Source: OK Policy Note: Gross production tax revenues are from production months, two months prior to date of tax remittance

This article appeared in the April 2012 edition of the Oklahoma Economic Report, a publication of the Office of State Treasurer Ken Miller. It is reprinted here in its entirety with permission.

It seems that each day brings another story of record low natural gas prices and record high supplies. A warmer-than-normal winter in the United States drove down natural gas demand this year at a time when prices usually rise and supplies are reduced.

As a result, natural gas in storage is at or near record levels while prices are at their lowest in more than a decade. The U.S. Energy Information Administration (EIA) estimated natural gas in storage at the end of March at 2.48 trillion cubic feet, about 57 percent higher than at the same time last year.

According to Bloomberg, the average spot price in April at the Henry Hub in Louisiana was $1.99 per thousand cubic feet (mcf) as of April 27. Read the rest of this entry »

Over the past two years, Oklahoma’s revenue collections have been on a steady path to recovery. For the first nine months of FY 2012, collections to the General Revenue fund (GR) are up 22 percent compared to the same period two years ago. As the chart below indicates, tax collections have still not fully recovered from their steep drop during the 2008-09 recession. Year-to-date GR remains 7 percent below its pre-recession peak and below the levels of six years ago (without adjusting for inflation or population growth).  Yet through February, monthly GR collections had been up compared to the same month from the prior year for 22 straight months. Total Gross Receipts to the Treasury (GRT), which includes more taxes than the General Revenue fund, was up for 24 consecutive months.

This month, however, there are signs the revenue recovery is stumbling. Last week, Treasurer Ken Miller announced that Gross Receipts to the Treasury fell modestly in March, down 0.3 percent compared to the same month one year ago. The drop was due primarily to gross production taxes, which came in $38.1 million, or 36 percent, below last March. Miller noted that low natural gas prices have now led to four consecutive months of declining gross production revenues and he anticipates continued difficulties: Read the rest of this entry »

In a recent editorial, the Tulsa World questioned the call that is frequently heard to ‘right-size’ state government. After three successive years of deep cuts to public services, the editorial asked ‘where does it end?’:

But how do we define right-sizing? Is government the right size if there aren’t enough correctional officers to handle prison unrest? Is it right-sized if children are crowded into classrooms? Is it the right size if sex offenders cannot be properly supervised? Is it the right size when DHS caseloads are so high that the vulnerable slip through the cracks?

The chart below provides numerical support for the idea that state government has shrunk dramatically in recent years. As a share of state personal income, state appropriations are at their lowest level in at least three decades. In FY 2011, the state appropriated budget of $6.77 billion represented just 4.9 percent of  state personal income ($137.8 billion). This is almost a full percentage point below the historical average of 5.8 percent over the past 25 years. This year, with appropriations having been cut by a further 2.4 percent and state personal income rising, the share will fall even further.

Source: Bureau of Economic Analysis (State Personal Income), OK Policy (State Appropriations)

As we showed in an earlier blog post, state tax collections are also at an historic low and are failing to keep pace with growing costs and growing needs. Rather than being bloated and in need of right-sizing downward, the question we must now face is whether years of underfunding have shrunk state government to the point where it is no longer capable of performing the core functions that Oklahomans expect: educating our children, training our workforce, maintaining our infrastructure, protecting our communities, and aiding our most vulnerable family members and neighbors

As Oklahoma’s tax debate unfolds, it has been encouraging to hear a rising chorus of influential voices insist that any tax plan must be revenue neutral. Given deep cuts that state agencies have absorbed in recent years and the long-term fiscal challenges the state faces in the years ahead, eroding our revenue base with one-sided  tax cuts would be hugely irresponsible and fiscally unsustainable. One promising approach to ensure that we do not bankrupt the state is for Oklahoma to adopt a pay-as-you-go, or PAYGO, requirement.

State Treasurer Ken Miller recently stated:

Budget writers should adopt a “pay-as-we-go” approach to reducing taxes. To responsibly finance tax cuts, policymakers should eliminate one dollar of spending or credits for every dollar cut in taxes.

This can be accomplished with fiscal discipline, better spending prioritization and a refined approach to budgeting.

Miller’s call for a pay-as-you-go approach was quickly endorsed by both the Oklahoman and Tulsa World. Read the rest of this entry »

The personal income tax is Oklahoma’s largest single revenue source. In 2011, the state collected $2.412 billion from the personal income tax, or slightly less than one in three dollars (31.7 percent) of total state tax collections. With a strong movement developing to substantially cut and ultimately eliminate the personal income tax, it is important to understand the vital role of the income tax in paying for a broad array of public services.

