To Comfort The Afflicted
And Afflict The Comfortable

To Comfort The Afflicted And Afflict The Comfortable

Saturday, June 6, 2020

New Observercast

It’s Not An Oil And Gas Crisis

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BY DAVID WALTERS

david_waltersOur elected officials have made it official! Oklahoma is looking at a $1.3 billion shortfall in public funding. Republican officials blame the shortfall on the cyclical nature of the oil industry, but a review of the numbers says that simply is not true. Responsibility for this disaster rests solidly at the feet of conservative lawmakers. Their constant attacks on state funding mechanisms and state services have led us to this point.

Two revenue failures this year have resulted in a 7% cut from the current budget. State government has certified a $1.3 billion shortfall for the next budget year and will require another 18% cut. The Oklahoma Policy Institute forecasts another billion-dollar shortfall the following year that will require another 20% cut. That adds up to a total reduction of 45% from the state budget over three years.

The budget shortfall has four components: $500 million in one-time funds, $325 million less in individual income tax collections, $229 million reduction in sales tax collections, and a $224 million reduction in gross production taxes. Oil revenue can only account for about 30% of the $1.3 billion shortfall. Responsible budget action could have prevented even that.

One-time funds totaling $500 million are, true to their name, no longer available. This accounts for 40% of the shortage. The Legislature could have budgeted for these expenses when oil prices were high but did not. This portion of the budget shortfall has nothing to do with oil price declines and everything to do with bad budgeting.

$325 million of the deficit comes from a decline in individual income tax collections. $147 million of this loss is due to the implementation this year of yet another tax cut.

Of the other $177 million no more than 40% of this decline can be attributed to a fractional decline in the 5% of Oklahoma jobs that are oil and gas based.

The greater negative impact on income tax collections is the relentless attacks waged by state officials against jobs in healthcare, education, and government services, which contributes twice that of oil and gas to the Oklahoma economy.

The same logic leads one to conclude that only 40% of the sales tax decline can be attributed to an oil bust.

The only pure oil- and gas-related shortfall in the budget involves the $224 million decline in gross production taxes. To be fair, however, in 2010, the Legislature cut the gross production tax rate from 7% to 2%. They did this during the $100 per barrel oil period when they could have used the revenue to shore up funds in preparation for the next cyclical downturn.

Bottom Line: 70% of the $1.3 billion shortfall has nothing to do with oil and gas price declines.

Tea Party Republicans own this deficit. They cannot blame the current cuts in healthcare and education services on oil prices. That clucking sound stems from the many efforts of our rabidly conservative leaders to reduce the state’s revenue base coming home to roost.

This is such a catastrophe … closing of schools, hospitals and throwing 100,000 individuals off of Medicaid insurance.

Pray that Oklahomans realize elections have consequences.

– David Walters was the 24th governor of Oklahoma and is president of OKC-based Walters Power International. This essay was edited by Larry Stone, a high tech entrepreneur and self-styled recovering former Republican.

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