Oklahoma Budget Overview

8/14/2019 Oklahoma Budget Overview

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OK LAHOMA BUDGET OVERVIEW

Rec ent Trends and Out look ---updated June 2009--

David Blat t

Oklahoma Policy [email protected] - (918) 382-3228


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Ok lahom as Pat h t o Prosper i t y


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Budget Trends : FY 02 FY 08

Annual Appropriations Totals, FY 00FY 08(Includes Supplementals thru FY 08 and R ainy Day spillover Funds for

Recurring Agency Expenditures) - in $millions

FY 02 FY 08: Bust and BoomState budget suffered steep dow nturn, deep cuts, 02 - 04Strong 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


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Where did the money go?

Revenue growth w as dedicated to covering risingcosts of basic services and supporting targetedinvestments for our common goals

Funding increased by $1.3 bill ion to 6 agencies Common Ed, Higher Ed, Health Care Authority , Human

Services, Corrections, Transportat ion

Mostly for increased mandatory costs, enrollment increasesand declining federal support

Teacher and support staff pay increases, health careprovider reimbursement rate increases, studentscholarships

Only new programs w ere full-day kindergarten andbeginning of road and bridge repair initiative (ROADS)



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$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

Lost Revenues from Select Tax Cuts Enacted 2004 - 2006

FY'05 through FY'10 (in $ millions)

source: Oklahoma Tax Commission

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

w ill not be felt until FY 11



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Budget Trends: FY 02 - FY 08

FY07 FY08: Revenue Slowdown

General Revenue collections began to slow in FY 07 and werealmost flat in FY 08 (+% 0.9, $54 m illion)

Increased gross production tax (+$205 .7 m illion) and sales tax(+$80.6 million) revenues helped make up for falling personaland corporate income tax collections (-$254.6 million)

-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


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Source: CBPP, State Budget Troubles Worsen,

updated May 18, 2009 at: http://www.cbpp.org/9-8-08sfp.htm

Budget Trends : FY 09 FY 10ThingsAre Tough All Over

Combined state budget gaps for FY 09, FY 10 and

FY 11 estimated to total more than $350 bil l ion


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FY 09 Budget: Tightening the Screws FY 09 initial appropriations of $7.089 bil l ion increase of $47 m ill ion

(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


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Revenues on the Skids

FY 09 revenue: from $224.8 million above estimate (Dec.) to$271 mil l ion 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 Juneallocations ($6.8 m illion)


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5,664.4

5,933.9 5,981.1 5,946.4

5,710.0

5,356.6

5,000

5,500

6,000

6,500

FY '06 Act ual Fy '07 Act ual FY '08 Act ual FY '09 June FY '09

February

FY '10

Feburary

Genera l Revenue Col lec t ions,FY '06 Ac t ual - FY '10 Est im ated ( in $mi l l ion)

By mid-year, FY 09 projections dropped $236 millioncompared to the June certified estimate (red bars, below)

FY 10 revenues estimated to come in >$600 million belowFY 08


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-37.6%

-10.4%

10.2%

-50.3%

8.8%

-10.5%

-60.0%

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

Gross

Product ion

Tax-Gas

Income Tax-

Personal

Income Tax-

Corporate

Motor Vehicle

Ta x

Sales Tax Total General

Revenue

Change in General Revenue Col lec t ions byMajor Tax, FY '08 Act ua l t o FY '10(Februar y Cer t i f ied Es t im ate)

The FY 10 forecast is bad - - but far from a w orst-case scenario Still assumes growth of sales tax and corporate income tax

collections


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Building the FY 10 Budget

7,068.8

6,759.2

6,456.3

6,000

6,250

6,500

6,750

7,000

7,250

FY '09 FY '10 Decem ber FY '10 Febru ar y

Appropr ia t ions Aut hor i ty,FY '09 vs. FY '10 ( in $m i l l io ns)

- $61 2.5

-$309.6

$612.5 m illion (8.7 percent) less available

in FY 10 than FY 09


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Stimulus Dollars to the Rescue

Budget agreement reached on using $641 m illion fromthe American Recovery and Reinvestment Act (ARRA, or the

stimulus) in FY 10

$236.3 million from the State Fiscal Stabilization Fundfor common education and higher education;

$10 m illion from the State Fiscal Stabilization Fund forOklahoma Health Care Authority

