Perhaps the two most notable points about this chart are:

• Total appropriations for FY ’11 are set to decrease by 7.1 percent, or $517 million, from the initial FY ’10 budget and by 3.5 percent, or $244.8 from the final FY ’10 budget after mid-year cuts;
• To minimize the severity of budget cuts, this year’s budget included over $900 million in non-recurring revenue from the Rainy Day Fund and the federal stimulus bill.  These revenues, along with deferred payments and other one-time revenue enhancements that were agreed to by the Legislature and Governor, create substantial budget holes for FY ’12 and FY ’13, even if revenues continue to recover along with the state’s economy.

The FY ’11 Budget Highlights fact sheet also provides detailed tables of appropriations levels for each state agency.  All but five agencies – Health Care Authority, Commission of Land Office, Election Board, Rehabilitation Services, and Medicolegal Investigations – will receive less appropriations in FY ’11 than in FY ’09 . Over 30 state agencies will have absorbed funding cuts in FY ’10 and FY ’11 of at least 15 percent compared to FY ’09. However, these raw numbers cannot tell the full story of how funding decisions play out for each state agency. Some agencies are facing growing caseloads and demands for services, as well as rising costs for employee benefits and operational expenses. In other  cases, the Legislature has given agencies some relief by approving fee increases, funding voluntary buy-outs, promoting savings and efficiencies, and allowing agencies and school greater spending flexibility.

Overall, as we indicated in our initial analysis of the new budget, the agreement succeeded in averting a full-fledged catastrophe and protecting programs serving the most vulnerable segments of the population. However, ongoing cuts and funding shortfalls will continue to corrode our public services.   We conclude in the policy points that accompany the budget highlights:

FY ’11 funding levels are expected to avert deeper cuts to core services but not to restore services and staffing levels to pre-downturn levels… Most state agencies and school districts will continue to be hard-pressed to accomplish their core missions with inadequate staffing and resources.

We hope you’ll download and share the FY ’11 Budget Highlights fact sheet, and let us know if you have questions or if we’ve missed anything (note that most appropriations bills are awaiting final action by the Governor). If your organization or community group would like to discuss state budget issues in greater depth, please be in touch with me about scheduling a presentation, briefing or forum.

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Overall, the proposed budget appropriates at least $6.676 billion in FY ’11. This is $256 million, or 3.7 percent, less than the final FY ’10 budget of $6.931 billion, and $556 million, or 7.7 percent, less than the $7.231 billion initial FY ’10 budget that the Legislature decided upon last session. Most notably, to make the budget balance and limit the magnitude of budget cuts, leadership agreed to appropriate some $1.4 billion in additional revenues that were not initially certified. This total amount includes $496 million in federal funds for education and health care that were part of last year’s Recovery Act and the remaining $372.8 million from the state’s Rainy Day Fund reserve (however, $100 million of this amount is to be set aside for FY ’12). The remaining $630 million of additional revenues is to be generated by a wide variety of mechanisms, including fee increases, enhanced tax collections,  increased bonding, suspending tax credits, deferring payments, and transferring available cash balances.

With a few exceptions, agencies will absorb additional funding cuts in FY ’11 of 7 percent or less beyond those already enacted over the course of FY ’10. Several of the largest agencies providing core state services will see smaller cuts, including Common Education and Career Tech (-2.3 percent), Higher Ed (-3.3 percent), Public Safety (-1.0 percent), Corrections (-3.0 percent) and Mental Health and Substance Abuse Services (-0.5 percent). The Department of Human Services will receive an increase of 4.0 percent compared to its final FY’10 appropriations while Rehabilitation Services will be boosted by 3.7 percent. The Oklahoma Health Care Authority will be appropriated $17 million, or 1.8 percent, less than FY ’10; however, in addition to this basic funding, the agreement also includes $78 million for OHCA from a “1% Health Care Access Payment.” This led the agency to issue a statement (not yet available online) stating that it expects to be able to maintain the Medicaid program in the upcoming year without cutting benefits or provider rates.

Given the daunting challenges they faced in constructing the FY ’11 budget, the bipartisan team of budget negotiators deserves considerable credit for their willingness to propose new revenues to limit the size of overall budget cuts and preserve essential services. This is not the full-fledged catastrophe that many expected and feared, and shows that legislative leaders and the Governor were guided by a genuine desire to minimize the damage. We are especially grateful that leadership heeded the calls of advocates to protect our most vulnerable populations by targeting available funds for Medicaid, human services, mental health and rehabilitative services, as well as ensuring that education and public safety were spared the full brunt of cuts.

At the same time, there are two principal concerns that must be expressed. First, despite the genuine efforts made to limit budget cuts, we cannot expect everything to be fine next year. Many agencies will be facing additional cuts of 5 to 7 percent in FY ’11 on top of the 10 to 14 percent cuts already enacted in FY ’10. Even agencies that have been cut less than the full 15 to 20 percent will face severe challenges in fulfilling their fundamental missions with reduced resources, particularly given mandatory increases for employee health care and retirement costs, general inflation, and in some cases, new mandates and growing caseloads.  It is likely that most agencies will continue to operate under budgetary duress in the coming year, with continued unfilled vacancies and staffing reductions, and potentially continued or increased furloughs and involuntary layoffs, which will continue to corrode the public structures we depend on to ensure the security, health and prosperity of of our families and communities.  The impact of continued cuts and underfunding will need to be closely followed and monitored over the coming months.

