Oklahoma Budget Trends and Outlook (February 2011)

8/7/2019 Oklahoma Budget Trends and Outlook (February 2011)

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The State Budget Outlook:A New Fiscal Reality

Updated February 23, 2011

David Blatt

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


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Oklahomas 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.


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OUR STARTING POINT Our families, communities and businesses dependon 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.


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We Already Lag BehindOklahoma already underfunds most of our publicstructures 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 andlong-term corrosion of our public structures that willweaken our prosperity, security and well-being.


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Budget Trends: FY 02 FY 09


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Budget Trends: FY 02 FY 09FY 02 FY 09: Bust and Boom

State budget suffered steep downturn, deep cuts, 02 - 04;

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

Most agency appropriations frozen in FY 09

$4,981

$5,389 $5,491

$5,191 $5,145

$5,459

$6,217

$6,760$7,043 $7,089

$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

State Appropriations History, FY '00 - FY '09, in $ millions(includes supplementals, excludes one-times from Rainy Day spillover funds)


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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.


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Lost Revenues from Select Tax Cuts Enacted 2004 - 2006

FY'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'10

source : Oklahoma Tax Commi ssion

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 FY13.



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Source: Center on Budget and Policy Priorities


ThingsAre 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.


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The Recession Hit in Late 2008

9.4%

6.8%

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10

Monthly Unemployment Rate,National and Oklahoma, Dec. 2007 to Dec. 2010

National Oklahoma


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Its a Revenue Problem Five consecutive quarters of worsening collections;

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

-12.1%

-29.5%-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

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

Q1

FY

'11

Quarterly Year-over-Year Change in General Revenue Collections, FY '02 - FY '11


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Its a Revenue Problem

FY 10 General Revenue 23 percent below pre-downturn (FY08) 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)


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

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

Stimulus funds made it possible to minimize cuts or providesmall 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

$6,590State

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


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FY 10 : Off to a Very Rough Start Collections 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 Income

Tax

Gross

Production

Sales Tax Motor

Vehicle

Other

Sources

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

Net

Income Tax

Gross

Production

Sales Tax Motor

Vehicle

Other

Sources

Total Gen.

Revenue

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


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FY 10 Shortfalls: What Response? OSF cut agencies GR allocations by 5 percent beginning inAugust 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 GRand HB 1017 shortfalls;

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


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FY 10 Mid-Year Budget Agreement

Total revised budget was $272 million (3.8%) less thaninitial; $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


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FY 11 Budget: The Challenge Escalates 2010 Session focused on which, if any, revenue measures wouldbe adopted to bridge the budget gap.

FY 11 budget gap exceeded $800 million - assumingmaintenance of FY 10 budget cuts, the use of all remainingstimulus funds, and 3/8ths of Rainy Day Fund.

Equivalent to an additional 12 percent cuts to all agencies ofstate government beyond the cuts already enacted.

Agency scenarios of how to absorb cuts of an additional 7.5percent to 15 percent in FY 11 left no doubt of the grave threatsthat would be posed to the state economy and to the health and

security of Oklahomans. Many cuts would be multiplied by loss of federal matching

funds.See OK Policy, Bridging the Budget Gap, :http://okpolicy.org/files/bridgingthegap_1pg.pdf


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FY 11 Budget Agreement

Appropriated almost $1.4 billion in additional revenues on topof 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.


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FY 11 Budget Agreement Total 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 supplementals, excludes one-times from Rainy Day Spillover Funds )

State Revenues Federal Relief Rainy Day Fund


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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 transferfrom Insure Oklahoma Fund;excludes Health Carrier AccessPayment revenue

Agency Appropriations 10 Largest, Others, Total


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FY 11 Budget Agreement Funding cuts limited to under 10 percent for most of the largeststate agencies;

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

For most agencies and school districts, no additional funding tocover increased employee health care costs, general inflation or

rising caseloads for 2 or 3 consecutive years;

Most state agencies and school districts will continue to be hard-pressed to accomplish their core missions with reduced staffingand resources.

See OK Policys FY 11 Budget Highlights at:

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

information


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Impact of Cuts Even with all the additional revenue to reduce the size ofcuts , the toll on services and programs has been significant:

Department of Mental Health and Substance Abuse Services reducedbeds and closed centers for childrens 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.


