OKLAHOMA BUDGET OVERVIEW

Trends and Outlook

Updated October 15, 2010

David Blatt
Oklahoma Policy Institute
dblatt@okpolicy.org - (918) 794-3944
Oklahoma’s Path to Prosperity

OUR STARTING POINT

Government is among our means of
achieving our common goals as a
state --- alongside private businesses,
non-profit organizations, faith groups
and families.
Oklahoma’s Path to Prosperity

OUR STARTING POINT

 Our families, communities and businesses depend
on 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, etc.
 Ensure we have clean water and air;
 Promote our small towns, rural areas, artists and investors;
 Take care of those at risk of harm and abuse.

 We cannot reach our goals and thrive as a state

without effective public structures and systems.
Oklahoma’s Path to Prosperity
We Already Lag Behind
 Oklahoma already underfunds most of our public
structures and falls short of many of our common goals as
a state. For example:
 Our teacher pay is among the lowest in the nation;
 We have among the highest rates of heart disease, obesity,
smoking, and uninsured;
 Our community-based social service providers have gone years
without rate increases;
 Many of our roads and bridges are in disrepair;
 Our correctional facilities are overcrowded and understaffed.

 The ongoing state budget crisis threatens a serious and

long-term corrosion of our public structures that will
weaken our prosperity, security and well-being.
Budget Trends: FY ‘02 – FY ‘09
 Budget Trends: FY ‘02 – FY ‘09

FY „02 – FY „09: 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.
Most agency appropriations frozen in FY ‘09

State Appropriations History, FY '00 - FY '09, in $ millions

(includes supplementals, excludes one-times from Rainy Day spillover funds)
$7,500
$7,043 $7,089
$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 FY'09
Budget Trends: FY ‘02 – FY ‘09

Where did the growth revenue go?

Increased State Appropriations, Selected Agencies,
FY ‟06 – FY ‟08

Dept. of Education: $453M Human Services: $129M

Health Care Authority: $289M Corrections: $80M

Higher Education: $271M Transportation: $72.5M*

 80 percent of new dollars went to six core agencies.

 Covering rising costs of basic services and supporting
targeted investments for shared goals.
 Budget Trends: FY ‘02 – FY ‘09

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 impact
will not be felt until FY ’11.

Lost Revenues from Select Tax Cuts Enacted 2004 - 2006

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

$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

Tax Cuts had a long-term impact

 Revenue losses from tax cuts more than double the additional
revenue from “sin taxes” approved by voters in 2004 (lottery,
gaming, tobacco)
Estimated Revenue Impact of New Revenue Measures Compared to Major Tax
Cuts, FY '05 - FY '10 (in $ millions)
$1,000.0

$651 $777
$800.0
$562
$ millions

$600.0
$333
$400.0
$195
$200.0 $323 $335
$287
$41 $239
$145
$-
$19
FY '05 FY '06 FY '07 FY '08 FY '09 FY '10

Total New Revenue (Combined Lottery, Gaming, Tobacco) Total Lost Revenue (Major Tax Cuts)

New revenues do not include tribal tobacco tax proceeds. Revenue losses are Oklahoma Tax Commission
projections
Budget Trends: FY ‘10 – FY ‘11
Budget Trends: FY ‘10 – FY ‘11
Things Are Tough All Over
 All but two states are experiencing the state fiscal crisis.
 Combined state budget gaps for FY ’09 – FY ‘12 estimated to
exceed $600 billion.

Source: Center on Budget and Policy Priorities

Budget Trends: FY ‘10 – FY ‘11
It‟s a Revenue Problem
 Five consecutive quarters of worsening collections;
 Revenue drops more than twice as steep as during the
last downturn.
Quarterly Year-over-Year Change in General Revenue
Collections, FY '02 - FY '10
30.0%

20.0%

10.0%
2.3%
0.0%

-10.0%
-12.1%
-20.0%

-30.0% -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 ‘11
It‟s 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 for
inflation or population growth.

