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David Blatt
Oklahoma Policy Institute
dblatt@okpolicy.org - (918) 794-3944
Oklahoma‟s Path to Prosperity
$7,500
$7,043
$7,000 $6,760
$6,500 $6,217
$6,000
$5,389 $5,491 $5,459
$5,500 $5,191 $5,145
$4,981
$5,000
$4,500
$4,000
FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08
Budget Trends: FY „02 – FY „09
$776.9
$800.0 $651.1
$561.8
$600.0
$400.0 $333.3
$200.0 $144.8
$18.7
$0.0
FY'05 FY'06 FY'07 FY'08 FY'09 FY'10
sour c e : Ok l a homa Ta x C ommi ssi on
Budget Trends: FY ‟02 - FY ‟09
FY‘07 – FY’08: Revenue Slowdown
As tax cuts kicked in, General Revenue collections were
almost flat in FY ‘08 compared to FY ‘07 (+%0.9, $54
million)
Annual % Change in General Revenue Collections, FY '03 - FY '08
20.0%
14.8%
15.0%
10.6%
10.0% 7.6%
5.0% 4.0%
0.9%
0.0%
-5.0%
-5.3%
-6.6%
-10.0%
FY '02 FY '03 FY '04 FY '05 FY '06 FY '07 FY '08
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, state
employee raises
6,000
5,000
4,000
3,000
2,000
1,000
-
1995
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Budget Trends: FY „10
11.5 10.2%
Unemployment Rate (%)
10.5
9.5
8.5
7.1%
7.5
6.5
5.5
4.5
3.5
2.5
Oct-07 Apr-08 Oct-08 Apr-09 Oct-09
Oklahoma National
U.S. Oklahoma
Budget Trends: FY „10
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)
-30.0% -27.7%
-30.1%
-35.0%
July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June
Budget Trends: FY „10
FY ’10 Budget: Revenues on the Skids
In February, FY ‗10 revenues estimated to come in >$600
million below FY ‘09 ;
6,500
General Revenue Collections,
FY '06 Actual - FY '10 Estimated (in $million)
5,981.1 5,946.4
6,000 5,902.7
5,710.0
5,649.2
5,500 5,407.2
5,356.6
5,000
FY '06 Actual Fy '07 Actual FY '08 Actual FY '09 June FY '09 FY '09 FY '10
December February Feburary
Budget Trends: FY „10
FY ‘10 Budget
$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
4,500
4,000
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
20.0% 9.9%
0.0%
-20.0% -12.1%
-29.5%
-40.0%
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY
'02 '02 '03 '03 '04 '04 '05 '05 '06 '06 '07 '07 '08 '08 '09 '09 '10
Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
Collections through December are $756.1 million – 25.6
percent - below the estimate
-$500
-$600
-$700
-$800 -$756
Net Income Tax Gross Production Sales Tax Motor Vehicle Other Sources Total Gen.
Revenue
Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
OSF cut agencies GR allocations by 5 percent through
November and by 10 percent in December and January.
Cuts are across-the-board based on GR allocations
Since some agencies are partly or fully appropriated from
other 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 cash
reserves ($233.8 million since start of year) that must be repaid
Budget Trends: FY „10
Budget Outlook
Gov. Henry: ―Unfortunately, the cuts we have been forced
to implement to date are already taking their toll on state
programs and services‖ (Nov. 10, 2009)
Even at 5-10 percent monthly cut level, the toll is growing:
Total
HB 1017 Appropriations=
25% $2,572.1 million
General
*Other includes Prior
Stimulus (ARRA) Revenue Year GR, Gross
6% 65% Production Tax, Mineral
Leasing Fund
Budget Trends: FY „10
FY ‘10 : How Large a Shortfall?
December certification projects a $729 million (14.2
percent) shortfall in FY ‘10 GR collections.
$80 million shortfall in HB 1017 Fund as well
Total mid-year shortfall of $809 million
FY '10 General Revenues - Original vs.
Revised Projections
$5,600 $5,415
$5,400
$5,145
$5,200
$5,000
$4,800
$4,600 $4,415
$4,400 $729
million
$4,200
$4,000
100% Estimate - June Appropriation (95%) December Projection
Budget Outlook: What Response?
Shortfall Options
Rainy Day Fund is filled to maximum amount of $597
million
Left untouched for initial FY ‗10 budget
Rainy Day Fund Balances, FY '01 - FY '09
(opening balance in $ millions)
$700
$596.6
$600 $571.6
$496.7
$500 $461.3
$400 $340.9
$300
$217.5
$200 $157.5
$100 $72.3
$0.1
$0
2001 2002 2003 2004 2005 2006 2007 2008 2009
Budget Outlook: What Response?
