OKLAHOMA BUDGET OVERVIEW

David Blatt
Oklahoma Policy Institute
Oklahoma’s Path to Prosperity

OUR STARTING POINT

We invest our tax dollars in
our public structures to support
our common goals as a state
 Budget Trends: FY ‘02 – FY ‘08

FY ‘02 – FY ‘08: Bust and Boom

¤State budget suffered steep downturn, deep cuts, ’02 - ’04
¤Strong economy led to robust revenue growth and
increased state appropriations between FY ‘06 and FY ‘08
Annual Appropriations Totals, FY ‘00—FY ‘08
(Includes Supplementals thru FY ‘08 and Rainy Day spillover Funds
for
Recurring Agency Expenditures) - in $millions
Budget Trends: FY ‘02 – FY ‘08

Where did the money go?

¤ Revenue growth was dedicated to covering
 Budget Trends: FY ‘02 – FY ‘08

Continuing Impact of Tax Cuts

¤ Deep and permanent tax enacted between 2004 and
2006
¤ Most of the cuts were to the personal income tax
¤ Tax cuts were stretched out over several years; full
impact will not be felt until FY ‘11
Budget Trends: FY ’02 - FY ’08
FY‘07 – FY’08: Revenue
Slowdown
¤ General Revenue collections began to slow in FY ‘07 and
were almost flat in FY ’08 (+%0.9, $54 million)
¤ Increased gross production tax (+$205.7 million) and
sales tax (+$80.6 million) revenues helped make up for
falling personal and corporate income tax collections (-
Budget Trends: FY ‘09 – FY ‘10
Budget Trends: FY ‘09 – FY ‘10
Things Are Tough All Over
Combined state budget gaps for FY ‘09, FY
‘10 and FY ‘11 estimated to total more than
$350 billion

Source: CBPP, “State Budget Troubles Worsen”,

updated May 18, 2009 at: http://www.cbpp.org/9-
8-08sfp.htm
Budget Trends: FY ‘09 – FY ‘10
FY ’09 Budget: Tightening the
Screws
¤ FY ’09 initial appropriations of $7.089 billion – increase of $47
million (0.7%)
¤ Most agencies appropriations frozen from FY ’08
¤ No funding for teacher salary increases, state employee raises

FY ‘09 excludes supplementals and mid-year budget cut

Budget Trends: FY ‘09 – FY ‘10
Revenues on the Skids
¤ FY ‘09 revenue: from $224.8 million above estimate (Dec.)
to $271 million below estimate (May)
¤ Every major tax below estimate and prior year in recent
months
¤ When revenues dipped below 95 percent of estimates in
May, a revenue shortfall was declared, leading to cuts in
June allocations ($6.8 million)
Budget Trends: FY ‘09 – FY ‘10
Revenues on the Skids
¤ By mid-year, FY ‘09 projections dropped $236 million
compared to the June certified estimate (red bars,
below)
¤ FY ‘10 revenues estimated to come in >$600 million
below FY ’08
Budget Trends: FY ‘09 – FY ‘10
Revenues on the Skids
¤ The FY ‘10 forecast is bad - - but far from a worst-case
scenario
¤ Still assumes growth of sales tax and corporate
income tax collections
Budget Trends: FY ‘09 – FY ‘10
Building the FY ‘10 Budget
$612.5 million (8.7 percent) less
available
in FY ‘10 than FY ‘09

-$309.6
 Budget Trends: FY ‘09 – FY ‘10
Stimulus Dollars to the Rescue
¤Budget agreement reached on using $641 million
from the American Recovery and Reinvestment Act
(ARRA, or the stimulus) in FY ‘10
¤ $236.3 million from the State Fiscal Stabilization
Fund for common education and higher education;
¤ $10 million from the State Fiscal Stabilization
Fund for Oklahoma Health Care Authority
¤ $394 of enhanced federal Medicaid matching
funds for 8 agencies
¤ $306.5 million to OHCA
¤ $71.4 million to DHS
¤ Stimulus dollars allocated for FY ‘10 represent
roughly half of total available stimulus amount

See: OK Policy FY ’10 Budget Review at:

http://okpolicy.org/fy-10-budget-information
Budget Trends: FY ‘09 – FY ‘10
FY ‘10 Budget
¤$7,231.2 million total, including $641 million
ARRA
¤Increase in total appropriations of $106 million
(1.5 percent) compared to FY ‘09
¤State dollars only: 7.1 percent less than FY ’09

NOTE: FY ‘09 totals do not include June budget

cuts
 Funding Public Services
FY ’10 Appropriations by
Subcommittee
Natural
Total Appropriations:
Resources $7,231.2
Other
0.2%
million (includes ARRA)
2.1%

Public Safety
10.9%

Health and
Social Services
18.6%

Human
Services Education
9.6% 53.4%

Government
Operations
5.2%
FY ’10 State Appropriations
10 Largest Agencies: $6.3 billion (88%)
Agencies (75 agencies): $829 million (12%)
 Budget Trends: FY ‘09 – FY ‘10
FY ‘10 Budget
¤Stimulus funds made it possible to minimize cuts or
provide small increases to ten largest state agencies
and some smaller ones
¤ Funding for 10 largest agencies up $161 million,
2.6 percent
¤ OHCA, +$107.7 million (+12.3%)
¤ Common Education, +$40.3 million (+1.6%)
¤ Higher Education, +$30.9 million (+3.0%)
¤ DHS, -$8.4 million (-1.5%)
¤ Most smaller agencies took cuts of 5 to 7 percent
¤ Funding for 68 smaller agencies down $54
million, 6.5 percent