General Revenue Collections,

FY '01 - FY '10 (in $millions)
$5,935 $5,953
$6,000
$5,701
$5,545
$5,500

$4,966
$5,000
$4,717
$4,616 $4,600
$4,500 $4,408
$4,174

$4,000
FY '01 FY '02 FY '03 FY '04 FY '05 FY '06 FY '07 FY '08 FY '09 FY '10
 Budget Trends: FY ‘10 – FY ‘11
FY „10 Initial Budget
 $7,231.2 million total, including $641 million ARRA (stimulus);
 Increase in total appropriations of $106 million (1.5 percent);
 State dollars only: $500 million less than in FY ’09;
 Stimulus funds made it possible to minimize cuts or provide
small increases to ten largest state agencies and some smaller
ones.
State Appropriations History, FY '00 - FY '10 in $millions)
(includes supplementals, excludes one-times from Rainy Day Spillover funds)

7,500 $7,043 $7,125 $7,231

$6,760
7,000 $30
ARRA
6,500 $6,217
$641
ARRA
6,000 $7,095
$5,389 $5,491 $5,459 State
5,500 $5,191 $5,145 $6,590
$4,981 State
5,000
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
Budget Trends: FY ‘10 – FY ‘11
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 starting
in February came close to or exceeded the monthly estimate.

General Revenue Collections compared to General Revenue Collections compared to

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

$0 $200
$17 $6
-$11
-$72 $0
-$200
-$180 -$200 -$200 -$125
-$400 -$238
-$401 -$400
-$600 -$600 -$476
-$800
-$800
-$816
-$1,000
-$864
-$1,000 Net Gross Sales Tax Motor Other Total Gen.
Net Income Gross Sales Tax Motor Other Total Gen. Income Production Vehicle Sources Revenue
Tax Production Vehicle Sources Revenue Tax
 Budget Trends: FY ‘10 – FY ‘11
FY „10 Shortfalls: What Response?
 OSF cut agencies’ GR allocations by 5 percent beginning in
August and by 10 percent beginning in December;
 Borrowing from cash reserves of various funds;
 Agreements announced by Governor, Speaker and
President Pro Tem in January and February:
 Continued 10 percent monthly cuts to GR for rest of year;
 Averaged out to 7.5 percent of GR for full year.
 Supplemental funding to various agencies to offset part of GR
and HB 1017 shortfalls;
 Additional revenues needed to balance from Rainy Day Fund,
stimulus funds, other sources.
 Budget Trends: FY ‘10 – FY ‘11
FY „10 Mid-Year Budget Agreement
 Total revised budget was $272 million (3.8%) less than
initial; $165 million (2.4%) less than FY ’09;
 Almost $1.5 billion (21%) of revised FY ‘10 budget made
up of non-recurring money.
State Appropriations, FY '09 - FY '10,
Total and by Funding Source (in $millions)
$7,500 Total= $7,124 million Total= $7,231 million
Total= $6,959 million
$7,000 $30
$301 $641 $224
$6,500
$371 $838
$6,000
$435
$5,500
$6,793
$5,000 $6,220
$5,462
$4,500

$4,000
FY '09 FY '10 - Initial FY '10 - Revised
State Recurring Cash Stimulus (ARRA) Rainy Day Fund
Budget Trends: FY ‘10 – FY ‘11
FY ‟11 Budget: The Challenge Escalates
 Final FY ‘11 certification provided $1.8 billion less
revenue for next year than FY ‘10 initial budget , $1.5
billion less than final FY ‘10 budget
State Appropriations, FY'08-FY '11
(includes all revenues and supplementals;
$8,000 in $ millions)
$7,124 $7,231
$7,043 $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 Trends: FY ‘10 – FY ‘11
FY ‟11 Budget: The Challenge Escalates
 2010 Session focused on which, if any, revenue measures would
be adopted to bridge the budget gap.
 FY „11 budget gap exceeded $800 million - assuming
maintenance of FY „10 budget cuts, the use of all remaining
stimulus funds, and 3/8ths of Rainy Day Fund.
 Equivalent to an additional 12 percent cuts to all agencies of
state government beyond the cuts already enacted.
 Agency scenarios of how to absorb cuts of an additional 7.5
percent to 15 percent in FY „11 left no doubt of the grave threats
that 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
 Budget Trends: FY ‘10 – FY ‘11
FY ‟11 Budget Agreement
 Total appropriations for FY ’11 = $6.714 billion.
 7.2 percent decrease (-$517.5 million) from the initial FY ‘10
budget and 3.5 percent decrease (-$245.4 million) from the
final FY ‘10 budget after mid-year cuts
FIG. 1: State Appropriations History, FY '00 - FY 11
$7,500 (in $millions; FY '00-FY'10 includes supplementals, excludes one-times from
Rainy Day Spillover Funds )
$30
$7,000
$641 $224

