Oklahoma Budget Overview: Trends and Outlook, December 2010

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OKLAHOMA BUDGET OVERVIEWTrends and Outlook

Updated December 22, 2010

David BlattOklahoma Policy [email protected] - (918) 794-3944

mailto:[email protected]

mailto:[email protected]



Oklahoma’s Path to Prosperity

OUR STARTING POINTGovernment is among our means of

achieving our common goals as astate --- alongside private businesses,non-profit organizations, faith groups

and families.




OUR STARTING POINTOur families, communities and businesses depend

on our state and local governments to help:Educate our children and train our workforce;

Protect our streets and investigate crimes;Maintain and upgrade our roads and bridges;

Pay for the medical care provided by private doctors, nurses,therapists, home health aides, hospitals, etc.

Ensure we have clean water and air;

Promote our small towns, rural areas, artists and investors;Take care of those at risk of harm and abuse.

We cannot reach our goals and thrive as a statewithout effective public structures and systems.




We Already Lag BehindOklahoma already underfunds most of our public

structures and falls short of many of our common goals asa state. For example:

Our teacher pay is among the lowest in the nation;

We have among the highest rates of heart disease, obesity,smoking, and uninsured;

Our community-based social service providers have gone yearswithout rate increases;

Many of our roads and bridges are in disrepair;

Our correctional facilities are overcrowded and understaffed.The ongoing state budget crisis threatens a serious and

long-term corrosion of our public structures that willweaken our prosperity, security and well-being.



Budget Trends: FY ‘02 – FY ‘09



Where did the growth revenue go?

Increased State Appropriations, Selected Agencies,FY ‟06 – FY ‟08

Dept. of Education: $453M

Health Care Authority: $289M

Higher Education: $271M

Human Services: $129M

Corrections: $80M

Transportation: $72.5M*


80 percent of new dollars went to six core agencies.

Covering rising costs of basic services and supportingtargeted investments for shared goals.



Lost Revenues from Select Tax Cuts Enacted 2004 - 2006FY'05 through FY'10 (in $ millions)

$18.7$144.8

$333.3

$561.8$651.1

$776.9

$0.0

$200.0$400.0

$600.0

$800.0

FY'05 FY'06 FY'07 FY'08 FY'09 FY'10source : Ok lahoma Tax Commission

Tax Cuts had a long-term impactMost of the cuts were to the personal income tax;

Tax cuts were stretched out over several years; full impactwill not be felt until FY ‟13.




Tax Cuts had a long-term impactRevenue losses from tax cuts more than double the additionalrevenue from “sin taxes” approved by voters in 2004 (lottery,gaming, tobacco)


$41

$195

$239 $287 $323 $335

$19$145

$333

$562$651 $777

$-

$200.0

$400.0

$600.0

$800.0

$1,000.0

FY '05 FY '06 FY '07 FY '08 FY '09 FY '10

$ m

i l l i o n s

Estimated Revenue Impact of New Revenue Measures Compared to Major TaxCuts, FY '05 - FY '10 (in $ millions)

Total New Revenue (Combined Lottery, Gaming, Tobacco) Total Lost Revenue (Major Tax Cuts)

New revenues do not include tribal tobacco tax proceeds. Revenue losses are Oklahoma Tax Commission projections. See“Facts Sheets: Lottery, Gaming & Tobacco” at http://okpolicy.org/fact -sheets-lottery-gaming-and-tobacco-2010



Source: Center on Budget and Policy Priorities


Things Are Tough All Over All but four states are facing shortfalls in FY „11.

Combined state budget gaps for FY ‟09 – FY „12 estimated toexceed $600 billion.




It‟s a Revenue ProblemFive consecutive quarters of worsening collections;

Revenue drops more than twice as steep as during thelast downturn.

-12.1%

-29.5%

2.3%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

Q1FY

'02

Q3FY

'02

Q1FY

'03

Q3FY

'03

Q1FY

'04

Q3FY

'04

Q1FY

'05

Q3FY

'05

Q1FY

'06

Q3FY

'06

Q1FY

'07

Q3FY

'07

Q1FY

'08

Q3FY

'08

Q1FY

'09

Q3FY

'09

Q1FY

'10

Q3FY

'10

Quarterly Year-over-Year Change in General RevenueCollections, FY '02 - FY '10




It‟s a Revenue ProblemFY „10 General Revenue 23 percent below pre -downturn (FY

„08) levels;

FY „10 GR collections less than FY ‟01 – without adjusting forinflation or population growth.

