I don’t know if you ever had to figure out how to explain to your parents about exactly why you had a “C” in a subject, but I did. It was not pleasant, and my explanation did little to assuage their fear that their eldest child was about to get less than an “A." Unfortunately, that is what this budget is like right now. A revenue failure occurs at -5% of collections to revenue, and we are currently at -2.7%. We are officially closer to a revenue failure than we are to collecting the expected revenues, and we are at the half way portion of the fiscal year.
It doesn’t take a genius to see that if this trend continues at the rate it has been accumulating, April or May could have the dreaded term revenue failure applied to its financial status.This is not a good trend, and hopefully it will reverse. The issue here is that we are still behind in sales tax collection by $66,000,000, and motor vehicle is still under collecting by $5,000,000.
When we look at the pie charts, we can see that sales tax was expected to account for 40% of the revenue in the General Fund receipts. This isn’t happening right now; sales tax is only brining in 38% of the revenue, while net income tax is brining in 41%. This trend desperately needs to correct itself. This lends itself to a new question: what is happening in other funds that directly effect Oklahoma education?
Our other two funds that are direct sources of funding are the 1017 fund and the Education Technology fund. As we can see in the two tables below, the funding for the 1017 fund is currently $10,000,000 less than the amount anticipated. This is a problem. If you remember from previous graphs, 1017 makes up about 12% of the State Aid fund. How did the 1017 fund run into issues? It's fairly simple: the sales tax revenue and the Indian Gaming funds are not collecting as they did last year. This is why the SDE reduced the State Aid fund in January to accommodate the under collection of the 1017 fund. In the exact opposite of last year, the Common Ed Technology fund is showing a reasonable amount of collection and is staying within its parameters.
We will be releasing our Mid-Year Finance Report in February and our regular February finance report as well. We do recommend that great care be made in evaluating the hiring practices for next year due to the shakiness of the financial picture. This isn’t all negative, but we are still looking at a $800,000,000 to $900,000,000 hole, of which Common Education has to find a way to absorb 33% unless the legislature finds a way around it.
After all of this negative news, it is good to remember that gross production is quickly turning around and has shown a net positive for the past three months. The REA tax is collecting above last year. This will get better; it’s just going to take time. Be cautious as you make your budgets.