Less than two years removed from a series of major state shortfalls, members of a Senate committee have voted to raise the cap on a state government savings fund, advancing a key priority of Gov. Kevin Stitt.
Senate Joint Resolution 30, by Sen. Joe Newhouse, would allow voters to amend the Oklahoma Constitution to raise the cap on savings in the Constitutional Reserve Fund, commonly referred to as the “Rainy Day Fund.”
Currently, the fund can hold no more than an amount equal to 15 percent of the General Revenue Fund certification for the preceding fiscal year. SJR 30 would raise that limit to 30 percent.
“Having ample reserves is a very sound, solid idea for us,” Newhouse said.
“Why 30 percent?” asked Sen. Julia Kirt, D-Oklahoma City.
“Thirty percent would yield approximately $2 billion in our savings,” Newhouse said. “What that would do for us, why that is significant, is that it would help us weather two significant recessions in back-to-back years. Many times recessions don’t happen just one year. Those can be two years, even more than that.”
One senator noted lawmakers faced that reality firsthand in the last handful of years.
“We had three years, back-to-back,” noted Sen. Gary Stanislawski, R-Tulsa. “I don’t remember the exact numbers, but one year we were like an $800 million shortfall, for the next year it was $1.3 billion shortfall, and for the next year it was a $650 million shortfall.”
If a similar series of shortfalls occurs again, Newhouse suggested even the savings made possible by SJR 30 might prove insufficient.
“Even with the $2 billion in reserves, that could be testing the waters a little bit,” Newhouse said.
But he noted increased reserves may be needed sooner than lawmakers prefer. Newhouse noted Oklahoma is “still very much an oil and natural gas-driven economy,” which leaves state government subject to significant swings in tax revenue, and economic forecasts show a “very soft year coming up” for Oklahoma due to falling natural gas prices. This month, the State Board of Equalization certified that lawmakers face an $85 million shortfall compared to last year’s appropriations.
“Just from that, we’re starting to see signs of potential recession coming back,” Newhouse said.
However, some lawmakers argued state funds would be better used if spent today rather than placed into savings.
“How do we explain to individual taxpayers their funds being set aside with an undesignated target for them?” Kirt said.
“We recommend to families to have three-to-six months of savings on the side,” Newhouse said. “Holding that vision of savings means you forgo consumption today for the betterment of tomorrow. That always requires sacrifice. So in this regard, we are asking our constituents to bear with us while we preserve our future.”
“Our state budget is not like a home budget,” Kirt later said during the debate. “We can’t treat it as such. We have a wide variety of revenue sources.”
She noted there are “a lot of limitations” on the use of money placed in the Rainy Day Fund.
One Senate appropriator appeared to dismiss the vote as more symbolic than substantive. Sen. Roger Thompson, an Okemah Republican who chairs the Senate Appropriations Committee, noted that the legislation only raises the cap on the fund, but does not direct additional savings into it.
“It’s safe to say that we’re not talking about new money that would be set aside into savings,” Thompson said. “This would just simply raise the cap ‘in case.’”
Under the Oklahoma Constitution, no money is placed in the Rainy Day Fund unless state budget forecasters make a mistake and underestimate revenue collections for the next year. When that happens, any surplus is deposited into the fund. Otherwise, lawmakers typically spend most available funding. Last year’s decision to set aside $200 million into savings in another fund was a rare instance of lawmakers not spending all available funding.
“If the people would vote to raise this to 30 percent, they are not voting to put additional money in,” Thompson said. “They are just simply voting to extend the cap that we might possibly ever reach that cap, which we never have so far in history.”
While Thompson said the fund cap has never been hit, during the administration of former Gov. Brad Henry the “Rainy Day Fund” did reach its legal limit. So-called “spillover” funds that would have otherwise been deposited into the savings account that exceeded the cap were instead deemed available for spending. The cap at that time was $597 million.
Newhouse agreed SJR 30 involves big-picture thinking that extends beyond the immediate session.
“This is not solving the problems of tomorrow or next year,” Newhouse said. “This is a long-term scenario whereby we can increase the capacity for savings, protect ourselves well down the road.”
SJR 30 passed the Senate Rules Committee on a party-line vote of 8-2 with Democrats in opposition.