Oklahoma Budget Trends and Outlook (July 2011)

8/6/2019 Oklahoma Budget Trends and Outlook (July 2011)

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The State Budget Outlook:A New Fiscal Reality

Updated July 19, 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;

Support 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 Behind Oklahoma already underfunds most of our publicstructures and falls short of many of our common goals asa state.

Total per capital state and local spending is $1,627 (18percent) less than the national average;

We spend below the national average in just about everycategory of expenditure;

-$1,000

$1,000

$3,000

$5,000$7,000

$9,000

Spending

perPerson

State and Local Spending per Person by Function, 2007-08

Oklahoma

US Average

Source: U.S. Bureau of the Census


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We Already Lag Behind Our average teacher pay is 42nd in the nation (2007);

We rank in the bottom 10 states in smoking, obesity, job-relateddeaths, access to health insurance and doctors, and days lost tomental and physical illness (2007);

We are 4th in total prisoners per capita and 1st in female incarceration

rates (2009);

We rank 9th worst among the states in road condition, with 29.5%ofroads in mediocre or poor condition (2005).

The ongoing state budget crisis threatens a serious andlong-term corrosion of our public structures that will weaken

our prosperity, security and well-being.


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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*

Budget Trends: FY 02 FY 09

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 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 FY13.



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Source: Center on Budget and Policy Priorities


ThingsAre Tough All Over

All but four states faced budget 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

9.1%

5.3%

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11

Monthly Unemployment Rate, National and Oklahoma, May 2008 toMay 2011

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%

12.9%

-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

Q3

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 (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)


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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.

Response was monthly budget cuts (average of 7.5 percent ofGR allocation); use of additional stimulus and Rainy Day Funds.

-$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 to

Estimate, 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 to

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


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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 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 Re ve nue s Fe de ral Re lie f Rainy Day Fund


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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. Funding cuts limited to under 10 percent for most of thelargest state agencies;

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


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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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Weve Gotta Admit, Its Gettin Better Revenues are showing steady improvements

-8%

-22%-19%

-21%

-28%-30%

-26%

-32%

-30%

-24%

-31% -29%

-17%

-7%

1.6%

0%

6%

2%

10%

5%6%

3%

9%

13%

20%

12%9%

13%10%

16%

-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 Mar-11 May-11

Change in Monthly General Revenue Collections,

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


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Weve Gotta Admit, Its Gettin Better Most major taxes are showing a healthy recovery theincome tax and gross production taxes are rebounding mostslowly

10.2%

110.8%

9.9% 10.1%

34.8%

1.5% 10.5%

0%

20%

40%

60%

80%

100%

120%

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


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Budget Outlook: This Aint Over FY 11 GRcollections up $487.1 million - 10.5 percent - from FY10;

Remained 14.2 percent below FY 08 and well below FY 06 levels.

Actual GR collections surpassed estimate by 4.5 percent

Year-end surplus ($219.4 million) will be deposited in Rainy DayFund

4,7174,408 4,174

4,6164,966

5,701 5,9355,953

5,544

4,6215,108

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

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

Annual General Revenue Collections,

FY '01 - FY '11 (in Millions)


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Building the FY 12 Budget FY 12 revenue projected to grow 5 percent from FY 11.

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 for

transportation and $6.2 million additional to OHLAPscholarship program;


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Building the FY 12 Budget Revised, binding appropriations authority for FY 12 was $6.211billion

About $500 million less than the FY 11 budget;

Many agencies need additional funding to maintain basicoperations, restore cuts to core services, and address the cumulative

impact of several years of rising costs.

Governor Fallins Budget balanced through:

$225 Million in additional revenue (stimulus, tax collectionchanges);

$273 Million in savings from government modernization

initiatives;

$201M in agency cuts: 3 to 5 percent for most agencies.

Legislative leaders warned of possible cuts of 5 10 percent.


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FY 12 Budget FY 12 appropriations of $6.511 billion:

Third straight year of declining appropriations;

$254.8 million, 3.8 percent, below FY 11;

$613.5 million, 8.6 percent, below FY 09;

$249 million, 3.7 percent below FY 07

See FY 12 Budget Highlights at:

http://okpolicy.org/fy-2012-budget-highlights

$6,217$6,760

$7,043 $7,095$6,590

$5,897 $5,938$6,312

$30$641

$838 $554 $99

$224$273 $100

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

$7,500

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

Initial

FY '10 -

Final

FY '11 FY '12

State Appropriations, FY '06- FY '11(in $ Millions, includes supplementals, excludes Rainy Day "spillover" funds)

State Revenues Federal Relief Rainy Day Fund

Total=

$6,511


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FY 12 Budget Budget balanced through various revenue enhancements:

Additional federal stimulus dollars;

Cash balances from the Cash Flow Reserve Fund ($120million) and Rainy Day Fund ($100 million);

Transportation bond issue ($70 million);

Use of assorted reserve funds and other measures.

Cut to top income tax rate allowed to take effect and no actions tosuspend or eliminate tax breaks.

Provision Amount Bill

Transfer of Voluntary Buy Out (VOBO )Funds 5,500,000$ HB 2170, s. 52

Transfer from Cancelled Warrant Fund 4,925,888$ HB 2170. s. 53

Transfer from Secretary of State Revolving Fund 2,000,000$ HB 2170, s. 61Transfer from Unclaimed Property Fund 15,000,000$ HB 2170, s. 69

Transfer from Insurance Commission Revolving Fund 5,000,000$ HB 2170, s. 105

Transfer from Cash Flow Reserve Fund 120,000,000$ SB 973

American Recovery and Reinvestment Act 98,781,683$ HB 2170, assorted

Delaying reapportionment of revenues to Highway Fund 15,500,000$ SB729

Oklahoma Tax Commission Compl iance initiatives 16,000,000$ SB123

282,707,571$


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FY 12 Budget On the appropriations side, cuts to key health, human service,and public safety agencies were minimized;

Common Education cut 4.5 percent; Career Tech and HigherEd cut 6.7 percent;

Almost all agencies will absorb deeper cuts in FY 12 and none

have been funded to cover rising operating and employeebenefit costs over the past three years;

Some 40 agencies more than half of all appropriatedagencies will have absorbed cuts of greater than 20 percentsince FY 09;

Budget cuts and funding shortfalls will continue to harm

Oklahoma students, teachers, families, public employees, non-profit organizations and private sector businesses.


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Impact of CutsAgencies have reduced staffing, eliminated or cut backprograms, closed offices and facilities, cut rates to privatecontractors, and raised user fees. Some examples:

School districts have laid off teachers and staff, eliminated services,raised class sizes.

Department of Education eliminated bonuses for National BoardCertified Teachers, research-based teacher training programs,evaluation contracts, and other programs

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 70 percent of authorized levels,implemented monthly furlough days;

OJA cancelled youth detention and gang prevention programs;

Health Department eliminated 17 child guidance centers servingpre-school children with developmental delays;


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Looking Ahead


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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 (Oct. 2010) (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: Hard Times Continue

5.7%

5.2%

4.8%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

1981

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

Oklahoma State Appropriated Budget as Share of

State Personal Income, FY '81 - FY '11

Sources U.S. Bureau of Economic Affairs, State Quarterly Personal Income (estimated 1.0% growth 2nd-4th Qtr SFY 2011);

A ro riations histor rom annual Executive Bud et other sources

State appropriated spending has reached its lowestlevel in at least 30 years and will fall even furthernext year


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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:

Review and reduce tax exemptions, credits and rebates;

Broaden the tax base;

Protect the income tax.

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 (July 2011)

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