Oklahoma will begin to set aside a portion of future oil and gas revenues for a new reserve fund if voters approve State Question 800 in November.
SQ 800 creates a new trust fund known as the Oklahoma Vision Fund in the state Constitution. Five percent of the collections from the gross production tax on oil and gas would be deposited in the Fund beginning July 1, 2020 (FY 2021), and this allocation would increase by two-tenths percentage points every year. The fund would also consist of investment and income returns and any other appropriations made by the Legislature.
As of July 1, 2020, 4 percent of the average annual principal amount of the Fund over the preceding five years would be deposited to the General Revenue Fund. Up to five per cent of the monies in the Fund could also be used for debt obligations issued by the State of Oklahoma or local government entities.
The state question made it on the ballot as a legislative referendum following passage of SJR 35 in 2018. The measure, authored by Senate Minority Leader John Sparks and House Speaker Charles McCall, passed the Senate 42-0 and the Senate 94-3. It did not need the Governor’s signature to be placed on the November ballot. A companion bill, HB 1401, that changed the statutory allocation of gross production tax revenues and made other changes that sought to align statutes with the new constitutional language, was vetoed by Governor Fallin.
[pullquote]If SQ 800 is approved by the voters, the Oklahoma Vision Fund would become the state’s third budget reserve fund.[/pullquote]
Oklahoma currently has two reserve funds: the Constitutional Reserve Fund, commonly known as the Rainy Day Fund, created in the 1980s, and the Revenue Stabilization Fund, created in 2016. The two existing funds are designed primarily to build up reserves when revenues are growing and stabilize the budget in periods of revenue downturns. By contrast, the new Vision Fund would operate more as an endowment that would grow steadily over time and would ensure long-term savings from depleting energy resources. Nine of the eleven states with the highest severance revenues already direct a portion of those revenues to a permanent fund, according to a 2017 study by two researchers at the University of Oklahoma, Aimee Franklin and Samuel Moore. Oklahoma and Louisiana are the only major oil and gas states without a permanent fund.
In her veto of the companion legislation to SJR 35, Governor Fallin identified two concerns with the new reserve fund. First, she noted that deposits to the Vision Fund would divert an ever increasing share of revenue that is currently dedicated to the state budget and to existing reserve funds. However, the share of gross production taxes going to the Vision Fund is only 5 percent initially, and, even growing at 0.2 points annually, it would not hit 10 percent for twenty-five years. Her second objection was to the provision allowing up to 5 percent of the Fund to be used for debt service payments for any state or local government entity. “The state should not be paying for obligations that are not its own,” wrote the Governor in her veto message. Though not mentioned in her veto message, there is also no language specifying who would decide, and how money from the Vision Fund is allocated for debt obligations, though this could be addressed in future legislation.
The precise mechanisms of how money flows into and out of the Vision Fund may need to be revisited in future years, as well as how the Vision Fund interacts with the two other reserve funds. However, Oklahoma voters will likely agree that setting aside a modest portion of the revenues from energy production is good stewardship that should allow the state to be better prepared for economic and energy changes in the decades ahead.