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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 for FY ‗09
No funding for benefit cost increases teacher salary increases, state
employee raises
6,000
5,000
4,000
3,000
2,000
1,000
-
1990
2007
1982
1983
1984
1985
1986
1987
1988
1989
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2008
2009
2010
2011
Budget Trends: FY „10
6.0
5.0
4.0
3.0
3.6
2.0
1.0
0.0
Jul-83
Jul-90
Jul-97
Jul-04
Sep-98
Mar-81
May-82
Sep-84
Mar-88
May-89
Sep-91
Mar-95
May-96
Mar-02
May-03
Sep-05
Mar-09
Nov-85
Nov-92
Nov-99
Nov-06
Jan-80
Jan-87
Jan-94
Jan-01
Jan-08
See OK Policy, “Numbers You Need”, at:
http://okpolicy.org/numbers-you-need-key-oklahoma-
economic-and-budget-trends
Budget Trends: FY „10
3.0%
1.0%
-1.0%
-3.0%
-5.0%
2007.4 2008.1 2008.2 2008.3 2008.4 2009.1 2009.2 2009.3 2009.4
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
-10.0% -7.3%
-8.5%
20.0% 9.9%
0.0% -8.3%
-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 Q3
FY 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 '10
Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
Collections through March are $863 million – 23.4 percent -
below the estimate
February collections came in right at the estimate; March
exceeded estimate by 25.5 percent
-$600
-$800
-$782
-$1,000
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
February collections were just 76.5 percent of the average
monthly collections for the same month over the previous 5
years ; March rebounded to 90.8 percent of 5-year average
120%
110%
100%
90.8%
90%
80%
70% 76.1%
60%
May '09
Aug '08
Nov '08
Apr '09
Aug '09
Nov '09
Jul '08
Sep '08
Feb '09
Sep '09
Dec '09
Feb '10
Oct '08
Dec '08
Mar '09
Jun '09
Oct '09
Jan '10
Mar '10
Jan '09
Jul '09
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 since December.
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 that must be repaid
$314.6 million since start of year
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:
$4,476
$4,500
$4,000
100% Estimate - June Appropriation (95%) February Projection
Budget Outlook: What Response?
Shortfall Options
Rainy Day Fund was 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
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 Mid-Year Budget Agreement
Agreements announced by Governor, Speaker and
President Pro Tem in January and February
Continued 10 percent monthly cuts to GR for rest of year
Averages out to 7.5 percent of GR for full year
Supplemental funding to Common Ed of $157 million to offset
part of GR and 1017 shortfalls; $25.6 M to Higher Ed; $33M to
OHCA; $15M to Governor‘s Emergency Fund; $7.2M to
Corrections; $3 million to Public Safety, smaller amounts to
Rehab Services , Central Services, other agencies
No additional funds for Human Services, Mental Health
Use of $223.7 million of Rainy Day Fund (3/8th), $151 million
more stimulus money, plus additional gross production tax
revenues and other sources
Budget Outlook: What Response?
FY ‘10 Mid-Year Budget Agreement
Total revised budget is $272 million (3.8%) less than
initial; $165 million (2.3%) less than FY ‘09;
Almost $1.5billion (25%) of revised FY ‗10 budget made
up of non-recurring money
State Appropriations, FY '09 - FY '10,
Total and by Funding Source (in $millions)
8.0%
3.0%
-2.0% -1.1%
-0.2%
-1.7%
-2.3% -2.8%
-3.2% -3.1%
-3.8% -4.3%
-7.0% -5.3%
-5.3% -5.7%
-7.3% -7.4% -7.1% -7.2%
-7.3% -7.2%
-7.6% -7.4%-7.5%
-8.2% -8.1%
-9.6%
-12.0% -10.0%
$5,000
$4,579
$ 4,475
$4,500
$4,000
FY '06 Actual FY '07 Actual FY '08 Actual FY '09 Actual FY '10 (June FY '10 (Feb FY '11 (Feb
estimated) projected) estimated)
Budget Outlook: FY „11
FY ‘11: The Challenge Escalates
Final FY ‗11 certification provides $1.8 billion less
revenue for next year than this year‘s initial budget
State Appropriations, FY'08-FY '11
$8,000 (includes all revenues; includes FY '08-FY '09 supplementals;
$7,231 in $ millions)
$7,043 $7,124
$6,959
$7,000 $6,797
$6,452
$6,000
$5,294 $5,415
$5,000
$4,000
FY'08 FY'09 FY'10 - FY '10 - FY '10 - FY '11 - FY '11 - FY '11 -
initial projected Revised Certified Certified Gov
budget revenues State $ State $ Budget
(Feb) (Dec) (Feb)
Budget Outlook: FY „11
FY ‘11: The Challenge Escalates
Speaker Benge: ―Our state is still facing a $1.2 billion
shortfall for fiscal year 2011, and agencies are currently
facing significant additional cuts if revenue projections prove
true‖ – Tulsa World (3/10/2010)
Assuming maintenance of this year‘s budget cuts and the
use of remaining stimulus funds and 3/8ths of Rainy Day
Fund, next year‘s budget gap exceeds $800 million.
Equivalent to an additional 12 percent cuts to all
agencies of state government beyond the cuts already
enacted.
Federal extension of enhanced FMAP would reduce this
gap by some $300 million and use of remaining ―emergency‖
Rainy Day Funds by an additional $149 million.
Budget Outlook: FY „11
FY ‘11: The Challenge Escalates
To budget the balance, Gov. Henry proposed:
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: The Challenge Escalates
Some of the revenue enhancements and savings in the
Governor‘s budget proposal are receiving serious
consideration, as are other revenue ideas.
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.
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 $5,275
$5,000 Policy - not based on
Feb 2010
$4,500 certification $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: Looking Ahead
Budget Outlook: No Quick Recovery
Substantial reliance in FY‘10 –‘11 on non-recurring
revenue creates significant problems for FY ‗12
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
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