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 »

Once again, OK Policy is getting in touch with its inner dweeb (as if the outer dweeb wasn’t scary enough) and beginning work to develop new four-year forecasts of revenue and budgets for the state of Oklahoma. We’ve written elsewhere of our concerns (and others’) about Oklahoma’s official revenue forecasting and how we’ve designed fiscal policy to depend on poor forecasting. We won’t repeat those arguments now, though we certainly reserve the right to do so later.

Good forecasting starts with a sober look back at previous efforts. We first undertook the forecasting project in 2009, in response to rapidly falling state revenues. Our first forecast brief, released in November of that year, used six different models to forecast state General Revenue Fund (GRF) revenues for four years (here’s a summary of how those forecasts are developed). With the books now complete on FY ’11, we can look back to judge how we did and compare our performance with the official projections certified by the Board of Equalization. Read the rest of this entry »

Last Monday, State Finance Director Preston Doerflinger announced that the state would be depositing $219 million in the Constitutional Reserve Fund (commonly referred to as the “Rainy Day Fund”) this year. Seen alongside news that lawmakers had to overcome a $500 million budget shortfall, with resulting severe cuts to child care subsidies and teacher training, among others, it may seem strange that we are setting aside so much money that could otherwise be used to protect these important programs.

The reason is an artifact of how the Rainy Day Fund is implemented. The trigger for making deposits into the fund depends not on budget needs, but on how good we are at forecasting revenues. Each year, the State Board of Equalization estimates how much tax revenue the state will receive in the coming fiscal year. If General Revenue (GR) collections come in above projection, the Rainy Day Fund gets the surplus, until the fund is at 15 percent of the previous year’s GR certification. Read the rest of this entry »

When the Board of Equalization met last week and certified more revenue for the upcoming fiscal year, there was one word on everyone’s mind: Oil. Of the total $106 million increase in the February estimate compared to the Board’s initial estimate in late December, $64.3 million was attributable to expectations of higher oil revenues.  Higher revenue projections were based on the assumption of rising oil prices – the Tax Commission is forecasting an average FY ’12 price of $90.77 per barrel -  and increased production.

If these assumptions prove true, they will continue a rather dramatic shift in Oklahoma’s since 2008 as oil production has caught up to or surpassed natural gas production as an engine of growth in the energy sector.  After peaking in mid-2008, the price of both oil and natural gas plummeted in late 2008 and early 2009. Since then, the price paths of the two commodities, which usually move closely in sync, have diverged sharply, with oil reaching just under $90 per barrel in January 2011 while natural gas remains stuck at close to $4.00 per MCF. Read the rest of this entry »

What’s up this week at Oklahoma Policy Institute? The Weekly Wonk is dedicated to this week’s events, publications, and blog posts.

Our series on marriage promotion continued Monday with two perspectives from new staff, Kate Richey and Gene Perry.  The OK Policy Roundtable, Should Oklahoma be promoting marriage? continues the conversation started this month by Scott Stanley, guest blogger and research professor at the University of Denver, who reported on the success of Oklahoma’s Family Expectations program.  Are there any topics you would like to see covered in an OK Policy Roundtable? Read the rest of this entry »

The State Board of Equalization met yesterday to certify revised revenue estimates and appropriations authority for the upcoming year’s budget. Not yawning yet? Then do we have a 6-minute video blog post for you!

For the full Board of Equalization Board packet and OK Policy’s newly updated presentation on the state’s budget situation and outlook, click here to visit our Current Budget Information page

Earlier this month, we released a brief that provided our projections for state revenue collections for Fiscal Years 2011 through 2014.  Last week, the State Board of Equalization certified its official preliminary revenue estimates for FY ’12, along with updated projections for FY ’11, which we discussed in this blog post. The Board’s forecasts are very closely aligned with ours.  For FY ’11, our middle forecast is for General Revenue collections of $4.969 billion, compared to $4.949 billion projected by the Board, a difference of $20 million, or a mere 0.4 percent. For FY ’12, we are forecasting GR of $5.121 billion, which is $19 million, or 0.4 percent, above the official estimate certified by the Board of Equalization.

