oklahoma budget trends and outlook (rev. jan 13, 2010)

8/14/2019 Oklahoma Budget Trends and Outlook (rev. Jan 13, 2010)

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OKLAHOMA BUDGET OVERVIEW

Trends and Outlook

REVISED January 13, 2010

David Blatt

Oklahoma Policy [email protected] - (918) 859-8747
mailto:[email protected]:[email protected]


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Oklahomas Path to Prosperity

OUR STARTING POINTWe invest our tax dollars in

our public structures to support

our common goals as a state


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Oklahomas Path to Prosperity

We Already Lag Behind Oklahoma already underfunds most of our publicstructures and falls short of our common goals as a state

We rank 50th among the states in per capitaexpenditures on state and local government

We need renewed investment in our public structuresto meet our common goals as a state.


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Where did the growth revenue go?

Covering rising costs of basic services and

supporting targeted investments for shared goals

Increased State Appropriations, Selected Agencies,FY 06 FY 08

Dept. of Education: $453M

Health Care Authority: $289M

Higher Education: $271M

Human Services: $129M

Corrections: $80M

Transportation: $72.5M*

Budget Trends: FY 02 FY 09


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Lost Revenues from Select Tax Cuts Enacted 2004 - 2006FY'05 through FY'10 (in $ millions)

$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'10source : Oklahoma Tax Commission

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 impactwill not be felt until FY 11



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Budget Trends: FY 02 - FY 09

FY07 FY08: Revenue Slowdown

As tax cuts kicked in, General Revenue collections werealmost flat in FY 08 compared to FY 07 (+%0.9, $54million)

-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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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, stateemployee raises

FY 09 excludes supplementals and mid-year budget cut


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Budget Trends: FY 10


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Source: Center on Budget and Policy Priorities


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 tototal more than $465 billion


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This is As Bad as Its Ever Been

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Annual General Revenue Collections, in $ millions,FY '82 - FY '11 (FY '10 & FY'11 based on Dec. 2009

certification)


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The Recession Hit Oklahoma Late

See OK Policy, Numbers You Need, at:

http://okpolicy.org/numbers-you-need-key-oklahoma-economic-and-budget-trends

7.1%

10.2%

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

11.5

Oct-07 Apr-08 Oct-08 Apr-09 Oct-09

UnemploymentR

ate(%)

Monthly Unemployment Rate,National and Oklahoma, Oct. 2007 to Oct. 2009

Oklahoma National


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The Recession Hit Oklahoma Late

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%3.0%

4.0%

5.0%

2007.3 2007.4 2008.1 2008.2 2008.3 2008.4 2009.1 2009.2 2009.3

% Change from PriorQuarter

Quarterly Change in Personal Income,Oklahoma and National,

3rd Quarter 2007 to 3rd Quarter 2009

U.S. Oklahoma


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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)

11.1% 10.8%

1.3%

10.4% 12.8%

7.1%

-8.5%

-21.5%-19.1%

-21.1%

-27.7%-30.1%

-35.0%

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June

Change in Monthly General Revenue Collections,

FY '09 Compared to Same Month, FY '08


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FY 10 Budget: Revenues on the Skids

5,407.2

5,649.2

5,981.1 5,946.45,902.7

5,710.0

5,356.6

5,000

5,500

6,000

6,500

FY '06 Actual Fy '07 Actual FY '08 Actual FY '09 June FY '09

December

FY '09

February

FY '10

Feburary

General Revenue Collections,FY '06 Actual - FY '10 Estimated (in $million)

In February, FY 10 revenues estimated to come in >$600million below FY09 ;


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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 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

$4,981

$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

$7,095State

$6,590State

State Appropriations History, FY '00 - FY '10 in $millions)(includes supplementals, excludes one-times from Rainy Day Spillover funds)


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FY 10 State Appropriations10 Largest Agencies: $6.3 billion (88%)

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


Common Ed.,$2,572.0 , 36%

Higher Ed.,$1,070.7 , 15%

OHCA (Medicaid),$979.8 , 13%

DHS,$550.7 , 8% Corrections$503.07%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 OtherAgencies,$779.4 ,11%

TotalAppropriations:$7,231.2 millionIncludesAmerican

Recovery andReinvestmentAct (ARRA)

Total TenLargest: $6,451.8,89.2 %


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FY 10 Budget Stimulus funds made it possible to minimize cuts orprovide small increases to ten largest state agencies andsome smaller ones

Funding for 10 largest agencies up $161 million, 2.6

percent Most smaller agencies took cuts of 5 to 7 percent

No funding to address rising employee benefit costs orinflation (e.g. utilities, transportation, food)

Demands for some state services increase due to thedownturn

See: OK Policy FY 10 Budget Review at:

http://okpolicy.org/fy-10-budget-information


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FY 10 : Off to a Very Rough Start July-Dec revenue collections down 28.6 percent fromFY 09

