In the coming days the State Board of Equalization will certify the official state revenue estimates — the estimates that will guide the Legislature in crafting the fiscal year 2014 state budget. If the early indications hold though, I think their forecasts will be much too optimistic.
In December the State Equalization Board certified the initial state revenue estimates for the next fiscal year, which forecast a 4.8 percent increase in state General Revenue Fund collections to $5.9 billion this next year. Generally, a 4.8 percent increase in collections is consistent with normal economic growth — a decent, but not great year. However, there is mounting evidence that next year might not qualify as even a “decent” year for revenue growth. Therefore, I’m a little less optimistic.
There are two main reasons for my being less optimistic. First, recent state economic data indicate that the state economy, if not contracting, is at least slowing. For example, seasonally adjusted state sales tax collections — arguably the best indicator of current economic activity — have steadily declined since last summer. While the decline has not been dramatic (a drop of about 2.7 percent) the last time this metric decreased for this length of time, the economy was still in the depths of the Great Recession.
To listen to many state officials though, the state economy continues to hum along. They point to our low unemployment rate is proof that the state economy remains strong. Of course, our unemployment rate remains among the nation’s lowest and we are not shedding jobs as we were in 2009. But this is only evidence that our economy was strong … not that it remains so. A steady decline in consumer spending in the state is an indicator of, at best, a stagnant economy, and at worst, a contracting one.
Furthermore, the state economy is facing external threats too. The desire of congressional leaders to significantly reduce federal government spending — some of which flows directly into the state economy — could have a significant negative impact on the state economy. After all, if the federal government significantly cuts defense spending then thousands of Tinker AFB employees, and the businesses that depend upon them, would face significant economic harm. Then there is always the risk that an economic crisis in Europe could trigger another financial crisis in the U.S. In 2008 a financial crisis nearly drove us into another depression.
Combined, these factors have me concerned that fiscal year 2014 will be a year of below-average economic growth and below-average revenue growth for state coffers. Unfortunately, state revenue has not yet fully recovered from the impact of the Great Recession. As a result, funding for education, health care, roads and prisons have suffered. A further decline in state revenue would mean even fewer investments in our future thus further dampening our state’s future growth prospects.
It is possible that the slowing of the state economy these past six months was just a temporary correction. After all, the state economy grew at near the fastest pace in the nation in 2011 and early 2012. Given the overall weakness in the state’s energy industry, such meteoric growth was simply not sustainable. Sadly, there are few indicators that the state economy has begun to expand rapidly once more. Until that happens, we can expect state tax collections to suffer.
MICKEY HEPNER is the dean of the College of Business Administration at the University of Central Oklahoma. Hepner serves on the Executive Committee of the Board of Directors for The Oklahoma Academy.