Income tax revenues are allocated in two ways: a set amount is taken off the top for a number of specific programs, and the rest is divided up by a formula. The programs funded off-the-top include:

• The ROADS fund: In 2012, the Department of Transportation received $255.7 million from the individual income tax for maintenance and construction of roads and bridges, along with small amounts for passenger rail services and public transportation. In 2013 and each year thereafter, the ROADS fund will receive an additional $41.7 million until the fund reaches an annual cap of $435 million. Governor Fallin has proposed increasing the ROADS allocation by $56.7 million annually and raising the cap to $550 million in order to repair the state’s bridges;
• Quality Jobs: Companies that qualify for the Quality Jobs program, the state’s marquis economic development program, receive quarterly incentive payments from personal income tax receipts. In 2011, Quality Job payments totaled $61.8 million.
• Oklahoma’s Promise scholarships:  In 2012, $63.2 million in personal income tax revenues was allocated for Oklahoma’s Promise scholarships, which cover higher education expenses for qualified Oklahoma students. Because of carryover in the program’s trust fund, this amount will decrease to $57 million in 2013. Read the rest of this entry »

After three straight years of budget cuts, funding for public education in Oklahoma is in dire straits.  This year’s appropriation to the Department of Education is $254 million, or 10.0 percent, less than it was in 2009.  In the past three years, funding to school districts through the state aid formula, which funds the basic operating costs of schools, has been slashed by $222 million, while public schools enrollment has grown by 22,000 students.  According to the most recent data, the number of teachers was cut by over 1,000 between 2010 and 2011, and this year it is likely there are fewer teachers still. Even though schools have tried to manage cuts while protecting class sizes, simple math dictates that more students and fewer teachers is leading to more kids per class.

Meanwhile, the Legislature has also cut the activities budget for common education, which funds health care costs for teachers and support staff, as well as a portion of retirement costs and programs that aim to improve teacher quality and student performance. This year,  the Department of Education was forced to eliminate or drastically cut a slew of programs, including adult education, alternative education, Great Expectations, A+ Schools, and Literacy First. With its activities budget slashed, the department also opted not to allocate $11.4 million to fund the $5,000 annual bonus promised to some 3,300 National Board Certified teachers and saved $37 million by funding only ten months of teacher and support staff health care benefits for current year contracts. Outrage in the education community over this failure to meet the state’s commitments on health care costs and board certified teachers led some elected officials to promise to make up the funding as mid-year supplementals to this year’s budget. Read the rest of this entry »

Even as the economy recovers, it’s become increasingly apparent that there is no end in sight to Oklahoma’s budget woes. Oklahoma has seen three straight years of budget cuts, and according to one House leader, we may be in for a fourth. At best, this year’s budget will stay flat, which means we can accomplish less due to inflation, reductions in federal assistance, and continued deterioration of equipment and infrastructure that we can’t afford to fix. It also means the damage caused by previous cuts will continue unchecked.

We provided overviews on previous rounds of budget cuts here, here, and here. This is an update on a few more of the ways we’re falling behind in public safety, child welfare, education, health, and other areas:

Public Safety

• The number of state troopers on Oklahoma highways is at its lowest level in 22 years. Without funds to train new troopers, the problem is likely to get worse because more than 1/4th of existing troopers are already eligible for retirement.
• The Oklahoma State Bureau of Investigation has frozen hiring with 35 vacant jobs, and Director Stan Florence said further cuts would lead to furloughs. Inadequate staff has forced the agency to reduce investigations of the theft of equipment from oil and gas fields and curtail other investigative work. Read the rest of this entry »

Governor Mary Fallin

In her State of the State address, Governor Fallin laid out numerous areas where Oklahoma needs to invest to fix serious problems. She mentioned the shortage of troopers on the highways, the millions still owed to local governments to reimburse emergency expenses, the dilapidated state capitol and medical examiner’s office, crumbling bridges, high infant mortality, a beleaguered foster care system, and unfunded teacher health benefits.

These diverse problems have a common denominator: they are all substantially caused by inadequate funding to core public services after three straight years of budget cuts. Rather than setting a bold course for Oklahoma’s future, we are playing catch-up just to repair what we have allowed to fall apart.

In the same speech, Governor Fallin proposed a huge cut to the personal income tax. The plan is estimated to cost $350 million in the first full year. It also includes triggers to automatically cut taxes again any time the budget begins to recover.

