Oklahoma Budget Overview: Trends and Outlook (May 12, 2010)

8/9/2019 Oklahoma Budget Overview: Trends and Outlook (May 12, 2010)

http://slidepdf.com/reader/full/oklahoma-budget-overview-trends-and-outlook-may-12-2010 1/44

OKLAHOMA BUDGET OVERVIEW

Trends and Outlook

REVISED May 12, 2010

David Blatt

Oklahoma Policy [email protected] - (918) 794-3944

mailto:[email protected]




Oklahoma‟s Path to Prosperity

OUR STARTING POINTWe invest our tax dollars in

our public structures to support

our common goals as a state



Oklahoma‟s Path to Prosperity

We Already Lag Behind

Oklahoma already underfunds most of our publicstructures and falls short of many common goals as astate

We rank 50th among the states in per capita

expenditures on state and local government

We need renewed investment in our public structuresto meet our common goals as a state.



Budget Trends: FY „02 – FY „09

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

Recurring Agency Expenditures) - in $millions

FY ‘02 – FY ‘08: Bust and BoomState budget suffered steep downturn, deep cuts, ‘02 - ‘04

Strong economy led to robust revenue growth and increased stateappropriations between FY ‗06 and FY ‗08

$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



Where did the growth revenue go?

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

80 percent of new dollars went to six core agencies.

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*




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 : Oklahoma Tax Commission

Tax Cuts had a long-term impact Most of the cuts were to the personal income tax

Tax cuts were stretched out over several years; full impactwill not be felt until FY ‗11




Budget Trends: FY ‟02 - FY ‟09

FY‘07 – FY’08: Revenue Slowdown

As tax cuts kicked in, General Revenue collections werealmost flat in FY ‘08 compared to FY ‘07 (+%0.9, $54million)

-6.6%-5.3%

10.6%

7.6%

14.8%

4.0%

0.9%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

FY '02 FY '03 FY '04 FY '05 FY '06 FY '07 FY '08

Annual % Change in General Revenue Collections, FY '03 - FY '08



Budget Trends: FY ‟02 - FY ‟09

FY ’09 Budget: Tightening the Screws Most agencies appropriations frozen for FY ‗09

No funding for benefit cost increases teacher salary increases, stateemployee raises

FY „09 excludes supplementals and mid-year budget cut



Budget Trends: FY „10



Source: Center on Budget and Policy Priorities


Things Are Tough All Over

All but two states are experiencing the state fiscal crisis

Combined state budget gaps for FY ‘09 – FY ‗12 estimated toreach $600 billion




This is As Bad as It’s Ever Been

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1 9 8 2

1 9 8 3

1 9 8 4

1 9 8 5

1 9 8 6

1 9 8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

Annual General Revenue Collections, in $ millions,

FY '82 - FY '11 (FY '10 & FY'11 based on Feb. 2010 certification)




The Recession Hit Oklahoma Late 2008

See OK Policy, “Numbers You Need”, at:

http://okpolicy.org/numbers-you-need-key-oklahoma-economic-and-budget-trends

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.08.0

9.0

10.0

J a n - 8 0

M a r - 8 1

M a y - 8 2

J u l - 8 3

S e p - 8 4

N o v - 8 5

J a n - 8 7

M a r - 8 8

M a y - 8 9

J u l - 9 0

S e p - 9 1

N o v - 9 2

J a n - 9 4

M a r - 9 5

M a y - 9 6

J u l - 9 7

S e p - 9 8

N o v - 9 9

J a n - 0 1

M a r - 0 2

M a y - 0 3

J u l - 0 4

S e p - 0 5

N o v - 0 6

J a n - 0 8

M a r - 0 9

% Umpo

Oklahoma Monthly Unemployment Rate

(Seasonally-Adjusted), 1980-2010

Mar 2010:

6.6%




The Recession Hit Oklahoma Late 2008

-5.0%

-3.0%

-1.0%

1.0%

3.0%

5.0%

2007.4 2008.1 2008.2 2008.3 2008.4 2009.1 2009.2 2009.3 2009.4

% Change from Prior

Quarter

Quarterly Change in Personal Income,

Oklahoma and National,

4th Quarter 2007 to 4th Quarter 2009

U.S. Oklahoma




FY ’09: A Tale of Two Half-Years

FY ‗09 revenue collections went from $224.8 million aboveestimate (July-Dec) to $672.0 million below estimate (Jan-Jun)

11.1% 10.8%

1.3%

10.4% 12.8%

7.1%

-8.5%

-21.5%-19.1%

-21.1%

-27.7%-30.1%

-35.0%

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June

Change in Monthly General Revenue Collections,

FY '09 Compared to Same Month, FY '08




FY ’10 Budget: Revenues on the Skids

5,407.2

5,649.2

5,981.1 5,946.45,902.7

5,710.0

5,356.6

5,000

5,500

6,000

6,500

FY '06 Actual Fy '07 Actual FY '08 Actual FY '09 June FY '09

December

FY '09

February

FY '10

Feburary

General Revenue Collections,

FY '06 Actual - FY '10 Estimated (in $million)

In February, FY ‗10 revenues estimated to come in >$600million below FY ‘09 ;




FY ‘10 Initial Budget

NOTE: FY „09 totals do not include June budget cuts

$7,231.2 million total, including $641 million ARRA (stimulus)

Increase in total appropriations of $106 million (1.5 percent)compared to FY ‗09

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

$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'10State Appropriations ARRA

$30ARRA

$7,125 $7,231

$641ARRA

$7,095State

$6,590State

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



FY ’10 Initial State Appropriations

10 Largest Agencies: $6.3 billion (88%)

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


Common Ed.,$2,572.0 , 36%

Higher Ed.,$1,070.7 , 15%

OHCA (Medicaid),$979.8 , 13%

DHS,$550.7 , 8% Corrections

$503.07%

Transportation,$208.7 , 3%

Mental Health,$203.3 , 3%

Career Tech,

$157.8 , 2%

Juv. Affairs,$112.4 , 1%

Public Safety,$93.3 , 1%

All OtherAgencies,$779.4 ,

11%

Total InitialAppropriations:$7,231.2 millionIncludesAmerican

Recovery andReinvestmentAct (ARRA)

Total TenLargest: $6,451.8,89.2 %




FY ‘10 Initial Budget

Stimulus funds made it possible to minimize cuts orprovide small increases to ten largest state agencies andsome smaller ones

Funding for 10 largest agencies up $161 million, 2.6

percent Most smaller agencies took cuts of 5 to 7 percent

No funding to address rising employee benefit costs orinflation (e.g. utilities, transportation, food)

Demands for some state services increase due to thedownturn

See: OK Policy FY ‟10 Budget Review at:

http://okpolicy.org/fy-10-budget-information




FY ‘10 : Off to a Very Rough Start

July-Jan revenue collections down 27.0 percent from FY ‘09

Finally seeing clear signs that the downturn has hitbottom and revenues are starting to climb back

11.1% 10.8%

1.3%

10.4%12.8%

7.1%

-8.5%

-21.5%

-19.1%-21.1%

-27.7%

-30.1%

-26.3%

-31.6%

-30.1%

-23.7%

-30.5%-29.1%

-16.7%

-7.3%

1.6%

-0.2%

-35.0%-30.0%-25.0%-20.0%-15.0%

-10.0%-5.0%0.0%5.0%

10.0%15.0%20.0%

July Sept Nov Jan Mar May July Sept. Nov Jan Mar

Change in Monthly General Revenue Collections, Compared to Same Month Prior Year, July

'08 - Apr '10




FY ’10 : Off to a Very Rough Start

Four consecutive quarters of worsening collections

Revenue drops more than twice as steep as during thelast downturn

-12.1%

9.9%

-29.5%

-8.3%

-40.0%

-20.0%

0.0%

20.0%

40.0%

Q1

FY

'02

Q3

FY

'02

Q1

FY

'03

Q3

FY

'03

Q1

FY

'04

Q3

FY

'04

Q1

FY

'05

Q3

FY

'05

Q1

FY

'06

Q3

FY

'06

Q1

FY

'07

Q3

FY

'07

Q1

FY

'08

Q3

FY

'08

Q1

FY

'09

Q3

FY

'09

Q1

FY

'10

Q3

FY

'10

Quarterly Year-over-Year Change in GR Collections,

Oklahoma, FY '02 - FY'10 (Q3)





