Final FY 2017 receipts 3.4% below estimate for year
Rainy Day borrowing repaid; money to be returned to agencies after cuts
OKLAHOMA CITY — With General Revenue Fund collections in June beating the monthly estimate, Fiscal Year 2017 GRF receipts fell $175.9 million, or 3.4 percent, short of the yearly estimate.
To close out the fiscal year, the remaining balance of $229 million due to various funds — including the Rainy Day Fund — was repaid as state law requires after June collections finished more than 3 percent above the monthly estimate.
In February, Secretary of Finance, Administration and Information Technology Preston L. Doerflinger told the state Board of Equalization that he had to borrow from different funds in order to make monthly agency allotments for general revenue appropriations.
About $327 million was borrowed from all funds, including $240.7 million from the Constitutional Reserve Fund, also known as the Rainy Day Fund. After $33.7 million was returned during the fiscal year, the following year-end transactions have occurred to reconcile the borrowed funds:
$4.2 million was returned to the Rainy Day Fund in April and distributed to the Department of Human Services per HB 2342.
$60.185 million was returned to the Rainy Day Fund in May and distributed to the State Department of Education for Ad Valorem Reimbursement per SB 842.
The remaining $176.3 million balance owed to the Rainy Day Fund was returned this month after reconciliation of FY 17 GRF collections to close out the fiscal year.
$83 million of the $176.3 million Rainy Day Fund balance has been disbursed as appropriated by the Legislature through SB 844, SB 852, and HB 2360.
The Rainy Day Fund balance is currently $93.3 million.
The remaining $52.7 million due other funds was repaid this month to close out FY 2017.
“The lack of recurring revenue sources forced us to borrow from other funds this past fiscal year to keep state government operating,” Doerflinger said. “Borrowing will continue in FY 2018 as an over-reliance on one-time funding sources and an inability to pass significant structural budget reform with new recurring revenue sources promises to make the upcoming fiscal year another cash-flow challenge.”
Funds returned to agencies
After the GRF’s final FY 2017 account reconciliation, mandatory midyear funding cuts required by the state’s declaration of revenue failure are being returned to state agencies. In all, $34.6 million will be returned to agencies after general revenue allocations were cut 0.7 percent across the board in February.
“When the revenue failure declaration was made in February, it was based on expert tax projections, economic trends and numbers certified by the State Board of Equalization,” Doerflinger said. “It would have been completely against precedent, totally irresponsible to Oklahoma taxpayers and counter to Constitutional intent not to make such a declaration.”
In order to maintain the state’s constitutionally required balanced budget, state law requires across-the-board reductions to most agency appropriations when general revenue collections are projected to fall more than 5 percent below the estimate for the remainder of a fiscal year.
February projections presented to the board had revenue collections falling 5.7 percent below the estimate. Due to the projected decline and significant revenue volatility the state was experiencing at the time, OMES reduced general revenue allocations by 0.7 percent to maintain the state’s balanced budget and reduce the possibility of further cuts late in the fiscal year when it would have been even more damaging to agencies
In addition to the agency funds returned, $3.3 million cut from transportation funds as required by statute also was returned. (A full list of returns to agencies and funds can be downloaded from the OMES website.)
“Today’s return of funds is a bit of good news at the end of a long and challenging fiscal year,” Doerflinger said. “The return will certainly help agencies out, but it doesn’t signal a recovery as the year-end total was still below the estimate. The last few years have been historically challenging budget times, and we still lack sufficient recurring revenue sources and are in need of structural budget reform.”
Volatility hurts agencies and services
In FY 2017, there were six months corporate income tax failed to contribute to general revenue. In June, corporate income tax collections made a positive impact for only the third time in nine months, yet still nearly 20 percent below the estimate.
Unstable corporate income tax returns were $165.7 million, or 55.9 percent, below the total FY 2017 estimate, making up a large portion of the $175.9 million by which all GRF receipts missed the estimate. Without the corporate income tax shortfalls, year-end totals would have been only 0.2 percent short of the FY 2017 estimate.
“Without having to factor in the instability of corporate income tax collections, we likely would have been able to avoid discussion of revenue failure altogether,” Doerflinger said. “Without the large swings in corporate income tax returns, we would have been very close to the estimate.”
“This just goes to underscore that you can’t rely on corporate income tax collections, and having to factor in the instability they bring actually harms state agencies and services they provide by adding unpredictability to the budgeting process,” he said. “Eliminating this volatility by doing away with the corporate income tax would add stability to budgeting and stimulate economic development.”
Key indicator of fiscal health
As state government’s main operating fund, the GRF is the key indicator of state government’s fiscal status and the predominant funding source for the annual appropriated state budget. GRF collections are revenues that remain for the appropriated state budget after rebates, refunds and mandatory apportionments. Gross collections, reported by the State Treasurer, are all revenues collected by the state before rebates, refunds and mandatory apportionments.
Doerflinger is director of OMES, which issues the monthly GRF reports.
June GRF collections of $547.7 million were $17.9 million, or 3.4 percent, above the official estimate upon which the Fiscal Year 2017 appropriated state budget was based and $59.4 million, or 12.2 percent, above prior year collections for the same month.
Total FY 2017 GRF collections were $5 billion, which is $175.9 million, or 3.4 percent, below the official estimate and $160.4 million, or 3.1 percent, below prior year collections.
The year-end totals show expenditures again outpacing revenue, a trend likely to continue without further structural budget reform. With an increasing percentage of off-the-top money taken from gross tax collections and a declining amount left for GRF appropriation — down from 48.6 percent in FY 2012 to 43.7 percent in FY 2017 — the widening gap will continue to contribute to a budgetary structural imbalance.
Major tax categories in June contributions to the GRF
Total income tax collections of $241 million were $11.4 million, or 4.5 percent, below the estimate and $11.3 million, or 4.9 percent, above the prior year.
Individual income tax collections of $195 million were $168,000, or 0.1 percent, below the prior year and $10 million, or 5.4 percent, above the prior year.
Corporate income tax collections of $45.9 million were $11.3 million, or 19.7 percent, below the estimate and $1.2 million or 2.7 percent, above the prior year.
Sales tax collections of $167.6 million were $5.8 million, or 3.6 percent, above the estimate and $11.7 million, or 7.5 percent, above the prior year.
Gross production tax collections of $14.7 million were $2.9 million, or 25 percent, above the estimate and $8.1 million, or 123.3 percent, above the prior year.
Natural gas collections of $11.9 million were $449,000, or 3.9 percent, above the estimate and $6.2 million, or 109.1 percent, above the prior year.
Oil collections of $2.8 million were $2.5 million, or 780.4 percent, above the estimate and $1.9 million, or 213.7 percent, above the prior year.
Motor vehicle tax collections of $30.5 million were $1.8 million, or 6.3 percent, above the estimate and $5.5 million, or 15.3 percent, below the prior year.
Other revenue collections of $93.9 million were $18.8, or 25 percent, above the estimate and $33.8 million, or 56.4 percent, above the prior year.
Revenue tables can be viewed on the OMES website: https://omes.ok.gov/pages/june-2017-financial-report-data-tables.
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