Oil field struggles continue to negatively impact Oklahoma government revenue, leading State Treasurer Randy McDaniel to again warn lawmakers that tough financial times lie ahead.
While McDaniel’s Gross Receipts to the Treasury report for November showed only a modest decline of 3.6 percent for all tax sources in the past 12 months, oil and gas gross production tax collections were down by $426.6 million, or 39.8 percent, for that period.
That decline is not solely a product of this year’s COVID-19 shutdown and its continuing ripple effects.
“Oklahoma’s economic slowdown started with reduced oil field activity several months prior to the virus outbreak,” McDaniel said. “The pandemic continues to be a major challenge for both the health and financial wellbeing of Oklahomans. However, we remain encouraged by the overall strength of the state’s economy during these difficult times.”
The monthly Gross Receipts to the Treasury report, developed by the state treasurer’s office, is intended to provide a broad view of the state’s economy. The General Revenue Fund, the state’s main operating account, receives less than half of the state’s gross receipts with the remainder paid in rebates and refunds, remitted to cities and counties, and apportioned to other state funds.
In recent months, McDaniel has repeatedly warned policymakers that the state economy faces headwinds with the energy sector’s challenges particularly significant.
Gross production tax collections on oil and natural gas have been lower than those of the same month of the prior year for 15 consecutive months and have trended lower since late 2018. November gross production tax collections on oil and natural gas were off by more than 50 percent from the prior year.
Since November 2018, oil prices are down 30 percent and natural gas prices are off more than 35 percent. During the same time, the number of active rigs has plunged by more than 90 percent, from 148 to only 13.
Oklahoma oil fields have shed more than 20,000 jobs and employment levels are down by almost 40 percent in the past two years. Current employment levels in the sector are lower than those reached in the trough that followed the Great Recession in late 2009, McDaniel noted.
A study released in 2019 by the State Chamber Research Foundation estimated that a $1 billion reduction in oil and gas industry GDP equates to an average reduction of $102 million in total state tax revenue. An oil bust played a major role in state budget shortfalls from 2014 to 2016, which were further exacerbated by lawmakers' practice of inflating state spending through budget gimmicks.
The unemployment rate in Oklahoma rose to 6.1 percent in October, according to the U.S. Bureau of Labor Statistics, compared to 5.4 percent in September. The seasonally adjusted number of Oklahomans listed as jobless was reported as 114,400.
The Oklahoma Business Conditions Index in November also fell below growth-neutral after indicating growth for five consecutive months. The November index was set at 49.4, down from 61.1 in October. Numbers below 50 suggest economic contraction is expected during the next three to six months.
Losses in energy tax revenue have been partly offset by increases in other tax categories, but even those sources may contain red flags. For example, individual income tax collections are down by $66.6 million over the last 12 months. Corporate income tax collections have increased $162.1 million during that period to provide a net increase in all income tax collections, but corporate income tax collections are notoriously volatile and can swing wildly from year to year.
The most notable tax source to increase over the last 12 months is medical marijuana taxes, which increased $33.2 million, or 156.7 percent, from prior-period collections.