We point this out for two reasons. First, to unabashedly toot the horn of our forecasting guru, Paul Shinn, for developing a methodology that so closely anticipates the numbers developed for the Board of Equalization (you can read the technical memorandum explaining his  methodology by clicking here). This is the second year of our forecasting project; last year, Paul’s middle forecast for FY ’10 GR came in within 3.5 percent of actual full-year collections. Read the rest of this entry »

The State Board of Equalization met yesterday to certify preliminary revenue estimates for the upcoming budget year, FY ’12. These estimates 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 2010 Legislature.

The preliminary FY ’12 estimates, developed by the Oklahoma Tax Commission and Office of State Finance, suggest that state revenue collections will continue to recover from their precipitous drop during the economic downturn, but that the recovery will remain slow and incomplete. As we see in the chart below, FY ’12 collections to the General Revenue (GR) Fund are expected to be $5.103 billion. That is an increase of  $500 million, or 10.9 percent, from FY ’10 but some $850 million, or 14 percent, below the pre-downturn peak of FY ’08. Next year’s collections will remain considerably below levels of six years ago, even as the cost of providing services rises due to inflation, population growth, and increased caseloads.

Read the rest of this entry »

Each year, the State Board of Equalization meets three times to review and approve projected revenues for the upcoming fiscal year – in December, February and June. At this year’s June meeting, which took place earlier this week, the Board approved a packet that included revised revenue projections that are extremely important for the new fiscal year set to begin July 1st. Read the rest of this entry »

Once bitten, twice shy. Or is it twice bitten, thrice shy?  Oklahoma’s budgeting laws try to protect against mid-year budget shortfalls by allowing the Legislature to appropriate only 95 percent of the certified estimate of General Revenue (GR) fund collections for the upcoming year. However, in each of the past two years, revenue collections have failed to reach the amounts appropriated by the Legislature. In FY’09, things started off well, but then revenues plunged  to such an extent that the final monthly GR allocation to each agency was cut by 5 percent (those cuts were later restored) . This fiscal year, which began last July 1, revenues immediately came in far below appropriated levels. Budgets were cut 5 percent a month beginning in August and then 10 percent each month since November; only large-scale borrowing, followed by an agreement to supplement collections with hundreds of millions from the Rainy Day Fund, additional stimulus dollars, and some available cash prevented mid-year budget cuts being even more drastic.

It is not surprising, then, that the funding levels announced in the FY ’11 budget agreement have been greeted with a certain amount of skepticism by some state agencies and school districts. A Tulsa World article on funding for common education, for example, included these reactions from Tulsa-area Superintendents:

“It will be good news if, when you get the details, if it is that type of cut,” Broken Arrow Superintendent Gary Gerber said, referring to the 2.9 percent budget cut. “But we have to take it with a grain of salt because we had a budget agreement last year and they proceeded to cut us every month of the entire school year…”

Union Superintendent Cathy Burden said that while she was pleased the district now has a number to work with, their budget will require careful scrutinizing before any major decision on staffing or plans for next year can be made.

Burden said her “cautiousness is based on the history of what happened this year” of promised 3 percent cuts almost doubling by year’s end.

Yet if this skepticism – which seems to be broadly shared, based on  conversations I’ve had in recent days  – is understandable,  it is also likely unwarranted. At least a decade of history suggests that the state’s forecasters tend to underestimate both how bad things will be in bad times and how good they’ll be in good times. Specifically, the revenue projections on which annual appropriations are based tend to consistently underestimate how much revenues will fall when the economy turns bad, but also underestimate how quickly and strongly revenues will recover once the economy improves. Read the rest of this entry »

This morning, the State Board of Equalization will meet to certify the revised FY ’11 revenue estimates (we’ve posted the certification packet to our website). The February certification is binding on the Legislature as it develops the FY ’11 budget – the Legislature can appropriate above the February certified estimate only based upon changes in law approved during the current session, not changes in economic conditions.

Read the rest of this entry »