October better than previous months but November andDecember back down

Not clear when well hit bottom or how long it will taketo recover

11.1% 10.8%

1.3%

10.4%12.8%

7.1%

-8.5%

-21.5%-19.1%

-21.1%

-27.7%-30.1%

-26.3%

-31.6%-30.1%

-23.7%

-30.5%-29.1%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June July Aug S ept. Oct Nov Dec

Change in Monthly General Revenue Collections, Compared to Same Month Prior Year,

July '08 - Dec. '09


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FY 10 : Off to a Very Rough Start Four consecutive quarters of worsening collections

Revenue drops more than twice as steep as during thelast downturn

-12.1%

9.9%

-29.5%-40.0%

-20.0%

0.0%

20.0%

40.0%

Q1

FY

'02

Q3

FY

'02

Q1

FY

'03

Q3

FY

'03

Q1

FY

'04

Q3

FY

'04

Q1

FY

'05

Q3

FY

'05

Q1

FY

'06

Q3

FY

'06

Q1

FY

'07

Q3

FY

'07

Q1

FY

'08

Q3

FY

'08

Q1

FY

'09

Q3

FY

'09

Q1

FY

'10

Quarterly Year-over-Year Change in GR Collections,Oklahoma, FY '02 - FY'10


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FY 10 : Off to a Very Rough Start Collections through December are $756.1 million 25.6percent - below the estimate

-$319

-$173-$202

-$8-$56

-$756-$800

-$700

-$600

-$500

-$400

-$300

-$200

-$100

$0

Net Income Tax Gross Production Sales Tax Motor Vehicle Other Sources Total Gen.

Revenue

General Revenue Collections compared to Estimate, by Tax, FY '10 thru

December (in $millions)


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FY 10 : Off to a Very Rough Start OSF cut agencies GR allocations by 5 percent throughNovember and by 10 percent in December

Cuts are across-the-board based on GR allocations

Since some agencies are partly or fully appropriated fromother 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 cashreserves ($233.8 million since start of year) that must be repaid


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FY 10 : Off to a Very Rough Start HB 1017 collections also failing 14.9 percent shortfall($41 million) through November.

Dept. of Education cut November disbursements by 7.1percent

Agreement in December to use cash reserves to fund 1017shortfall

General

Revenue

65%Stimulus (ARRA)

6%

HB 101725%

Lottery

1%

*Other

3%

FY '10 Dept. of Education Funding by Revenue Source

Total

Appropriations=$2,572.1 million

*Other includes PriorYear GR, GrossProduction Tax, MineralLeasing Fund


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FY 10 : How Large a Shortfall? December certification projects a $729 million (14.2percent) shortfall in FY 10 GR collections.

$80 million shortfall in HB 1017 Fund as well

Total mid-year shortfall of $809 million

$5,415

$5,145

$4,415

$4,000

$4,200

$4,400

$4,600$4,800

$5,000

$5,200

$5,400

$5,600

100% Estimate - June Appropriation (95%) December Projection

FY '10 General Revenues - Original vs.Revised Projections

$729million


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Budget Outlook: What Response?

Shortfall Options Rainy Day Fund is filled to maximum amount of $597million

Left untouched for initial FY 10 budget

$157.5

$340.9

$72.3

$0.1

$217.5

$461.3$496.7

$571.6$596.6

$0

$100

$200

$300

$400

$500

$600

$700

2001 2002 2003 2004 2005 2006 2007 2008 2009

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


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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 thecoming year compared to the current year ($224M);

1/4th upon declaration of an emergency and legislativeapproval ($149M)

Current Year

Revenue

Failure, 37.5% -

$224M

Forthcoming

Year Shortfall,

37.5% - $224M

Emergency,

25.0% - $149M

Uses of Constitutional

Reserve Fund


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Shortfall Options Projected shortfall of $809 million shortfall could be filledby:

RDF shortfall funds (3/8ths) - $224 million +

RDF emergency funds (1/4) - $149 million +

Full year across-the-board cuts of 7.5 percent

Forecast Appropriated

Amount

(GR+1017)

FY 10

Projected

Revenue

General

Revenue +

1017Shortfall

% Shortfall

with no

Rainy DayFund

% Shortfall

with 3/8ths

of RDF($224M)

% Shortfall

with 5/8ths

of RDF($373M)

% Shortfall

with 3/4 of

RDF($448M)

% Shortfall

with all of

RDF($597M)

December

projections

$ 5,777 $4,968 $ 809 14.0% 10.1% 7.5% 6.2% 3.7%

FY 10 Forecast Shortfalls and Rainy Day Fund Impacts ($ in millions)


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FY 11: More of the Same? FY 11 revenue collections projected to remainalmost unchanged from FY 10 and over 25 percentbelow pre-downturn (FY 08) levels

$5,714

$5,928 $5,981

$5,519$5,415

$ 4,415 $4,449

$4,000

$4,500

$5,000

$5,500

$6,000

FY '06 ActualFY '07 ActualFY '08 ActualFY '09 Actual FY '10 June

(estimated)

FY '10 Dec

(projected)

FY '11 Dec

(estimated)

General Revenue Collections,FY '06 Actual - FY '11 Estimated (in $ millions)


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Budget Outlook Whats the plan for FY 10?

