2009 Oklahoma Budget Overview

8/14/2019 2009 Oklahoma Budget Overview

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OKLAHOMA BUDGET OVERVIEW

David Blatt

Oklahoma Polic Institute


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Oklahomas Path to Prosperity

OUR STARTING POINTWe investinvestour tax dollars in

our public structurespublic structures to support

our common goalscommon goals as a state


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Bud et Trends: FY 02 FY 08

Annual Appropriations Totals, FY 00FY 08(Includes Supplementals thru FY 08 and Rainy Day spillover Funds

for

FY 02 FY 08: Bust and BoomState budget suffered steep downturn, deep cuts, 02 - 04Strong economy led to robust revenue growth andincreased state appropriations between FY 06 and FY 08


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Where did the money go?

Budget Trends: FY 02 FY 08


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Continuing Impact of Tax Cuts Deep and permanent tax enacted between 2004 and2006

Most of the cuts were to the personal income tax Tax cuts were stretched out over several years; full

impact will not be felt until FY 11



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Budget Trends: FY 02 - FY 08

FY07 FY08: RevenueSlowdown

General Revenue collections began to slow in FY 07 andwere almost flat in FY 08 (+%0.9, $54 million)

Increased gross production tax (+$205.7 million) and

sales tax (+$80.6 million) revenues helped make up forfallin ersonal and cor orate income tax collections -


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Source: CBPP, State Budget Troubles Worsen,

updated May 18, 2009 at: http://www.cbpp.org/9-8-08sfp.htm


ThingsAre Tough All Over

Combined state budget gaps for FY 09, FY10 and FY 11 estimated to total more than


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FY 09 Budget: Tightening theScrews

FY 09 initial appropriations of $7.089 billion increase of $47million (0.7%)

Most agencies appropriations frozen from FY 08

No funding for teacher salary increases, state employee raises

FY 09 excludes supplementals and mid-year budget cut


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Revenues on the Skids FY 09 revenue: from $224.8 million above estimate (Dec.)

to $271 million below estimate (May)

Every major tax below estimate and prior year in recentmonths

When revenues dipped below 95 percent of estimates in

May, a revenue shortfall was declared, leading to cuts in


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Revenues on the Skids By mid-year, FY 09 projections dropped $236 million

compared to the June certified estimate (red bars,below)

FY 10 revenues estimated to come in >$600 million


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Revenues on the Skids The FY 10 forecast is bad - - but far from a worst-case

scenario

Still assumes growth of sales tax and corporate


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Building the FY 10 Budget

-$309.6

$612.5 million (8.7 percent) lessavailable


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Stimulus Dollars to the RescueBudget agreement reached on using $641 millionfrom the American Recovery and Reinvestment Act(ARRA, or the stimulus) in FY 10 $236.3 million from the State Fiscal Stabilization

Fund for common education and higher education;

$10 million from the State Fiscal StabilizationFund for Oklahoma Health Care Authority $394 of enhanced federal Medicaid matching

funds for 8 agencies $306.5 million to OHCA $71.4 million to DHS

Stimulus dollars allocated for FY 10 representroughly half of total available stimulus amount

See: OK Policy FY 10 Budget Review at:http://okpolicy.org/fy-10-budget-information


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FY 10 Budget

NOTE: FY 09 totals do not include June budget

$7,231.2 million total, including $641 millionARRAIncrease in total appropriations of $106 million(1.5 percent) compared to FY 09State dollars only: 7.1 percent less than FY 09


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Fundin Public Services

FY 10 Appropriations bySubcommittee

Education

53.4%

GovernmentOperations

5.2%

HumanServices

9.6%

Health andSocial Services

18.6%

NaturalResources

2.1%

Public Safety10.9%

Other0.2%


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FY 10 State Appropriations10 Largest Agencies: $6.3 billion (88%)

Agencies (75 agencies): $829 million (12%)


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FY 10 BudgetStimulus funds made it possible to minimize cuts orprovide small increases to ten largest state agenciesand some smaller ones Funding for 10 largest agencies up $161 million,

2.6 percentOHCA, +$107.7 million (+12.3%)

Common Education, +$40.3 million (+1.6%)Higher Education, +$30.9 million (+3.0%)DHS, -$8.4 million (-1.5%)

Most smaller agencies took cuts of 5 to 7 percent Funding for 68 smaller agencies down $54

million, 6.5 percent

See: OK Policy FY 10 Budget Review at:http://okpolicy.org/fy-10-budget-information


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FY 10 Budget: The ImpactFor most agencies, FY 10 appropriations will lead tofunding gaps and possible cuts in staffing, programsand servicesNo funding to address rising employee benefit costs orinflation (e.g. utilities, transportation, food)Demands for some state services increase due to the

downturn


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FY 10 Budget: The ImpactAt this point, little is known about how agencies willrespond to budget cuts and funding gaps.