$394 of enhanced federal Medicaid matching funds for 8agencies

$306.5 million to OHCA$71.4 million to DHS

Stimulus dollars allocated for FY 10 represent roughlyhalf of total available stimulus amount

See: OK Policy FY 10 Budget Review at:http://okpolicy.org/fy-10-budget-information


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FY 10 Budget

NOTE: FY 09 totals do not include June budget cuts

$7,231.2 million total, including $641 million ARRAIncrease in total appropriations of $106 million (1.5percent) compared to FY 09

State dollars only: 7.1 percent less than 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

$7,095

State

$6,590

State

State Ap propr iat ions His t ory , FY '00 - FY '10 in $m i l l ions)( includes supplem ental s, exc ludes one-t i mes fr om Rainy Day Spi l lover funds)


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Funding Publ ic Ser v ic es

FY 10 Appropriations by SubcommitteeTotal Appropriations: $7,231.2 million (includes ARRA)


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FY 10 State Appropriations

10 Largest Agencies: $6.3 billion (88%)

Agencies (75 agencies): $829 million (12%)

Funding Publ ic Ser v ic es

Common Ed.

$2,572.0

36%

Higher Ed.

$1,070.7

15%

OHCA (Medicaid)

$979.8

13%

DHS,

$550.7 , 8%Corrections

$503.0

7%

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 Other

Agencies

$779.411%

Total

Appropr ia t ions:$7,231.2 mi l l ion

Inc ludesAmer icanRec overy andReinvestment

Ac t (ARRA)

Tot a l Ten Largest :$6,451.8,89.2 %


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FY 10 Budget Stimulus funds made it possible to minim ize cuts orprovide small increases to ten largest state agencies and

some smaller onesFunding for 10 largest agencies up $161 million, 2.6

percent

OHCA, +$107.7 m ill ion (+12.3% )Common Education, +$40.3 million (+1.6% )Higher Education, +$30.9 mill ion (+3.0% )DHS, -$8.4 million (-1.5% )

Most smaller agencies took cuts of 5 to 7 percentFunding for 68 smaller agencies down $54 m illion, 6.5

percent

See: OK Policy FY 10 Budget Review at:http://okpolicy.org/fy-10-budget-information


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FY 10 Budget: The Impact For most agencies, FY 10 appropriations w ill lead to fundinggaps and possible cuts in staffing, programs and services

No funding to address rising employee benefit costs orinflat ion (e.g. util ities, transportat ion, food)

Demands for some state services increase due to thedownturn

Contributions to Oklahoma Public Employee

Retirement System by State Agencies, FY '04 - FY '10Fiscal Year Covered Payroll Contribution

Rate

Contributions

(in $millions) (in $millions)

FY '04 $1,055.74 10.0% $105.60

FY 05 $1,142.80 10.0% $114.30

FY 06 $1,227.90 11.5% $141.20

FY 07 $1,299.00 12.5% $162.40

FY 08 $1,337.78 13.5% $180.60

FY 09 (est.) $1,361.50 14.5% $197.42

FY '10 (est.) $1,395.60 15.5% $216.31

Source: Oklahoma Public Employees Retirement System

129.6 163.7

186.0217.6

244.5

293.1

357.1

393.6418.9

$100

$150

$200

$250

$300

$350

$400

$450

2001 2002 2003 2004 2005 2006 2007 2008 2009(proj.)

State Employee Health Benefit Allowance,

in $ millions, FY '01 - FY '09 (projected)

Source: Employee Benef i t s Counci l


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FY 10 Budget: The Impact At this point, l ittle is know n about how agencies w ill respond tobudget cuts and funding gaps.

Most agencies w ill be forced to try to perform their core work w ithfewer staff (unfilled vacancies). This could lead to: Closing offices , reducing hours, and lim iting staff serving the

public;

Reducing the frequency of inspections of facilit ies andbusinesses;

Increasing staff caseloads; Some agencies may be required to fil l budget gaps by: Cutting reimbursement rates to private providers; Waiting lists and freezes on programs. Fee increases; Furloughs and involuntary lay-offs


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Budget Out look : Beyond FY 10

A Slow Rebound Assuming the economy begins to recover in late 2009, weproject that revenues will rebound slightly in FY 11

Revenue grow th could be hindered by automatic cut in topincome tax rate if GR is projected to increase >4 percent

