The slide in Oklahoma’s projected budget surplus demonstrates the impact volatile commodity prices have on a state budget that’s over-reliant on a single industry. The State Board of Equalization certified revenue this week and projected a $574 million surplus – a six percent reduction from earlier projections.
Since November, oil prices have averaged in the low-$50 range and Oklahoma’s rig count has fallen 15 percent, more than any other major oil and gas producing state. These market signals – and the immediate impact on projected revenues – are early indicators that could lead to further revenue tightening ahead.
Commenting on the report, OIPA-OKOGA president Chad Warmington affirmed the industry’s cautiously optimistic outlook on the year:
“Like many Oklahomans, we’re encouraged by the projected budget surplus and have a healthy dose of cautious optimism for the year ahead, but lawmakers should pay attention to several early indicators that could cause further revenue challenges.”
With a state budget that’s heavily reliant on the strength of the state’s energy sector, lawmakers’ focus should be on policies that strengthen Oklahoma’s business climate and attract more investment in the state. After all, capital investment – and the jobs, rigs, and tax revenue that comes with it – follows the path of least resistance.
With five gross production tax increases enacted over the past two years and an effective tax rate higher than our neighboring states, Oklahoma has lost the economic advantage as the top place for oil and natural gas investment that it once held.
“Commodity prices and geology will always be the prevailing forces pushing companies to expand or contract their drilling budgets,” Warmington said. “But state and local policies can tip the scales to determine where drilling rigs – and the economic activity that surrounds them – are most active. We urge policymakers to work toward diversifying the state budget’s revenue streams and support policies that strengthen Oklahoma’s competitive business climate.”
No one has a crystal ball to perfectly forecast commodity prices nor determine rig counts in the year ahead, but smart, pro-growth policies that attract investment goes a long way toward driving the economic and production growth needed to drive tax revenue increases.