Over the past two years, Oklahoma’s revenue collections have been on a steady path to recovery. For the first nine months of FY 2012, collections to the General Revenue fund (GR) are up 22 percent compared to the same period two years ago. As the chart below indicates, tax collections have still not fully recovered from their steep drop during the 2008-09 recession. Year-to-date GR remains 7 percent below its pre-recession peak and below the levels of six years ago (without adjusting for inflation or population growth). Yet through February, monthly GR collections had been up compared to the same month from the prior year for 22 straight months. Total Gross Receipts to the Treasury (GRT), which includes more taxes than the General Revenue fund, was up for 24 consecutive months.
This month, however, there are signs the revenue recovery is stumbling. Last week, Treasurer Ken Miller announced that Gross Receipts to the Treasury fell modestly in March, down 0.3 percent compared to the same month one year ago. The drop was due primarily to gross production taxes, which came in $38.1 million, or 36 percent, below last March. Miller noted that low natural gas prices have now led to four consecutive months of declining gross production revenues and he anticipates continued difficulties:
Due to the timing of gross production collections, March receipts reflect market activity from January. We should expect a period of shrinking natural gas tax collections until prices rebound… In addition, state law mandates the currently assessed tax rate of seven percent be lowered to four percent if the average monthly price falls below $2.10 per mcf.
Along with low gas prices, the generous tax credits that producers can claim for horizontal drilling, which accounts for a rapidly increasing share of state production, may be dampening oil and gas tax revenues. March revenue collections also showed corporate income tax collections down 9.0 percent from a year ago, while personal income tax collections rose by a modest 1.4 percent.
On the heels of the Treasurer’s gross receipts report, State Finance Director Preston Doerflinger this week reported that monthly General Revenue collections were down $4.1 million, or 0.9 percent, from March 2011, and down $6.4 million, or 1.5 percent, from the certified estimate. The decline was largely attributable to the Legislature’s decision to divert $34 million in March gross production tax revenues to pay for supplemental appropriations to the Department of Education. The Office of State Finance noted that “if oil revenue was included, totals for the month would be 29.9 percent or 6.8 percent above last year and $27.5 million or 6.2 percent above the estimate.” Still, as can be seen from the chart below, revenue growth is slowing. After four straight quarters where revenues were up over 10 percent compared to the same quarter for the prior year, revenue this past quarter (January – March) grew by a more modest 5.7 percent. If the $34 million in diverted oil money had been included, revenue for the quarter would have increased 8.4 percent.
There are certainly still encouraging signs in the state’s revenue picture. Sales tax collections continue to grow robustly – March sales tax collections were up 16.8 percent to the GR fund and 15.1 percent in total gross receipts compared to one year ago. And the state continues to enjoy strong personal income growth and declining unemployment. Still, with gross production revenues faltering and overall revenue collections still not fully recovered from the downturn, policymakers should conclude that this is hardly the time for another round of tax cuts.