See: OK Policy FY ’10 Budget Review at:

http://okpolicy.org/fy-10-budget-information
Budget Trends: FY ‘09 – FY ‘10
FY ‘10 Budget: The Impact
¤For most agencies, FY ‘10 appropriations will lead to
funding gaps and possible cuts in staffing, programs
and services
¤No funding to address rising employee benefit costs or
inflation (e.g. utilities, transportation, food)
¤Demands for some state services increase due to the
downturn
 Budget Trends: FY ‘09 – FY ‘10
FY ‘10 Budget: The Impact
¤At this point, little is known about how agencies will
respond to budget cuts and funding gaps.
¤Most agencies will be forced to try to perform their core
work with fewer staff (unfilled vacancies). This could lead to:
¤ Closing offices , reducing hours, and limiting staff serving
the public;
¤ Reducing the frequency of inspections of facilities and
businesses;
¤ Increasing staff caseloads;
¤Some agencies may be required to fill budget gaps by:
¤ Cutting reimbursement rates to private providers;
¤ Waiting lists and freezes on programs.
¤ Fee increases;
¤ Furloughs and involuntary lay-offs
Budget Outlook: Beyond FY ‘10
A Slow Rebound
¤Assuming the economy begins to recover in late
2009, we project that revenues will rebound slightly
in FY ‘11
¤ Revenue growth could be hindered by automatic cut in
top income tax rate if GR is projected to increase >4
percent
¤It may take until FY ’13 for revenues to return to FY ‘08
levels
Budget Outlook : Beyond FY ‘10
Rainy Day Fund
¤Rainy Day Fund is filled to maximum amount of $597
million
¤Left untouched for initial FY ‘10 budget
 Budget Outlook : Beyond FY ‘10
Rainy Day Fund: Off- Limits?
¤Rainy Day Fund can be accessed as follows:
¤ 3/8th for a mid-year shortfall in GR collections;
¤ 3/8th for a projected decline in GR collections for the
coming year compared to the current year;
¤ 1/4th upon declaration of an emergency and legislative
approval
¤RDF designed for use at the onset of a downturn
¤If revenues do begin to recover, most of the RDF will
be unavailable for appropriations in FY ‘11 and FY ‘12.
¤However, if FY ’10 or FY ‘11 revenue collections fall
short of the estimate, RDF could be used

See: OK Policy, “Now’s the Time: Using Stimulus and Rainy

Day Funds Can reduce the Impact of State Budget Cuts”,
at:http://okpolicy.org/nows-time-use-rainy-day-funds
Budget Outlook : Beyond FY ‘10
Filling the Revenue Gap
¤Stimulus Round II
¤ About half of the State Fiscal Stabilization Fund and
enhanced Medicaid funds will be available for use in FY
‘11
¤ $236.5 million of SFSF education dollars;
¤ Up to $95 million of SFSF general purpose dollars;
¤ $365 to $500 million of enhanced Medicaid
¤ Other Revenues?
¤ SQ 640 requires a 3/4th vote of both legislative
chambers or vote of the people at time of next
general election to raise taxes;
¤ Continuing search for one-time revenues;
¤ Other proposals could include selling off public
assets, securitizing the tobacco settlement or state
lottery
Budget Outlook : Beyond FY ‘10
The Post-Stimulus Budget Gap?
¤The FY ‘12 dilemma
¤ State Fiscal Stabilization Fund and enhanced FMAP are
intended for states to avoid cuts, layoffs, and tax
increases – but what happens when the money runs out?
¤ >$600 million of “one-time” federal stimulus dollars
being used to support the ongoing expenditures of state
agencies and schools in the FY ’10 budget (and FY ‘11?).
¤ Other stimulus funding streams may also end up being
used in part to fund ongoing expenditures (e.g. Dept of
Rehabilitation Services clearing off its waiting list).
¤ Hole will be especially huge for Medicaid agencies, which
could see their federal share plunge by over 15
percentage points.
¤ Will Congress help out?
Budget Outlook : Beyond FY ‘10
The Sky is Slowly Descending!
¤Oklahoma already underfunds most of our public
structures and falls short of our common goals as a
state
¤The relentless underfunding of public structures
leads to :
¤ threats to public safety and well-being;
¤ decline in performance;
¤ decline in public confidence and growing cynicism;
¤ “your on your own” attitude
Budget Outlook : Beyond FY ‘10
Short-Term Recommendations
2.Change the rules for the Rainy Day Fund
¤ Introduce legislation next year for a 2010 ballot
proposal to allow RDF money to be used any
time revenues remain below their pre-downturn
peak.
3.Defer additional tax cuts until revenues recover
4.Consider new revenue streams for the Medicaid
program
4.Develop meaningful multi-year forecasting
 Long-Term Fiscal Outlook
Oklahoma – like most states and the federal
government – faces a looming structural budget
deficit
• 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”)
•
 Oklahoma’s Structural Deficit
¤Demographic changes, rising health care and
retirement costs, an outdated tax system and tax
cuts all lead to revenues failing to keep pace with
costs in the years ahead
 Long-Term Fiscal Outlook
•

• Long-Term Recommendations
•

4. Modernize the Tax System

6. Preserve a Balanced Tax Structure

8. Make the tax system fairer

•

People want just taxes more than they want

lower taxes. They want to know that every
man is paying his proportionate share
•
according to his wealth.
• -Will Rogers

•
 Contact Information
David Blatt, Director of Policy
Oklahoma Policy Institute
4606 South Garnett, Suite 100 |
Tulsa, Oklahoma 74146
ph: (918) 859-8747
dblatt@okpolicy.org

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

www.okpolicy.org