Oklahoma Budget Trends and Outlook (Feb 16, 2010)

8/14/2019 Oklahoma Budget Trends and Outlook (Feb 16, 2010)

1/41

OKLAHOMA BUDGET OVERVIEW

Trends and Outlook

REVISED February 15, 2010

David Blatt

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


2/41

Oklahomas Path to Prosperity

OUR STARTING POINTWe invest our tax dollars in

our public structures to support

our common goals as a state


3/41

Oklahomas Path to Prosperity

We Already Lag Behind Oklahoma already underfunds most of our publicstructures and falls short of our common goals as a state

We rank 50th among the states in per capitaexpenditures on state and local government

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


4/41

Budget Trends: FY 02 FY 09

Annual Appropriations Totals,FY 00FY 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


5/41

Where did the growth revenue go?

Covering rising costs of basic services and

supporting targeted investments for shared goals

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*



6/41

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



7/41

Budget Trends: FY 02 - FY 09

FY07 FY08: 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


8/41

Budget Trends: FY 02 - FY 09

FY 09 Budget: Tightening the Screws Most agencies appropriations frozen from FY 08

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

FY 09 excludes supplementals and mid-year budget cut


9/41

Budget Trends: FY 10


10/41

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 tototal more than $465 billion


11/41


This is As Bad as Its Ever Been

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Annual General Revenue Collections, in $ millions,FY '82 - FY '11 (FY '10 & FY'11 based on Dec. 2009

certification)


12/41


The Recession Hit Oklahoma Late

See OK Policy, Numbers You Need, at:

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

7.1%

10.2%

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

11.5

Oct-07 Apr-08 Oct-08 Apr-09 Oct-09

UnemploymentR

ate(%)

Monthly Unemployment Rate,National and Oklahoma, Oct. 2007 to Oct. 2009

Oklahoma National


13/41


The Recession Hit Oklahoma Late

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%3.0%

4.0%

5.0%

2007.3 2007.4 2008.1 2008.2 2008.3 2008.4 2009.1 2009.2 2009.3

% Change from PriorQuarter

Quarterly Change in Personal Income,Oklahoma and National,

3rd Quarter 2007 to 3rd Quarter 2009

U.S. Oklahoma


14/41


FY 09: A Tale of Two Half-Years FY 09 revenue collections went from $224.8 million above

estimate (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


15/41


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 FY09 ;


16/41


FY 10 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)


17/41

FY 10 State Appropriations10 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%

TotalAppropriations:$7,231.2 millionIncludesAmerican

Recovery andReinvestmentAct (ARRA)

Total TenLargest: $6,451.8,89.2 %


18/41


FY 10 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


19/41


FY 10 : Off to a Very Rough Start July-Jan revenue collections down 27.0 percent from FY09

Not clear when well hit bottom or how long it will taketo recover

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%

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

Change in Monthly General Revenue Collections, Compared to Same Month Prior Year,July '08 - Jan '10


20/41


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%-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

Quarterly Year-over-Year Change in GR Collections,Oklahoma, FY '02 - FY'10


21/41


FY 10 : Off to a Very Rough Start Collections through January are $863.6 million 24.9 percentbelow the estimate

-$401

-$180 -$200

-$11-$72

-$864-$1,000

-$900

-$800

-$700

-$600

-$500

-$400

-$300

-$200

-$100

$0

Net Income Tax Gross Production Sales Tax Motor Vehicle Other Sources Total Gen.

Revenue

General Revenue Collections compared to Estimate, by Tax, FY '10 thru

December (in $millions)


22/41


FY 10 : Off to a Very Rough Start January collections were just 77 percent of the averagemonthly collections of the previous 5 years the 2nd worsemonth of the downturn

60%

70%

80%

90%

100%

110%

120%

130%

Jul

'08

Aug

'08

Sep

'08

Oct

'08

Nov

'08

Dec

'08

Jan

'09

Feb

'09

Mar

'09

Apr

'09

May

'09

Jun

'09

Jul

'09

Aug

'09

Sep

'09

Oct

'09

Nov

'09

Dec

'09

Jan

'10

Monthly Total General Revenue Collections as % of Prior Five-Year Same-Month Average, July 2008 - Jan. 2010


23/41


FY 10 : Off to a Very Rough Start 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 ($233.8 million since start of year) that must be repaid


24/41


Budget Outlook Gov. Henry: Unfortunately, the cuts we have been forcedto implement to date are already taking their toll on stateprograms and services (Nov. 10, 2009)

Even at 5-10 percent monthly cut level, the toll is growing:

DHS has cut senior nutrition services by $7.2 million;

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

OHCA has cut some Medicaid benefits and reduced provider rates byan initial 3.5 percent, set to increase to 6.75 percent April 1st.