Seems to involve:

Continue across-the-board agency budgets cuts everymonth

Keep borrowing from any and all available reserves to makeup the difference

Tap the Rainy Day Fund to fill part of the gap


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Budget Outlook Gov. Henry: Unfortunately, the cuts we have been forcedto implement to date are already taking their toll on stateprograms and services (Nov. 10, 2009)

Even at 5-10 percent monthly cut level, the toll is growing:

DHS has cut senior nutrition services by $7.2 million;

OJA has cancelled youth detention program, cut providers 5 percent,authorized 22 furlough days;

Corrections has cut private contractors; 10-12 furloughs daysbetween March - June (staffing already at historic low of 77 percentof authorized FTEs);

Department of Mental Health and Substance Abuse Services hasannounced closure of childrens behavioral health center in Norman,cuts in contracts to providers;

School districts, eliminating programs, some going to 4-day weeks


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Budget Outlook: Other Revenues Stimulus Round II

About half of the State Fiscal Stabilization Fund and enhancedMedicaid funds remains available

Other Revenues?

SQ 640 requires a 3/4th vote of both legislative chambers orvote of the people at time of next general election to raise taxes;

Continuing search for one-time or ongoing revenueenhancements


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Budget Outlook: Beyond FY 10

Budget Outlook Time-released tax cuts still kicking in

Top rate will fall from 5.5% to 5.25% as soon asrevenues are projected to grow 4%... Even if revenuesremain below pre-downturn levels

Additional revenues automatically allocated for ROADSand OHLAP

Use of one-time funds in FY 10 and FY 11 createssignificant problems for FY 12


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Budget Outlook: Beyond FY 10

Budget Outlook: No Quick Recovery Revenues unlikely to recover to pre-downturn nominallevels prior to FY 13

$5,928 $5,981

$5,544

$4,439

$4,735

$5,275

$5,945

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

FY 07 (act.)FY 08 (act.)FY 09 (act.)FY 10 (est.)FY 11 (est.)FY 12 (est.)FY 13 (est.)

R

n$mio

Fiscal Year

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

Estimates by OKPolicy - not based onDec. 2009certification


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Budget Outlook : Beyond FY 10

Short-Term Recommendations1. Develop and share greater information about impact ofactual and potential cuts, possible solutions

2. Use the RDF to minimize the magnitude of budget cuts

3. Defer additional tax cuts until revenues fully recover

4. Suspend and cap some tax breaks and incentives

5. Change the RDF rules to allow reserve funds to be used anytime revenues remain below their pre-downturn peak and to

allow for larger reserves

6. Consider new revenue streams for the Medicaid program

7. Expand and improve forecasting capacities


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Structural deficit: Asituation that occurswhen a states normal

growth of revenues isinsufficient to financethe normal growth ofexpenditures year afteryear

(CBPP, Faulty Foundations: State Structural

Budget Problems)

Long-Term Fiscal Outlook

Oklahoma like most states and the federal government faces a looming structural budget deficit


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Projected Annual Budget Surpluses and Deficits

Before and After 2004-2006 Tax Cuts (2007 to 2035)

(2,500)

(2,000)

(1,500)

(1,000)

(500)

0

500

1,000

2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035Y e a r

Mion$2005

B e f o r e T a x C u t s

A f t e r T a x C u t s

Oklahomas Structural Deficit

Source: Projections conducted in 2007 by Dr. Kent Olson, Professor ofEconomics, Oklahoma State University


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Long-Term Recommendations1. Modernize the Tax System

2. Preserve a Balanced Tax Structure

3. Scrutinize our programs and spendingcommitments

4. Make the tax system fairer



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For More Information

Updated Budget Information:okpolicy.org/fy-10-fy-

11budget-information

Oklahoma Policy Institutes OnlineBudget Guide

www.okpolicy.org/online-

budget-guide
http://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-informationhttp://okpolicy.org/fy-10-fy-11budget-information


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Contact Information

Oklahoma Policy Institute228 Robert S. Kerr, Suite 750Oklahoma City, OK 73102

ph: (405) 601-7692

[email protected]

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

www.okpolicy.org
mailto:[email protected]:[email protected]

oklahoma budget trends and outlook (rev. jan 13, 2010)

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