Collections through April are $808.5 million – 17.8 percent -below the estimate

After seven months of significant shortfalls, collections startingin February have come close to or exceeded the estimate

-$401

-$180 -$200

-$11-$72

-$864-$1,000

-$900

-$800-$700

-$600

-$500

-$400

-$300

-$200

-$100

$0

Net Income Tax Sales Tax Other Sources

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

-$398

-$70

-$236

-$1

-$104

-$809

-$1,000

-$800

-$600

-$400

-$200

$0

Net Income Tax Sales Tax Other Sources

General Revenue Collections compared to

Estimate, by Tax, FY '10 thru April (in $millions)





While collections are recovering, they remain substantiallybelow their pre-downturn levels

April revenues just 83 percent of average for the samemonth over the prior 5 years

82.8%83.0%

60%

70%

80%

90%

100%

110%

120%

130%

J u l ' 0 8

A u g ' 0 8

S e p ' 0 8

O c t ' 0 8

N o v ' 0 8

D e c ' 0 8

J a n ' 0 9

F e b ' 0 9

M a r ' 0 9

A p r ' 0 9

M a y ' 0 9

J u n ' 0 9

J u l ' 0 9

A u g ' 0 9

S e p ' 0 9

O c t ' 0 9

N o v ' 0 9

D e c ' 0 9

J a n ' 1 0

F e b ' 1 0

M a r ' 1 0

A p r ' 1 0

Monthly Total General Revenue Collections as % of Prior Five-YearSame-Month Average, July 2008 - April 2010





OSF cut agencies GR allocations by 5 percent throughNovember and by 10 percent since December.

Cuts are across-the-board based on GR allocations

Since some agencies are partly or fully appropriated fromother funds (i.e. 1017 Fund, State Transportation Fund,Lottery, ARRA), agencies are not all affected equally

Cuts limited to less than shortfall through transfers of cashreserves that must be repaid

$314.6 million since start of year

$44 million remained to be repaid after April collections




Impact of Cuts

Even at 5-10 percent monthly cut levels, the toll onservices and programs has been significant:

DHS cut senior nutrition services by $7.2 million;

OJA cancelled youth detention and gang prevention programs, cut

providers 5 percent, authorized 22 furlough days; OHCA cut some Medicaid benefits and reduced provider rates by 3.5

percent;

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;

School districts eliminating programs, some going to 4-day weeks;

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



Budget Trends: What Response?

FY ‘10 : How Large a Shortfall?

February certification projected a $669 million (13.0percent) shortfall in FY ‘10 GR collections.

$109 million projected shortfall in HB 1017 Fund as well

Total mid-year shortfall of $778 million

$5,415

$5,145

$4,476

$4,000

$4,500

$5,000

$5,500

100% Estimate - June Appropriation (95%) February Projection

FY '10 General Revenues - Original vs.

Revised Projections

$669million



Budget Outlook: What Response?

Shortfall Options Rainy Day Fund was filled to maximum amount of $597million

Left untouched for initial FY ‗10 budget

$157.5

$340.9

$72.3

$0.1

$217.5

$461.3$496.7

$571.6$596.6

$0

$100

$200

$300

$400

$500

$600

$700

2001 2002 2003 2004 2005 2006 2007 2008 2009

Rainy Day Fund Balances, FY '01 - FY '09

(opening balance in $ millions)




Shortfall Options

Rainy Day Fund can be accessed as follows:

3/8th for a mid-year shortfall in GR collections; ($224M)

3/8th for a projected decline in GR collections for the coming year compared to the current year ($224M);

1/4th upon declaration of an emergency and legislative approval($149M)