$4,717

$4,408

$4,174

$4,616

$4,966

$5,701

$5,935 $5,953

$5,545

$4,600

$4,000

$4,500

$5,000

$5,500

$6,000

FY '01 FY '02 FY '03 FY '04 FY '05 FY '06 FY '07 FY '08 FY '09 FY '10

General Revenue Collections,FY '01 - FY '10 (in $millions)




FY „10 Initial Budget$7,231.2 million total, including $641 million ARRA (stimulus);

Increase in total appropriations of $106 million (1.5 percent);

State dollars only: $500 million less than in FY ‟09;

Stimulus funds made it possible to minimize cuts or provide

small increases to ten largest state agencies and some smallerones.

$4,981

$5,389 $5,491$5,191 $5,145

$5,459

$6,217

$6,760$7,043

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 FY'09 FY'10

State Appropriations ARRA

$30ARRA

$7,125 $7,231

$641ARRA$7,095

State$6,590

State

State Appropriations History, FY '00 - FY '10 in $millions)(includes supplementals, excludes one-times from Rainy Day Spillover funds)




FY „10 : Off to a Very Rough StartCollections through January were $864 million – 24.9 percent -

below the estimate.

After seven months of significant shortfalls, collections startingin February came close to or exceeded the monthly estimate.

-$401

-$180 -$200

-$11-$72

-$864-$1,000

-$800

-$600

-$400

-$200

$0

Net IncomeTax

GrossProduction

Sales Tax MotorVehicle

OtherSources

Total Gen.Revenue

General Revenue Collections compared toEstimate, by Tax, FY '10 thru Jan (in $millions)

-$476

$17

-$238

$6

-$125

-$816-$1,000

-$800

-$600

-$400

-$200

$0

$200

NetIncome

Tax

GrossProduction

Sales Tax MotorVehicle

OtherSources

Total Gen.Revenue

General Revenue Collections compared toEstimate, by Tax, FY '10 thru June (in $millions)




FY „10 Shortfalls: What Response?OSF cut agencies‟ GR allocations by 5 percent beginning in

August and by 10 percent beginning in December;

Borrowing from cash reserves of various funds;

Agreements announced by Governor, Speaker and

President Pro Tem in January and February:Continued 10 percent monthly cuts to GR for rest of year;

Averaged out to 7.5 percent of GR for full year.

Supplemental funding to various agencies to offset part of GR and HB 1017 shortfalls;

Additional revenues needed to balance from Rainy Day Fund,stimulus funds, other sources.




FY „10 Mid -Year Budget AgreementTotal revised budget was $272 million (3.8%) less than

initial; $165 million (2.4%) less than FY ‟09;

Almost $1.5 billion (21%) of revised FY „10 budget madeup of non-recurring money.

$6,793

$6,220$5,462

$301

$371

$435

$30$641

$838

$224

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

$7,500

FY '09 FY '10 - Initial FY '10 - Revised

State Recurring Cash Stimulus (ARRA) Rainy Day Fund

State Appropriations, FY '09 - FY '10,Total and by Funding Source (in $millions)

Total= $7,124 million Total= $7,231 millionTotal= $6,959 million




FY ‟11 Budget: The Challenge EscalatesFinal FY „11 certification provided $1.8 billion less

revenue for next year than FY „10 initial budget , $1.5billion less than final FY „10 budget

$7,043 $7,124 $7,231

$6,452

$6,959

$5,294 $5,415

$6,797

$4,000

$5,000

$6,000

$7,000

$8,000

FY'08 FY'09 FY'10 -initial

budget

FY '10 -projectedrevenues

(Feb)

FY '10 -Revised

FY '11 -CertifiedState $

(Dec)

FY '11 -CertifiedState $

(Feb)

FY '11 -Gov

Budget

State Appropriations, FY'08-FY '11(includes all revenues and supplementals;

in $ millions)




FY ‟11 Budget AgreementTotal appropriations for FY ‟11 = $6.714 billion.