$6,500 $373
$838

$6,000 $539

$7,095
$5,500 $79 $7,043
$219 $6,760
$6,590
$269 $72 $6,217
$5,000 $75 $5,897
$5,412 $5,802
$5,389
$5,240
$4,500 $4,906 $4,922
$5,073

$4,000
FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 FY'09 FY'10 - FY '10 FY '11
State Revenues Federal Relief Rainy Day Fund Initial - Final
 Budget Trends: FY ‘10 – FY ‘11
FY ‟11 Budget Agreement
 Appropriated over $1.35 billion in additional revenues on top
of those certified in February. These included:
 Remaining $539 million from the 2009 stimulus bill;
 Remaining $373 from the Rainy Day Fund;
 $450 million from assorted revenue enhancements:
 Suspending and deferring payment of tax credits;
 Issuing and refinancing bonds;
 Fee and permit increases;
 Transfers of cash balances;
 Enhanced tax collections.
Budget Trends: FY ‘10 – FY ‘11
FY ‟11 Budget Agreement
Agency Appropriations – 10 Largest, Others, Total
Total Corrections, $462.1
Appropriations: , 7%
$6,713.7 million DHS, $543.1 , 8% Transportation,
Includes stimulus, $114.8 , 2%
OHCA (Medicaid),
Rainy Day Fund
$993.0 , 15% Mental Health,
$187.7 , 3%

Career Tech, $142.0

Total Ten Higher Ed., , 2%
Largest: $1,003.5 , 15% Juv. Affairs, $99.2 ,
$6,009.4, 1%
89.5% All Other Agencies, Public Safety, $88.4
$704.3 , 11% , 1%

Common Ed.,
Notes: $2,375.6 , 35%
Transportation also received
$65 from bond issue;
OHCA includes $30m transfer
from Insure Oklahoma Fund;
excludes Health Carrier Access
Budget Trends: FY ‘10 – FY ‘11
FY ‟11 Budget Agreement
 Funding cuts limited to under 10 percent for most of the largest
state agencies;
 However, over half of all appropriated agencies will absorb cuts
of at least 15 percent for FY „11 compared to FY ‟09.
 In some cases, appropriations cuts have been partly offset by
fee increases. In addition, the Legislature has approved measures
to promote savings and efficiencies and give agencies and school
districts greater spending flexibility;
 For most agencies and school districts, no additional funding to
cover increased employee health care costs, general inflation or
rising caseloads for 2 or 3 consecutive years;

See OK Policy’s FY ‘11 Budget Highlights at:

http://okpolicy.org/fy-10-fy-11budget-
information
 Budget Trends: FY ‘10 – FY ‘11
Impact of Cuts
 Even with all the additional revenue to reduce the size of
cuts , the toll on services and programs has been significant:

 Department of Mental Health and Substance Abuse Services reduced

beds and closed centers for children’s mental health and adult
substance abuse, cut contracts to all providers;
 OJA cancelled youth detention and gang prevention programs, cut
providers 5 percent, authorized 22 furlough days;
 OHCA cut some Medicaid benefits and reduced all provider rates by
3.5 percent;
 Health Department eliminated 17 child guidance centers serving pre-
school children with developmental delays;
 Department of Corrections cut contracts, eliminated programs,
reduced staffing to under 75 percent of authorized levels;
 School districts laid off teachers and staff, eliminated programs;
 Most agencies leaving positions unfilled, offering buy-outs; some
imposing furloughs.
Budget Outlook: Looking Ahead
 Budget Outlook: Looking Ahead
Budget Outlook: This Ain‟t Over Yet
 FY ‘11 GR collections through September up 6.8 percent
from FY ‘10 – but 24 percent below FY ’09;
 Collections through September 4.0 percent above the
estimate.