Current Year

RevenueFailure, 37.5% -

$224M

Forthcoming

Year Shortfall,

37.5% - $224M

Emergency,

25.0% - $149M

Uses of Constitutional

Reserve Fund




FY ‘10 Mid-Year Budget Agreement

Agreements announced by Governor, Speaker andPresident Pro Tem in January and February

Continued 10 percent monthly cuts to GR for rest of year

Averages out to 7.5 percent of GR for full year

Supplemental funding to Common Ed of $157 million to offsetpart of GR and 1017 shortfalls; $25.6 M to Higher Ed; $33M toOHCA; $15M to Governor‘s Emergency Fund; $7.2M toCorrections; $3 million to Public Safety, smaller amounts toRehab Services , Central Services, other agencies

No additional funds for Human Services, Mental Health

Use of $223.7 million of Rainy Day Fund (3/8th), $151 millionmore stimulus money, plus additional gross production taxrevenues and other sources




FY ‘10 Mid-Year Budget Agreement

Total revised budget is $251 million (3.5%) less thaninitial; $143 million (2.0%) less than FY ‘09;

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

$6,793 $6,220

$5,484

$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 billion Total= $7.231 billionTotal= $6.981 billion




FY ‘10 Mid-Year Budget Agreement Agencies funded in whole or in part with non-GR fundsand those receiving supplementals absorbed less than full 7.5percent cut

-2.0%

-7.6%

-1.7%

-5.3%

-9.6%

11.1%

-8.2%

-0.2%

-7.1% -7.2%

-10.0%

-8.1%-7.4%

-3.5%

-7.3%

-3.2%

-5.3%

-2.8%

0.1%

-7.4%

-3.1%

-5.7%

-7.3% -7.2%

-4.3%

-7.5%

-12.0%

-7.0%

-2.0%

3.0%

8.0%

Funding Changes for Largest State Agencies, FY '09 - FY '10 (Final)

& FY '10 (Initial) - FY '10 (Final)

FY '09 (Final) - FY '10 (Final) FY '10 (Initial) - FY '10 (Final)



Budget Outlook: FY „11

FY ‘11: More of the Same

FY ‗11 revenue collections projected to grow onlyslightly from FY ‘10 and to remain almost 25 percentbelow pre-downturn (FY ‗08) levels

$5,714

$5,928 $5,981

$5,519$5,415

$ 4,475

$4,579

$4,000

$4,500

$5,000

$5,500

$6,000

FY '06 Actual FY '07 Actual FY '08 Actual FY '09 Actual FY '10 (June

estimated)

FY '10 (Feb

projected)

FY '11 (Feb

estimated)

General Revenue Collections,

FY '06 Actual - FY '11 Estimated (in $ millions)




FY ‘11: The Challenge Escalates

Final FY ‗11 certification provides $1.8 billion lessrevenue for next year than this year‘s initial 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 -

projected

revenues

(Feb)

FY '10 -

Revised

FY '11 -

Certified

State $

(Dec)

FY '11 -

Certified

State $

(Feb)

FY '11 -

Gov

Budget

State Appropriations, FY'08-FY '11(includes all revenues; includes FY '08-FY '09 supplementals;

in $ millions)





Assuming maintenance of this year‘s budget cuts and theuse of remaining stimulus funds and 3/8ths of Rainy DayFund, next year‘s budget gap exceeds $800 million.

Equivalent to an additional 12 percent cuts to allagencies of state government beyond the cuts already

enacted.

Federal extension of enhanced FMAP would reduce thisgap by some $300 million and use of remaining ―emergency‖ Rainy Day Funds by an additional $149million.





Agency scenarios of how to absorb cuts of an additional 7.5percent to 15 percent in FY ‗11 leave no doubt of the real threatsthat will be posed to the healthy, security and well-being of Oklahomans

Medicaid program could eliminate optional benefits for

adults such as prescription drugs, diabetes supplies andkidney dialysis treatment, and cut provider rates by 10 to 20percent;

Major cuts to community-based services for the elderly,mentally ill, juvenile offenders, people with disabilities, andothers.