Department of Mental Health and Substance Abuse Services hasannounced closure of childrens behavioral health center in Norman,lay-offs cuts in contracts to providers;

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


25/41


FY 10 : How Large a Shortfall? February certification projects 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


26/41

Budget Outlook: What Response?

Shortfall Options Rainy Day Fund is 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)


27/41


Shortfall Options Full RDF potentially available for shortfalls in FY 10

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 thecoming year compared to the current year ($224M);

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

Current Year

Revenue

Failure, 37.5% -

$224M

Forthcoming

Year Shortfall,

37.5% - $224M

Emergency,

25.0% - $149M

Uses of Constitutional

Reserve Fund


28/41


FY 10 Shortfall AgreementAgreement announced by Governor, Speaker and PresidentPro Tem in late January

Main components:

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 $104 million to offsetpart of GR and 1017 shortfalls

$25.6 M to Higher Ed; $33M to OHCA; $7.2M to Corrections;$1.2M to Rehab Services and $10M unspecified

Agreement requires $515 million in additional revenue tobalance.

No formal agreement on revenues


29/41


FY 10 Shortfall Agreement Agencies funded in whole or in part with non-GR fundsactually absorb less than full 7.5 percent cut

7.5% 7.3% 7.3%7.2%

5.7%5.3%

3.7%3.1%

2.7%

1.1%

0.0%0.0%

2.0%

4.0%

6.0%

8.0%

FY '10 Mid-Year Budget Cuts, Top Largest StateAgencies


30/41

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)


31/41


FY 11: More of the Same Final FY 11 certification provides $1.8 billion lessrevenue for next year than this years initial budget

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

$6,452$6,967

$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 -Leadership

agreement

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)

$1.36B

$515M


32/41


FY 11: More of the Same To budget the balance, Gov. Henry proposes:

Annualizing and increasing FY10 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.


33/41


FY 11: More of the Same Many of the revenue enhancements and savings in theGovernors budget proposal are unlikely to gain legislativeapproval or have the full estimated fiscal impact .

Even under the Governors proposals, the cuts to agencyprograms and services would be deep and widespread

Most agencies face FY 11 funding 10 to 17 percent below theirbudgets for FY 09.

Even those core agencies in education, health, human services,and public safety that are partially protected will take cuts in FY10 and FY 11 and are not funded in FY 11 to deal with rising

operating costs and caseloads.

However, the combined FY 10 FY 11 shortfall is $170million in the February certification than in December.


34/41

Budget Outlook: Looking Ahead

Budget Outlook: No Quick Recovery 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

Use of one-time funds in FY 10 and FY 11 createssignificant problems for FY 12


35/41

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'13General Revenue Fund

Estimates by OKPolicy - not based onFeb 2010

certification


36/41

Budget Outlook : Beyond FY 10

Short-Term Recommendations1. Develop and share greater information about impact ofactual and potential cuts, possible solutions

2. Use the RDF to minimize the magnitude of budget cuts

3. Defer additional tax cuts until revenues fully recover

4. Suspend and cap some tax breaks and incentives

5. Change the RDF rules to allow reserve funds to be used anytime revenues remain below their pre-downturn peak and toallow for larger reserves

6. Consider new revenue streams for the Medicaid program

7. Expand and improve forecasting capacities


37/41

Structural deficit: Asituation that occurswhen a states normal

growth of revenues isinsufficient to financethe normal growth ofexpenditures year afteryear

(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


38/41


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

Oklahomas Structural Deficit

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


39/41

Long-Term Recommendations1. Modernize the Tax System

2. Preserve a Balanced Tax Structure

3. Scrutinize our programs and spendingcommitments

4. Make the tax system fairer



40/41

For More Information

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

11budget-information

Oklahoma Policy Institutes OnlineBudget Guide

www.okpolicy.org/online-

budget-guide
http://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-information


41/41

Contact Information

Oklahoma Policy InstituteP.O. Box 14347Tulsa, OK 74159-1437

(918) 794-3944

[email protected]

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

Better Information, Better Policywww.okpolicy.org
mailto:[email protected]:[email protected]

Oklahoma Budget Trends and Outlook (Feb 16, 2010)

Documents

Transcript of Oklahoma Budget Trends and Outlook (Feb 16, 2010)