7.2 percent decrease (- $517.5 million) from the initial FY „10budget and 3.5 percent decrease (-$245.4 million) from thefinal FY „10 budget after mid -year cuts

$4,906

$5,389 $5,412

$4,922 $5,073$5,240

$6,217

$6,760$7,043

$7,095

$6,590

$5,897$5,902

$219

$30$641

$838$539

$75

$79

$269 $72

$224

$273

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

$7,500

FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 FY'09 FY'10 -Initial

FY '10 -Final

FY '11

FIG. 1: State Appropriations History, FY '00 - FY 11(in $millions; FY '00-FY'10 includes supp lementals, excludes one-times from Rainy Day Spillover Funds )

State Revenues Federal Relief Rainy Day Fund




FY ‟11 Budget Agreement Appropriated almost $1.4 billion in additional revenues on top

of those certified in February. These included:

Remaining $539 million from the 2009 stimulus bill;

Additional $273 from the Rainy Day Fund;

$580 million from assorted revenue enhancements:Suspending and deferring payment of tax credits;

Issuing and refinancing bonds;

Fee and permit increases;

Transfers of cash balances;Enhanced tax collections.




FY ‟11 Budget Agreement

Common Ed.,$2,375.6 , 35%

Higher Ed., $1,003.5, 15%

OHCA (Medicaid),$993.0 , 15%

DHS, $543.1 , 8%

Corrections, $462.1 ,7%

Transportation,$114.8 , 2%

Mental Health,$187.7 , 3%

Career Tech, $142.0 ,2%

Juv. Affairs, $99.2 ,1%

Public Safety, $88.4 ,1%

All Other Agencies,$704.3 , 11%

TotalAppropriations:$6,713.7 millionIncludes stimulus,Rainy Day Fund

Total TenLargest:$6,009.4, 89.5%

Notes: Transportation alsoreceived $65 from bond issue;OHCA includes $30m transfer from Insure Oklahoma Fund;excludes Health Carrier AccessPayment revenue

Agency Appropriations – 10 Largest, Others, Total




FY ‟11 Budget AgreementFunding cuts limited to under 10 percent for most of the largest

state agencies;

However, over half of all appropriated agencies will absorb cutsof at least 15 percent for FY „11 compared to FY ‟09.

In some cases, appropriations cuts have been partly offset byfee increases. In addition, the Legislature has approved measuresto promote savings and efficiencies and give agencies and schooldistricts greater spending flexibility;

For most agencies and school districts, no additional funding tocover increased employee health care costs, general inflation orrising caseloads for 2 or 3 consecutive years;

See OK Policy’s FY ‘11 Budget Highlights at:http://okpolicy.org/fy-10-fy-11budget-information




Impact of CutsEven with all the additional revenue to reduce the size of

cuts , the toll on services and programs has been significant:

Department of Mental Health and Substance Abuse Services reducedbeds and closed centers for children‟s mental health and adultsubstance abuse, cut contracts to all providers;

Department of Corrections cut contracts, eliminated programs,reduced staffing to under 75 percent of authorized levels,implemented monthly furlough days;

OJA cancelled youth detention and gang prevention programs, cutproviders 5 percent, authorized 22 furlough days;

DHS cut funding for senior nutrition services;

OHCA reduced all provider rates by 3.5 percent;Health Department eliminated 17 child guidance centers serving pre-school children with developmental delays;

School districts laid off teachers and staff, eliminated programs;

Most agencies leaving positions unfilled, offering buy-outs; someimposing furloughs.



Looking Ahead



Looking Ahead

Budget Outlook: This Ain‟t OverCenter on Budget and Policy Priorities: “2012 Could Be

Worst Year Yet For States”

Slow economic growth and loss of federal assistanceequates to ongoing and worsening problems



Looking Ahead

Budget Outlook: This Ain‟t OverFY „11 GR collections through November up 6.3 percent from FY

„10 – but 24 percent below FY ‟09;

Collections through November 2.7 percent above the estimate;

Official projection for full-year collections to be 1.7 percent abovethe estimate.