Widespread teacher layoffs and loss of school programs;

Possible loss of hundreds of correctional officers

Corrosion of all the structures that deliver public services





To budget the balance, Gov. Henry proposed:

Annualizing and increasing FY„10 cuts by an additional 0.5

percent to 3 percent for all agencies.

Using remaining stimulus funds and a portion of remaining

Rainy Day Funds. Savings from consolidating agencies and IT services.

New bond issues.

Enhanced tax collection proposals, particularly increased salestax collections on Internet sales and automated enforcement of

vehicle insurance;

Eliminating and suspending various tax credits;

Increases in fees and permits.





Some of the revenue enhancements and savings in theGovernor‘s budget proposal are receiving seriousconsideration, as are other revenue ideas.

Even under the Governor‘s proposals, the cuts to agencyprograms and services would be deep and widespread

Even those core agencies in education, health, human services,and public safety that are partially protected will take cuts in FY ’10 and FY ’11 and are not funded in FY ’11 to deal with risingoperating costs and caseloads.



Budget Outlook: Looking Ahead

Budget Outlook: No Quick Recovery

Revenues unlikely to recover to pre-downturn nominallevels prior to FY ‗13

$5,928 $5,981

$5,544

$4,439

$4,735

$5,275

$5,945

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

FY 07 (act.)FY 08 (act.)FY 09 (act.)FY 10 (est.)FY 11 (est.)FY 12 (est.)FY 13 (est.)

R

n$mio

Fiscal Year

Historical and Projected Revenue, FY'07-FY'13

General Revenue Fund

Estimates by OKPolicy - not based onFeb 2010

certification



Budget Outlook: Looking Ahead

Budget Outlook: No Quick Recovery

Substantial reliance in FY‘10 –‘11 on non-recurringrevenue creates significant problems for FY ‗12

Time-released tax cuts still kicking in

Top rate will fall from 5.5% to 5.25% as soon asrevenues are projected to grow 4%... even if revenuesremain below pre-downturn levels

Additional revenues automatically allocated for ROADSand OHLAP



Budget Outlook : Beyond FY „10

Short-Term Recommendations1. Defer additional tax cuts until revenues fully recover

2. Suspend and cap some tax deductions, credits andincentives

3. Consider new revenue streams for the Medicaid program

4. Expand and improve forecasting capacities



• Structural deficit : Asituation that occurswhen a state‟s “normal

growth of revenues isinsufficient to financethe normal growth of expenditures year after year”

(CBPP, “Faulty Foundations: State Structural

Budget Problems”)

Long-Term Fiscal Outlook

Oklahoma – like most states and the federal government – faces a looming structural budget deficit




Projected Annual Budget Surpluses and Deficits

Before and After 2004-2006 Tax Cuts (2007 to 2035)

(2,500)

(2,000)

(1,500)

(1,000)

(500)

0

500

1,000

2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035Y e a r

Mion $2005

B e f o r e T a x C u t s

A f t e r T a x C u t s

Oklahoma’s Structural Deficit

Source: Projections conducted in 2007 by Dr. Kent Olson, Professor ofEconomics, Oklahoma State University



Long-Term Recommendations

1. Modernize the Tax System

2. Preserve a Balanced Tax Structure

3. Scrutinize our programs and spendingcommitments

4. Make the tax system fairer




For More Information

• Updated Budget Information:okpolicy.org/fy-10-fy-

11budget-information

• Oklahoma Policy Institute’s OnlineBudget Guide

www.okpolicy.org/online-

budget-guide

http://okpolicy.org/fy-10-fy-11budget-information


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



















Contact Information

Oklahoma Policy InstituteP.O. Box 14347

Tulsa, OK 74159-1437

(918) 794-3944

[email protected]

Oklahoma Policy Institute provides timely and credible analysis of state policy issues

Better Information, Better Policy

www.okpolicy.org



Oklahoma Budget Overview: Trends and Outlook (May 12, 2010)

Documents

Transcript of Oklahoma Budget Overview: Trends and Outlook (May 12, 2010)