Most agencies will be forced to try to perform their corework with fewer staff (unfilled vacancies). This could lead to:

Closing offices , reducing hours, and limiting staff servingthe public;

Reducing the frequency of inspections of facilities andbusinesses;

Increasing staff caseloads;

Some agencies may be required to fill budget gaps by:

Cutting reimbursement rates to private providers;

Waiting lists and freezes on programs.

Fee increases;

Furloughs and involuntary lay-offs


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Budget Outlook: Beyond FY 10

A Slow ReboundAssuming the economy begins to recover in late2009, we project that revenues will rebound slightlyin FY 11

Revenue growth could be hindered by automatic cut intop income tax rate if GR is projected to increase >4percent

It may take until FY 13 for revenues to return to FY 08levels


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Budget Outlook : Beyond FY 10

Rainy Day FundRainy Day Fund is filled to maximum amount of $597millionLeft untouched for initial FY 10 budget


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Rainy Day Fund: Off- Limits?Rainy Day Fund can be accessed as follows:

3/8th for a mid-year shortfall in GR collections;

3/8th for a projected decline in GR collections for thecoming year compared to the current year;

1/4th upon declaration of an emergency and legislative

approval

RDF designed for use at the onset of a downturnIf revenues do begin to recover, most of the RDF willbe unavailable for appropriations in FY 11 and FY 12.However, if FY 10 or FY 11 revenue collections fallshort of the estimate, RDF could be used

See: OK Policy, Nows the Time: Using Stimulus and RainyDay Funds Can reduce the Impact of State Budget Cuts,at:http://okpolicy.org/nows-time-use-rainy-day-funds


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Filling the Revenue GapStimulus Round II

About half of the State Fiscal Stabilization Fund andenhanced Medicaid funds will be available for use in FY11

$236.5 million of SFSF education dollars;

Up to $95 million of SFSF general purpose dollars;

$365 to $500 million of enhanced Medicaid

Other Revenues?

SQ 640 requires a 3/4th vote of both legislativechambers or vote of the people at time of next

general election to raise taxes;

Continuing search for one-time revenues;

Other proposals could include selling off publicassets, securitizing the tobacco settlement or statelottery


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The Post-Stimulus Budget Gap?The FY 12 dilemma

State Fiscal Stabilization Fund and enhanced FMAP areintended for states to avoid cuts, layoffs, and taxincreases but what happens when the money runs out?

>$600 million of one-time federal stimulus dollars

being used to support the ongoing expenditures of stateagencies and schools in the FY 10 budget (and FY 11?).

Other stimulus funding streams may also end up beingused in part to fund ongoing expenditures (e.g. Dept ofRehabilitation Services clearing off its waiting list).

Hole will be especially huge for Medicaid agencies, which

could see their federal share plunge by over 15percentage points.

Will Congress help out?


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The Sky is Slowly Descending!Oklahoma already underfunds most of our publicstructures and falls short of our common goals as astateThe relentless underfunding of public structuresleads to : threats to public safety and well-being;

decline in performance; decline in public confidence and growing cynicism; your on your own attitude


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Short-Term Recommendations

2.Change the rules for the Rainy Day Fund

Introduce legislation next year for a 2010 ballotproposal to allow RDF money to be used anytime revenues remain below their pre-downturnpeak.

3.Defer additional tax cuts until revenues recover

4.Consider new revenue streams for the Medicaidprogram

4.Develop meaningful multi-year forecasting


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Structural deficit: A

situation that occurs

when a states normal

growth of revenues is

insufficient to finance

the normal growth of

expenditures year after

year

(CBPP, Faulty Foundations: State

Structural Budget Problems)

Lon -Term Fiscal Outlook

Oklahoma like most states and the federalgovernment faces a looming structural budget


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Oklahomas Structural DeficitDemographic changes, rising health care andretirement costs, an outdated tax system and taxcuts all lead to revenues failing to keep pace with


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Long-Term Recommendations

4. Modernize the Tax System

6. Preserve a Balanced Tax Structure

8. Make the tax system fairer

Long-Term Fiscal Outlook

People want justtaxes more than they want

lowertaxes. They want to know that everyman is paying his proportionate shareaccording to his wealth.

-Will Rogers


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Contact Information

David Blatt, Director of PolicyOklahoma Policy Institute4606 South Garnett, Suite 100 |

Tulsa, Oklahoma 74146

ph: (918) 859-8747

[email protected]

BetterInformation,

BetterPolicyOklahoma Policy Institute provides timely and credible analysis of

state policy issues

2009 Oklahoma Budget Overview

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