1,853 1,7951,654

1,866 1,9732,148

2,342 2,3142,514

1,797 1,910

0

500

1,000

1,500

2,000

2,500

3,000

FY '01 FY '02 FY '03 FY '04 FY '05 FY '06 FY '07 FY '08 FY '09 FY '10 FY '11

July- Nov. General Revenue Collections,FY '01 - FY '11 (in Millions)



Looking Ahead

Budget Outlook: Hard Times ContinueFY „12 General Revenue projected to be:

1.1 percent higher than FY „11

10.9 percent higher than FY „10

14.3 percent lower than FY „08

Lower than six years ago

$4,717$4,408

$4,174

$4,616

$4,966

$5,701$5,935 $5,953

$5,545

$4,600

$4,950$5,103

$4,000

$4,500

$5,000

$5,500

$6,000

FY '01 FY '02 FY '03 FY '04 FY '05 FY '06 FY '07 FY '08 FY '09 FY '10 FY '11(proj.)

FY '12(est.)

General Revenue Collections,FY '01 - FY '12 (in $millions

Source: FY'01 - FY '10 - Office of State Finance Monthly Revenue Collections; FY '11 -FY '12: Board of Equalization Revenue Certification, Dec 2010



Looking Ahead

Budget Outlook: Hard Times ContinueWeak revenue growth in FY „12 a result of:

Forecasts of a slow economic recovery, and

Policy decisions made in prior years, including:

Time-released tax cuts that will lower the top incometax rate from 5.5 to 5.25 percent in 2012;

Revenue impact of $61.5M FY „12, ~$150M FY „13

Allocation of additional $37.5M to ROADS Fund fortransportation and $6.2 million additional to OHLAP

scholarship program;Federal tax cut decisions will also impact staterevenue collections.



Looking Ahead

Budget Outlook: Hard Times ContinueBUDGET P ROJECTIONS

Preliminary Appropriations Authority for FY „12 is for $6.104billion

About $600 million less than the FY „11 budget;

Treasurer Meacham projects $226 million less to spend inFY „12 after use of remaining stimulus dollars and cashbalances;

Others question availability of cash balances and identifyother ongoing spending funded with one-time revenues.

Several state agencies will require significant funding increases just to maintain basic operations.Many agencies need additional funding to restore cuts to coreservices and to address the cumulative impact of several yearsof rising costs.



Looking Ahead

Budget Outlook: No End in SightRevenues unlikely to recover to pre-downturn nominal

levels prior to FY ‟14 under current policies

$5,938 $5,953

$5,518

$4,600

$4,912

$4,969$5,121 $5,380

$5,643

$6,044

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

FY '07(act.)

FY '08(act.)

FY '09(act.)

FY '10(act.)

FY '11(est.)

FY '12(est.)

FY '13(est.)

FY '14(est.)

Fiscal Year

General Revenue Fund Collections, FY '07 to FY '14,Actual and OK Policy Forecasts (in $ millions)

Actual

LowForecastMiddleForecastHighForecast

See: "A NewFiscal Reality for Oklahoma: TheState BudgetOutlook, 2011-2014; at:



Looking Ahead

Budget Outlook: No End in SightThe prospect of continued slow revenue growth and budget

shortfalls creates a “new fiscal reality” that calls for newperspectives and strategies.

Create a revenue structure that supports public services:

Defer or repeal additional tax cuts;

Review and reduce tax exemptions, credits and rebates;

New revenue streams for Medicaid and treatment of substance abuse;

Broaden the tax base.

Make smarter expenditure decisions:Consolidate duplicative agencies and streamline services;

Prioritize prevention and surveillance;

Ensure adequate funding of public pensions.



Long-Term Recommendations

1. Serious review of our tax system;

2. Scrutinize our programs and spendingcommitments;

3. Improve our forecasting capacities and budgetreserves;

4. Give control for making decisions about revenuesand spending back to our elected representatives.

See, “A New Fiscal Reality for Oklahoma: The State Budget Outlook, 2011 -2014”, at: http://okpolicy.org/new -fiscal-reality

Looking Ahead



For More Information

• Updated Budget Information:okpolicy.org/current-budget-

information

• Oklahoma Policy Institute‟s OnlineBudget Guidewww.okpolicy.org/online-

budget-guide

http://www.okpolicy.org/online-budget-guide










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Oklahoma Budget Overview: Trends and Outlook, December 2010

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