Let the good times roll! Well, as a Certified Financial Planner— I have to say not so fast.
We’ve seen this movie before. When state leaders have gobs of extra money, they are tempted to increase spending, give away special interest tax breaks and cut taxes. But like a spring of delicious water that runs dry, state revenue invariably runs dry when energy prices falter and what little financial progress was made evaporates.
As a former state senator, I personally witnessed previous administrations and legislatures make this financial mistake, and Oklahomans suffered the consequences as a result. Teachers lost their jobs, business deals to create high-paying jobs went south, and road repairs were delayed.
The same tempting course of action is currently gaining traction at the state capital.
Calls for large tax cuts without offsetting tax reform jeopardize the need to increase teacher pay. Big spending plans, both for some good and bad ideas, make it impossible to shift to a no-income-tax state. And exciting billion-dollar investment proposals overshadow the prudent decision to pay off debt.
For all the extra money available, only $1.4 Billion actually resides in the two states saving accounts. The other $2.6 billion resides in the state's checking accounts available to be spent at any time without restrictions.
As the recent report from the Legislative Office of Fiscal Transparency suggests, the current amount in actual savings only represents 6% of state spending. The report recommends a target of 15% which means $2.6 billion should be deposited to the Revenue Stabilization Fund, which I am proud to have helped create.
Just as I would advise my clients, let’s dispense with the field of fancy and focus on the basics – paying down debt during the good times and saving money where it’s safe.
For Oklahoma, the hope is this would mean paying teachers more, fixing roads, and taking the necessary steps to become a no-income-tax state.