OKLAHOMA CITY — The state’s shortfall for the upcoming budget year ballooned Monday to nearly $1.4 billion as oil prices plunged to record lows and the COVID-19 outbreak continued to decimate the economy.

Republican Gov. Kevin Stitt warned that even if lawmakers exhaust the remainder of the state’s savings — $534 million — they’ll still have 7.5% less to spend as they write the upcoming fiscal year 2021 budget that must be finalized by late May.

“The question becomes, do we want steep cuts or should we try to smooth them out over the next couple of years?” Stitt said. “The Legislature writes the budget. I just want Oklahomans to know our budget won’t recover overnight, and we’ll have to get creative about how we protect our core services over the long term.”

The state Board of Equalization, meanwhile, declared a $419.9 million revenue failure for the current budget year. The Republican-controlled Legislature plans to use $459 million in savings to stabilize that gap for the final months of the current budget cycle

Oklahoma Tax Commission Executive Director Jay Doyle said the budget deficit is fueled in part by a “historic drop in oil prices,” plummeting into negative for the first time in history Monday.

“We’re at historic lows, falling below zero for the first time,” he said.

Drilling is expected to stall until late 2021 or early 2022, budgeting officials said.

Officials also noted that state’s unemployment rate is on the rise and small businesses are struggling.

The state’s economic recovery is expected to slow because of the uncertainty of the oil and gas sector, economic analysts said.

Oklahoma won’t return to pre-COVID-19 unemployment levels until at least late 2022, officials said.

Attorney General Mike Hunter questioned whether the state will be able to use any of the $1.6 billion it received in federal stimulus money to help plug any of the budget shortfall.

Stitt said the federal government won’t let states use their share to fill revenue shortfalls, but he’s asked for more flexibility with the funding because all states are suffering a budget downturn right now.

At this point, lawmakers will have to decide how to administer the cuts going forward.

Stitt said public schools currently receive nearly 50% of the budget. If lawmakers hold common education harmless, every other agency will see exaggerated cuts.

He said lawmakers could come back into session and reconfigure the current budget to use less savings to plug the budget hole so that $200 million in savings will be left to use in budget year 2022.

“The Legislature has a difficult decision to make when writing this budget, no doubt about it,” Stitt said.

House Minority Leader Emily Virgin, D-Norman, said this is not the time to be cutting budgets, and she doesn’t believe Democratic lawmakers have any appetite to cut agency spending for the last two months of the 2020 budget.

And the prospect of future agency cuts during a pandemic isn’t ideal, she said.

“That, of course, is pretty scary for Oklahomans, especially at a time when many of them are finding themselves in need of the government safety net,” Virgin said. “I don’t think budget cuts should be our only avenue in this.”

She said Stitt is right to ask the federal government for permission to use the state’s billion-dollar share of COVID-19 aid to plug budget gaps in the 2021 and 2022 budgets.

“We need to be looking at all options to fill these budget shortfalls,” she said. “It really is going to be interesting to see what happens with the federal stimulus money to see if we can essentially move things around to cover some things with that. I’m sure there is going to be a lot of creative thinking.”

Janelle Stecklein covers the Oklahoma Statehouse for CNHI's newspapers and websites. Reach her at jstecklein@cnhi.com.

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