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 the
coming year compared to the current year ($224M);
1/4th upon declaration of an emergency and legislative
approval ($149M)
Uses of Constitutional
Reserve Fund
Emergency,
25.0% - $149M Current Year
Revenue
Failure, 37.5% -
$224M
Forthcoming
Year Shortfall,
37.5% - $224M
Budget Outlook: What Response?
FY ‘10 Shortfall Agreement
Agreement announced by Governor, Speaker and President
Pro Tem in late January
Main components:
Continued 10 percent monthly cuts to GR for rest of year
Averages out to 7.5 percent full year across-the-board cuts
Supplemental funding to Common Ed of $104 million to offset
part 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 $545 million in additional revenue to
balance.
No formal agreement on revenues
Gov‘s budget allocates $485.6M from RDF, unspecified
amounts from agency funds and
surplus oil funds
Budget Outlook: FY „11
FY ‘11: More of the Same
FY ‗11 revenue collections projected to remain
almost unchanged from FY ‘10 and over 25 percent
below pre-downturn (FY ‗08) levels
$5,000
$ 4,415 $4,449
$4,500
$4,000
FY '06 Actual FY '07 Actual FY '08 Actual FY '09 Actual FY '10 June FY '10 Dec FY '11 Dec
(estimated) (projected) (estimated)
Budget Outlook: FY „11
FY ‘11: More of the Same
Initial FY ‗11 certification provides nearly $2 billion
less revenue for next year than this year‘s initial budget
State Appropriations, FY'08- FY '11
(includes all revenues; includes FY '08- FY '09 supplementals; in
$8,000 $millions)
$7,124 $7,231
$7,043 $6,967
$7,000 $6,797
$6,422
$6,000
$5,294
$5,000
$4,000
FY'08 FY'09 FY'10 - FY '10 - FY '10 - FY '11 - FY '11 - Gov
initial projected Leadership Certified Budget
budget shortfall agreement State $
(Dec)
Budget Outlook: FY „11
FY ‘11: More of the Same
To budget the balance, Gov. Henry proposes:
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 sales
tax collections on Internet sales and automated enforcement of
vehicle insurance;
Eliminating and suspending various tax credits;
Increases in fees and permits.
Budget Outlook: FY „11
FY ‘11: More of the Same
Many of the revenue enhancements and savings in the
Governor‘s budget proposal are unlikely to gain legislative
approval or have the full estimated fiscal impact .
Even under the Governor‘s proposals, the cuts to agency
programs and services would be deep and widespread
Most agencies face FY ’11 funding 10 to 17 percent below their
budgets for FY ’09.
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 rising
operating costs and caseloads.
Shortfalls may be less severe if February recertification
projects stronger revenue recovery over next 16 months
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 as
revenues are projected to grow 4%... Even if revenues
remain below pre-downturn levels
Additional revenues automatically allocated for ROADS
and OHLAP
Use of one-time funds in FY ‗10 and FY ‗11 creates
significant problems for FY ‗12
Budget Outlook: Looking Ahead
Budget Outlook: No Quick Recovery
Revenues unlikely to recover to pre-downturn nominal
levels prior to FY ‗13
$5,928 $5,981
$6,000
$5,945
$5,500 $5,544
Estimates by OK
Policy - not based on $5,275
$5,000 Dec. 2009
certification
$4,500 $4,735
$4,439
$4,000
FY 07 (act.)FY 08 (act.)FY 09 (act.)FY 10 (est.)FY 11 (est.)FY 12 (est.)FY 13 (est.)
Fiscal Year
Budget Outlook : Beyond FY „10
Short-Term Recommendations
1. Develop and share greater information about impact of
actual and potential cuts, possible solutions
• Structural deficit: A
situation that occurs
when a state‟s “normal
growth of revenues is
insufficient to finance
the normal growth of
expenditures year after
year”
(CBPP, “Faulty Foundations: State Structural
Budget Problems”)
Long-Term Fiscal Outlook
Oklahoma’s Structural Deficit
Projected Annual Budget Surpluses and Deficits
Before and After 2004-2006 Tax Cuts (2007 to 2035)
1,000
500
0
M i l l i o n $2005
(1,000)
After Tax Cuts
(1,500)
(2,000)
(2,500)
2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035
Year
Source: Projections conducted in 2007 by Dr. Kent Olson, Professor of
Economics, Oklahoma State University
Long-Term Fiscal Outlook
Long-Term Recommendations