The effect is that for the foreseeable future, tax cuts are shoved to the front of the line. It won’t matter what problems or responsibilities we face as a state. It won’t matter if our infant mortality stays high, if our water isn’t safe, if our schools are failing, if our communities are devastated by extreme weather. Whenever there is additional revenue, the number one priority will always be tax cuts. Read the rest of this entry »

Rep. Earl Sears

Last week I participated in a StateImpact Oklahoma forum on the state budget with Rep. Earl Sears, the Chair of the House Appropriations and Budget Committee (R-Bartlesville),  and Sen. Tom Adelson (D-Tulsa).  An audience member asked the legislators what they would do to ensure that more individuals with mental illness were provided treatment in the community rather than in jails and penitentiaries.

Rep. Sears responded by saying that he is very supportive of the work being done by Commissioner Terri White and the Department of Mental Health and Substance Abuse Services to raise awareness about the prevalence and cost of mental illness. In particular, Rep. Sears praised the Department’s ‘Smart on Crime’ initiative‘ that uses evidence-based programs to reduce recidivism and decrease demand for correctional beds. By diverting non-violent offenders into programs such as drug court, mental health court, or other similar programs, Smart on Crime can reduce incarceration and ultimately save substantial tax dollars. The initiative, however, requires an upfront investment estimated at close to $100 million. And, Rep. Sears stated ruefully, we just don’t have $100 million to invest in Smart on Crime. Read the rest of this entry »

Election news may soak up a lot of the attention this year, but we shouldn’t lose sight of the major policy changes set to go into effect no matter who wins in November. High among those are the automatic budget cuts that were part of the deal to increase the federal debt ceiling.

A brief recap: The Budget Control Act created a supercommittee tasked with finding at least $1.2 trillion in deficit reduction measures. When that group failed to reach an agreement, an automatic budget cutting process called sequestration went into effect. Under sequestration, there will be $1.2 trillion in cuts over the next decade, divided 50/50 between domestic and defense spending.

These cuts are scheduled to begin January 2013, with one important caveat. Although the cuts are automatic under existing law, Congress is still free to intervene at any time. Much like with the expiration of the Bush tax cuts, also scheduled for the end of 2012, there is certain to be legislative wrangling. However, President Obama’s promise to veto any attempt to alter the automatic cuts makes it much less likely that they will be stopped.

Assuming sequestration goes forward with no changes, an analysis from FFIS calculates the state-by-state impact of cuts.  The good news is that out of the $7.43 billion in federal grants received by Oklahoma in FY ‘11, $6.25 billion would be exempted from cuts. Exempted programs include Social Security, Medicaid, the Children’s Health Insurance Program (CHIP), Temporary Assistance for Needy Families (TANF), and SNAP food stamp benefits. Medicare, community health centers, and Indian health services are not exempt, but cuts to these programs would be limited to 2 percent.

Cuts to non-exempted programs mean that overall, Oklahoma would receive $100.3 million less in federal funding compared to FY ’12 and $133.7 million less compared to FY ’11. Fully affected programs would see cuts of about 8.7 percent of their federal funding compared to FY ’12. Read the rest of this entry »

Last week we reported that next year’s revenues are expected to be 7 percent below their levels of six years ago (FY ’07), even though costs are higher due to inflation, population growth, and increased caseloads

Elsewhere, people seem to have read a different budget estimate than the one we saw. Two elements of the discussion show a growing disconnect between Oklahoma’s budgetary politics and reality.

First, Governor Mary Fallin and many others continue to advocate for reduction or elimination of the state income tax. A closer look at the budget shows that, of the $400 million forecast revenue growth from FY ’11 to FY ’13, fully  half comes from the income tax. Overall, the income tax is expected to provide $2.5 billion next year for General Revenue, the HB 1017 Education Reform Fund, and the ROADS Fund, which has helped restore the worst of our roads and bridges. Cutting this vital revenue support makes no budget sense. It also makes no economic sense. Read the rest of this entry »

On Tuesday, the Board of Equalization certified a preliminary estimate of the revenues available for next year’s budget. The numbers confirm that while the worst of the fiscal crisis is over, the state is experiencing a slow, incomplete recovery that will fall far short of restoring key services to pre-downturn levels.

The preliminary FY ’13 estimates, developed by the Oklahoma Tax Commission and Office of State Finance, will form the basis for the Governor’s Executive Budget that will be delivered in early February; the Board will meet again in mid-February to provide revised estimates that will be binding on the 2012 Legislature. As we see in the chart below, collections to the General Revenue (GR) fund are expected to continue their recovery next year from their collapse during the recession of 2008-09. Next year’s GR is estimated at $5,540 million, which is 19.9 percent greater than FY ’10.  Yet next year’s revenues are expected to remain 7 percent below their levels of six years ago (FY ’07), even as the cost of providing services rises due to inflation, population growth, and increased caseloads. Read the rest of this entry »