It may take until FY 13 for revenues to return to FY 08 levels

$6,217

$6,780$7,043

$7,089

$6,456$6,518

$6,848

$7,286

5,600

6,000

6,400

6,800

7,200

7,600

2006 2007 2008 2009 2010 2011 2012 2013

$mio

Fiscal Year Ending June 3 0

Total s Avai lable for Appr opr iat ion (Recur r ing Stat e Revenues),FY '06 - FY '13

Source: Oklahom a Board of Equal izat ion for 2006-10,Oklahoma Pol icy Inst i tut e project ions for 2011-13


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Budge t Out look : Beyond FY 10

Rainy Day Fund Rainy Day Fund is fi l led to maximum amount of $597mill ion

Left untouched for initial FY 10 budget

Rainy Day Fund Balances, FY '01 - FY '09(opening balance in $ millions)


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Rainy Day Fund: Off- Limits?Rainy Day Fund can be accessed as follows: 3/ 8 th for a mid-year shortfall in GR collections; 3/ 8 th for a projected decline in GR collections for the coming

year compared to the current year;

1/ 4 th upon declaration of an emergency and legislative approval RDF designed for use at the onset of a downturnIf revenues do begin to recover, most of the RDF w ill beunavailable for appropriations in FY 11 and FY 12.

However, if FY 10 or FY 11 revenue collections fall shortof the estimate, RDF could be used

See: OK Policy, Nows the Time: Using Stimulus and RainyDay Funds Can reduce the Impact of State Budget Cuts,

at:http://okpolicy.org/nows-time-use-rainy-day-funds


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Filling the Revenue GapStimulus Round IIAbout hal f of the State Fiscal Stabilization Fund and enhanced

Medicaid funds w ill be available for use in FY 11

$236.5 million of SFSF education dollars; Up to $95 m illion of SFSF general purpose dollars; $365 to $500 million of enhanced Medicaid

Other Revenues? SQ 640 requires a 3/ 4 th vote of both legislative chambers or

vote of the people at time of nex t general election to raisetaxes;

Continuing search for one-time revenues; Other proposals could include selling off public assets,

securitizing the tobacco settlement or state lottery


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Budget Out look : 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 w hathappens when the money runs out?

>$600 million of one-time federal stimulus dollars being usedto support the ongoing expenditures of state agencies andschools in the FY 10 budget (and FY 11?).

Other stimulus funding streams may also end up being used inpart to fund ongoing expenditures (e.g. Dept of Rehabilita tionServices clearing off its waiting list).

Hole w ill be especially huge for Medicaid agencies, which couldsee their federal share plunge by over 15 percentage points.

Will Congress help out?


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The Sky is Slowly Descending!

Oklahoma already underfunds most of our public structuresand 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


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Short-Term Recommendations

1. Change the rules for the Rainy Day FundInt roduce legislation next year for a 2010 ballot

proposal to allow RDF money to be used any time

revenues remain below their pre-downturn peak.

2. Defer additional tax cuts unti l revenues recover3. Consider new revenue streams for the Medicaid program4. Develop meaningful multi-year forecasting


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St ruc t ura l de f ic i t : As i tuat ion tha t occ ursw hen a s ta te s no rm a lgrow t h o f revenues is

insuf f i c ien t to f inanc e

the norm a l g row th o f

expendi t ures year a f t er year

(CBPP, Faul t y Foundat ions: St ate

St ruc tura l Budget Prob lems )

Long-Ter m Fisc al Out look

Oklahoma like most states and the federal government

faces a looming structural budget deficit


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Oklahomas Structural Deficit

Source: Adapted by Oklahom a Pol icy Inst i tut e f rom Kent W. Olson,

State Pol icy and Econom ic Development in Oklahom a: 2007

Demograph ic changes, rising health care and retirementcosts, an outdated tax system and tax cuts all lead to

revenues failing to keep pace w ith costs in the years ahead


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Long-Term Recommendations

1. Modernize the Tax System3. Preserve a Balanced Tax Structure4. 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 hiswealth.

-Will Rogers


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Cont ac t Info r m at ion

David B latt, Director of Policy

Oklahoma Policy Institute

4606 South Garnett, Suite 100 |Tulsa, Oklahoma 74146

ph: (918) 859-8747

[email protected]

BetterInformation, Better

PolicyOklahoma Policy Institute provides timely and credible analysis of state

policy issues

www.okpolicy.org

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