July- Sept. General Revenue Collections,

FY '01 - FY '11 (in Millions)
$1,650.0 1567.8
1435.9 1466.3
$1,450.0 1319.1
1215.6 1,180.6
$1,250.0 1,136.3 1,127.4 1,148.2 1,105.9
995.3
$1,050.0
$850.0
$650.0
$450.0
$250.0
FY '01 FY '02 FY '03 FY '04 FY '05 FY '06 FY '07 FY '08 FY '09 FY '10 FY '11
Budget Outlook: Looking Ahead
Budget Outlook: This Ain‟t Over Yet
 Substantial reliance in FY’10 –’11 on non-recurring revenue
creates significant problems for FY ’12 and FY ’13:
 Over $1.1 billion in non-recurring revenues in FY ‘11 budget;
 However, $167 million surplus in FY ‘10 collections,
likelihood of add’l cash balances building up;
 Extension of federal stimulus should be able to help
Medicaid and common education in FY ’12.
Non-Recurring Revenue in FY '11 Budget
Total Budget = $6,714 million; Total Non -Recurring
Revenues= $1,145 million)

Federal
stimulus funds,
$539
Other one-time
revenue, $36

Moratorium of
tax credits, $44

Deferral of tax Rainy Day

rebate Funds, $373
payments, $81
Revolving fund
transfers, $73
Budget Outlook: Looking Ahead
Budget Outlook: This Ain‟t Over Yet
 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;
 Revenue impact of $120 - $170 million in FY ‘12 & FY ’13;
 Effective January 1, 2012 – unless Legislature acts.
 Additional revenues automatically allocated for ROADS and
OHLAP.
Budget Outlook: Looking Ahead
Budget Outlook: This Ain‟t Over Yet
 Possible passage of SQ 744 (mandatory K-12 education
funding increases) could throw everything into chaos.

Annual Mandatory Increase in K-12 Funding vs. Increased

Revenues, FY '12 - FY '14 (in $ millions) under SQ 744 Formula
$2,200 $1,901
$1,696
$1,800
$1,400
$889
$1,000 $698
$572 $632
$600 $392 $415
$179 $217 $206
$200 $(191)

$(200)
Yr 1 (FY '12) Yr 2 (FY '13) Yr 3 (FY '14) Total

Increased K-12 Spending Rest of Government Increased Revenue

Assumes 10.5% annual revenue growth; 5% increase in Regional Per Pupil Expenditure
in FY '13 and FY '14

See: “SQ 744 is the Wrong Solution for Oklahoma, Issue brief and fact
sheet at: http://okpolicy.org/sq-744
Budget Outlook: Looking Ahead
Budget Outlook: This Ain‟t Over Yet
 Revenues unlikely to recover to pre-downturn nominal
levels prior to FY ’13.

Historical and Projected Revenue, FY'07-FY'13

General Revenue Fund
$6,500
Revenue in $millions

$5,928 $5,981
$6,000
$5,945
$5,500 $5,544
Estimates by OK $5,275
$5,000 Policy - not based on
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: Looking Ahead
Short-Term Recommendations:
Need for a Balanced Approach
1. Defer additional tax cuts until revenues fully recover;

2. Serious review of tax credits and exemptions to determine

which are needed and effective;

3. Consider new revenue streams for the Medicaid program;

4. Consolidation of functions and agencies where duplicative

or unnecessary;

5. Prioritize prevention, diversion and surveillance over

detention;

6. Prepare for next downturn by strengthening our reserve

funds and improving our forecasting capacities.
 Long-Term Fiscal Outlook
Long-Term Recommendations

1. Serious review of our tax system;

2. Scrutinize our programs and spending

commitments;

3. Give control for making decisions about revenues

and spending back to our elected representatives.
 For More Information

• Updated Budget Information:

okpolicy.org/current-budget-
information
• Oklahoma Policy Institute‟s Online
Budget Guide
www.okpolicy.org/online-
budget-guide
 Stay Connected
• E-mail dblatt@okpolicy.org
• Visit our website www.okpolicy.org and blog
www.okpolicy.org/blog
• Subscribe to our e-mail alerts
• Follow @okpolicy on Twitter
• “Like” Oklahoma Policy Institute on Facebook
________________________________
Please consider a tax-deductible contribution to support our
work.
We are a 501(c)(3) funded by grants and contributions from
individuals, organizations and businesses. You can donate
from our website or send a check to Oklahoma Policy
Institute, P.O. Box 14347, Tulsa, OK 74159-1347