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Looking Ahead


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Looking Ahead

Budget Outlook: This Aint Over

Center on Budget and Policy Priorities: 2012 Could BeWorst Year Yet For States

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


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Looking Ahead

Weve Gotta Admit, Its Gettin Better

-8.5%

-21.5%-19.1%-21.1%

-27.7%-30.1%

-26.3%

-31.6%-30.10%

-23.7%

-30.5%-29.1%

-16.7%

-7.3%

1.6%

-0.2%

6.0%

2.1%

9.9%

4.6%6.0%

2.6%

9.3%

13.0%

19.5%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11

Change in Monthly General Revenue Collections,

Compared to Same Month Prior Year, Jan '09 - Jan '11

Revenues are showing steady improvements


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Looking Ahead

Weve Gotta Admit, Its Gettin Better

All major taxes are showing a healthy recovery except theincome tax

2.1%

29.2% 30.7%

10.2%

53.0%

9.9% 9.4%

0%

10%

20%

30%

40%

50%

60%

Personal

Income Tax

Corporate

Income Tax

Gross

Production

Tax

Sales Tax Motor

Vehicle Tax

Other

Sources

Total

% Variance by Tax in General Revenue Collections from Prior Year, FY'11 vs. FY '10, YTD thru January (7 months)


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Looking Ahead

Budget Outlook: This Aint Over FY 11 GR collections through January up 9.4 percent from FY 10but 23.2 percent below FY 09;

Collections through January 3.3 percent above the estimate;

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

$2,708 $2,628

$2,431$2,742

$2,902$3,225

$3,410 $3,382$3,574

$2,610$2,855

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

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

July- Jan. General Revenue Collections,

FY '01 - FY '11 (in $ Millions)


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Looking Ahead

Budget Outlook: Hard Times Continue FY 12 General Revenue projected to be:

5.0 percent higher than FY 11

12.8 percent higher than FY 10

12.5 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

$4,960$5,209

$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, Feb 2011


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Looking Ahead

Budget Outlook: Hard Times Continue Modest revenue growth in FY 12 a result of:

Forecasts of an uncertain 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 $38M FY 12, ~$120M 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 state

revenue collections.


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Looking Ahead

Budget Outlook: Hard Times Continue BUDGET PROJECTIONS

Revised, binding appropriations authority for FY 12 is for $6.211billion

About $500 million less than the FY 11 budget;

Increase of $106 million from initial December certification. 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.


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Looking Ahead

Budget Outlook: Hard Times Continue Governor Fallins Budget

$225 Million in Additional Revenue:

$100M in remaining stimulus money;

$105M from 2-year Car Tags.

$273 Million in savings from government modernizationinitiatives

$192 million from Information technology savings and ITbonding;

$70 million from hiring freezes and unfilled vacancies;

Shared services, electronic payments, other measures.


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Looking Ahead

Budget Outlook: Hard Times Continue Governor Fallins Budget (cont.)

$201M in agency cuts:

3 percent or less to education, health, human service, publicsafety agencies;

5 percent to most administrative, regulatory and economicdevelopment agencies;

Larger cuts for agencies slated for consolidation or for thoseable to assess regulatory fees;

For many agencies, even cuts limited to 3-5 percent willmean cuts to core services and programs, loss of matching

federal funds.

Her budget left $100 million unspent; revised certification hasmade an additional $106 million available for appropriation.


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Looking Ahead

Budget Outlook: Hard Times Continue

$6,217

$6,760

$7,043$7,125

$6,959

$6,714

$6,325

$5,600

$5,800

$6,000

$6,200

$6,400

$6,600

$6,800

$7,000

$7,200

FY'06 FY'07 FY'08 FY'09 FY '10 -

Final

FY '11 FY '12 -

proposed

State Appropriations, FY '06 - FY '12 (in $Millions)

FY 12 budget would be 11.2 percent smaller thanFY 09


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Looking Ahead

Budget Outlook: No End in Sight Revenues unlikely to recover to pre-downturn nominallevels prior to FY14 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

Low

Forecast

Middle

Forecast

High

Forecast

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


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Looking Ahead

Budget Outlook: No End in Sight The prospect of continued slow revenue growth and budgetshortfalls 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 ofsubstance 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.


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For More Information

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

information

Oklahoma Policy Institutes OnlineBudget Guide

www.okpolicy.org/online-

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


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Oklahoma Budget Trends and Outlook (February 2011)

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