State revenue estimates good, but not good enough for two tax cuts, Senate leader says

The numbers may be good, but probably not good enough.

Thursday's report from the Oklahoma State Board of Equalization was a "good news-bad news" kind of thing for state lawmakers. On the good side, the board's report showed enough revenue growth to fund some type of tax cut.

On the bad side, there's not enough revenue growth to support cuts to both the personal income tax and the state's portion of the grocery sales tax. The report also gave a glimpse of a slowing state economy.

In December, the equalization board estimated revenue collections at $8,736,480,977 for fiscal year 2025. Using those numbers, the Legislature could spend 95% of that, or $8,299,656,928.

And while February's numbers weren't negative, they did not reflect enough growth to offset both cuts and still properly fund state government. The board's February estimate was $8,786,830,274 for fiscal year 2025, which — with the 95% cap — would mean the Legislature could appropriate $8,347,488,760.

More: As Gov. Stitt focuses on tax cuts, Oklahoma faces $25 billion in overdue infrastructure repairs

Why Attorney General Gentner Drummond disagreed with the estimate

Not everyone, however, agreed with the estimate. While six of the seven-member board voted in favor of the estimate, Attorney General Gentner Drummond voted no. Drummond's spokesman, Phil Bacharach, said Drummond's vote "is a reflection of his lack of confidence in certain revenue estimates that were provided."

Even with the debate, the mid-February report was a positive for House Speaker Charles McCall. Speaking at his weekly news conference, McCall, R-Atoka, said the House "fully expected" the economy would be performing very well.

"I think it will be a conservative number," McCall said. "Which means that their estimate will be conservative to what we actually see come in. That's what we've seen the last few years. It's a very positive picture, financially, for the state."

Tax relief is the main issue for the House, he said. McCall said the House has vetted and passed a tax cut measure — with an emergency clause that would allow the cut to go into effect immediately ― that the Senate could easily pass and send to Gov. Kevin Stitt.

"The governor has already said he would sign any tax cut measure," McCall said. "That tax cut bill is one step away from going to the governor's desk."

Senate Pro Tempore Greg Treat says he would prefer to see a grocery tax cut

Although McCall's view of the board's numbers is optimistic, the difference between the December and February spending estimates translates to roughly $48 million, enough for one cut but not for two, Senate Pro Tempore Greg Treat said.

And given the choice, Treat, R-Oklahoma City, said he would rather see a cut in the state's portion of the grocery sales tax.

"I still very much support the grocery sales tax elimination — the state's portion," Treat said Thursday afternoon. But cutting both the state grocery tax and the personal income tax rate, he said, wasn't in the cards.

More: Gov. Stitt says he would sign a grocery tax cut before an income tax cut

Treat said cutting the grocery tax would immediately affect more people, but doing both an income tax cut and a grocery sales tax cut would be difficult to fund.

"If you're looking at the growth, and the grocery tax is around $400 (million) and a fully realized quarter point cut is about $250 (million) something, then the math doesn't add up," he said.

He said the Senate's GOP caucus was still discussing both cuts.

“While the certified numbers are positive, we must be sober-minded and realize we cannot have both a grocery tax cut and an income tax cut this year," Treat said." I appreciate the prudence and fiscal conservatism of my Senate colleagues, who over the years have prioritized spending and savings and have put a stop to nonsensical ideas that would lead our state in the wrong direction. Without our measured approach, we would not be in this position today.”

For his part, Gov. Stitt believes both cuts can be funded. Speaking after the Board of Equalization meeting, Stitt said the Legislature needs to sign off on both ideas.

"Listen, I absolutely think we can afford that and I'm going to sign any tax cut that hits my desk. I think the House has got both of those over in the Senate right now. There are several folks in the Senate that are looking at something and, like you guys heard [in] my state of the state, it should be natural that as we have increased revenue, that we just don't figure out all these new programs," the governor said. "We strategically invest in certain things and those are tough conversations. Those are hard to do. But we also will continue to give Oklahomans tax breaks."

Stitt said if the state doesn't cut taxes it was "going to be an outlier pretty soon."

"You've got Iowa, you've got Nebraska, you've got Arkansas, you've got all these other states. We're already higher income tax wise than Colorado, and when I go to recruit companies, those are conversations that we have," he said. "If you're going to be moving to a new state, those are the questions you ask yourself, and so we want to put Oklahoma in the very best position we can. We've got so many great things going for us. We're not asking to cut anything. We're just saying let's give a tax cut when we have excess revenue."

Though the ongoing debate over tax cuts has drawn sharp differences between the Senate, Stitt's office and the House, all the parties involved do agree on one thing: that they disagree on the numbers.

“Isn’t it funny, we can't even agree on math in this building," the governor said.

This article originally appeared on Oklahoman: Oklahoma can only afford one of two proposed tax cuts, Greg Treat says