binding revenue estimate was certified by the Board of Equalization in February.  There is no authority and no opportunity to recast the die and alter that certification based on economic conditions or economic projections.

However, changes to revenue-related laws approved by the Legislature during session can lead to a revised certification. This means that the various revenue enhancements that Governor Henry proposed in his FY ’11 budget, or those that OK Policy has recommended as worthy of consideration in our just-released issue brief, could still be used to mitigate the extent of next year’s budget cuts.  The Treasurer noted again today that without these additional revenues, no agency will be spared double-digit cuts and these will affect Oklahomans in profound ways.  Even if the improving fiscal landscape is encouraging, the progress is too little and too late to spare the Legislature the really hard decisions in the weeks ahead.