Analysis: If things in Oklahoma are so good, why are they so (potentially) bad?
Published: November 21st, 2012
From Oklahoma, there’s good news and there’s bad news.
The good news is the state economy is vibrant, especially in comparison to most of the rest of the country. The private economy in Oklahoma weathered the Great Recession better than the vast majority of the states.
The bad news is that the Oklahoma economy is inextricably bound up with that of the entire nation. The so-called “fiscal cliff” could, like a Texas Twister, suck a lot of air out of the Sooner State’s present economic picture.
As for the government sector, in terms of raw spending and income dependency upon federal expenditures, the state falls nears the average overall — but is more dependent on defense spending than the average American state.
Finance Secretary Preston Doerflinger runs the Office of Management and Enterprise Services (OMES), which monitors General Revenue Fund collections and issues a monthly report that summarizes 70 different tax revenue streams for state government. In October, state coffers grew nearly 10 percent more than the official estimate, and 7.6 percent over the same month a year ago.
The only revenue category that is not robust is the gross production tax levied on the oil and natural gas industries, traditionally the most volatile part of the state economy, but also the most enduring. Individual and corporate income tax collections were robust in October, and so far show little sign of weakening for the year.
Doerflinger contends the state economy is “still on a roll,” but he frets about those national events. He says failures in Washington “would adversely affect Oklahoma if the nation slips into another recession.” He says, “Our best defense is to keep playing good offense.”
Since January 2011, when Gov. Mary Fallin took office, Oklahoma has added 57,600 jobs, with 13,000 of those in manufacturing, ranking the state first is that category over the last 21 months. Many of her allies were bitterly disappointed that Fallin failed to achieve major income tax reductions this year, and that government spending actually increased.
Her administration, including Secretary Doerflinger, has announced renewed efforts to find cost-saving budget reforms and consolidation of some government functions. Doerflinger’s staff prepares the executive budget for presentation at the state of every legislative session in February.
State treasury receipts rose nine percent in October, the highest jump in nine months according to Ken Miller, the Republican now in that elective post.
In comments to reporters when releasing his most recent assessment, Treasurer Miller said, “In spite of the uncertainty surrounding the national elections and the impending fiscal cliff, Oklahoma’s economy is showing marked improvement. After leveling off for some six months, revenue collections have resumed their positive trajectory. Last month, we thought we had turned a corner with extraction taxes and it now appears we have.”
For all the good news, dark clouds on the horizon come from broader market volatility. Writing for Forbes, Charles Biderman states flatly that that a five percent drop in market value since election day is “no accident given investors’ fears of higher taxes and continued big spending, including higher taxes on capital gains, which inevitably will tank the economy.”
Biderman is among a significant cadre of economists (although apparently still a minority) who believe the nation is headed for another recession. He believes stock prices were inflated pre-election due to “successful” manipulation by the Federal Reserve Bank, but that the bloom is off the electoral rose. He predicts declines in personal income of “at least 2 percent” if the fiscal cliff arrives and tax hikes go into effect.
In terms of the state’s vulnerabilities to government spending cuts anticipated from the fiscal cliff and possible sequestration, Oklahoma falls close the average of several indicators selected in a new report from the Pew Center on the States.
Federal grants are 6.3 percent of Oklahoma state government revenue – the national average for 50 states and the District of Columbia is 6.6 percent. U.S. government spending on procurement, salaries and wages — as a percent of state gross domestic product – was 5.5 percent in 2010, just above the national average of 5.3 percent.
In a state with several key military installations, including Tinker Air Force Base near Oklahoma City, federal defense spending (procurement, salaries, wages) is 4.3 percent of state GDP, well above the 3.5 percent national average. Nondefense federal spending (procurement, salaries, wages), in contrast, is “only” 1.2 percent of state state GDP, compared to the national average of 1.8 percent.
As for the federal nondefense workforce as a percentage of all who are employed in Oklahoma, the state meets exactly the national average of 1 percent.
You may contact Patrick B. McGuigan at Patrick@capitolbeatok.com and follow us on
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Twitter: @capitolbeatok.