Secondly, next year’s budget, like this year’s, is balanced through the use of substantial one-time and non-recurring revenues. While the specifics of all the additional revenue proposals are not yet fully clear from the information that was released yesterday, it’s clear that the major additional revenue sources used to reduce the budget shortfall – federal stimulus dollars, Rainy Day Fund reserves, cash balances – will be either entirely or largely unavailable in FY ’12 and FY’13. We can expect revenue growth to partly fill those holes, but to a considerable extent, this budget only pushes problem further down the road. This dependence on one-time revenues to plug budgets is perhaps the inevitable consequence of the staunch unwillingness of leaders of both parties to consider outright tax increases or more sustainable revenue sources as part of the solution to Oklahoma’s budget crisis, as many other states have done.

Over the final days of session, the Legislature will need to approve budget bills and bills to implement the various revenue proposals. It is likely that there will be continued discussions and debate as details of the agreement come to light, particularly over funding levels for certain agencies and the specifics of some of the key revenue enhancements. For now, the main reactions are likely to be a guarded sense of relief of having been spared the worst and ongoing concern over the continued struggles ahead.

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• First, it specifies that 3/8ths of the state’s Rainy Day Fund, or $223.5 million, will be used to fill part of the current year shortfall. That still leaves a gap, according to my calculations,  of $235.5 million.  The press release states that the remaining shortfall will be filled “with other state funds and federal stimulus dollars”. The Legislature has begun considering a number of supplemental funding bills that will shed more light on which additional revenues will be tapped;
• Second, in addition to the additional dollars announced in January for Common Education ($54 million plus $50 million to make up for part of the $109 million projected shortfall in the HB 1017 Fund); Higher Education ($25.6 million), the Health Care Authority ($33 milion) and Corrections ($7.2 million), additional funds are being directed to the Department of Public Safety ($ 3 million) and Department of Central Services ($300,000).The House of Representatives immediately issued a press release announcing that the additional dollars for the Department of Public Safety would suffice to avert furloughs for state troopers that had been scheduled to begin in March.

Left unstated in the press releases are the priorities that again failed to make the cut for additional dollars.   The work that the state troopers do in protecting public safety on our highways is extremely important.  But what about the at-risk youth whose gang intervention and prevention programs in Tulsa and Oklahoma City have been eliminated? What about the children with mental health issues who can no longer be treated because the Department of Mental Health and Substance Abuse Services has cut 40 children’s inpatient beds in Norman? Or the seniors who are no longer being served daily hot meals because of the $7.2 million in cuts to senior nutrition programs? Or the victims of domestic violence and sexual assault who can no longer receive counseling and education and prevention programs because of cuts? With new revenues off the table, our elected leaders are facing brutal choices in deciding which vital programs and services to rescue and which to let die. But what does it say about our priorities as a state when programs serving the most vulnerable women, children and seniors have, once again, been left behind?

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However, as we noted at the time, the announcement left a key question unanswered:

Given projected shortfalls of $809 million and cuts of $295.5 million, the question that still needs to be sorted out is where exactly the $513.5 million in additional revenue needed to bring the FY ‘10 budget into balance will come from.

Speaker Benge was quoted at the time as saying that the agreement would leave over half the $597 million in the state Rainy Day Fund unspent in FY ’10. However, when the Governor’s budget was released last week, it included $485.6 million from the Rainy Day Fund – or over 80 percent of the total balance – to make up for shortfalls in the FY ’10 budget. The remainder of the FY ’10 shortfall (which is likely closer to $545 million in total) would be filled with surplus oil revenues and transfers from agency balances.

When asked about this, Speaker Benge downplayed the discrepancy:

“I don’t think it’s an agreement breaker,” Benge said. “We can continue forward. We will use (federal) stimulus money for the balance. I think it will work out just fine.”

To my mind, what this uncertainty reveals is that this year’s budget cannot be fully resolved until there is a deal on next year’s budget.  The budget negotiators are looking at a total pool of potentially available funds – including state tax revenues, federal stimulus dollars, reserve funds, and possible new revenues from other sources – that need to be stretched to cover the remaining months of FY ’10 and all of FY ’11.  Revenue decisions will also be closely linked to decisions about how deeply to cut agency budgets in FY ’11. Until  the whole picture is drawn at least in outline, it doesn’t seem like there can be agreement on the size of each of the parts or how they fit together.

Yup, it’s for sure going to be a bumpy ride.

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Based on the revised estimates for FY ’10 certified by the Board of Equalization in December, the state is looking at a total mid-year shortfall of $809 million in FY ’10, made up of  $729 million in the General Revenue Fund and $80 million in the HB 1017 Education Reform Fund. The leadership agreement involves the following main features for bringing the FY ’10 budget into balance:

• Continued across-the-board cuts in monthly General Revenue (GR) allocations of  to each agency of 10 percent for the remaining five months of FY ’10. This means agency budgets will have been cut 5 percent for four months and 10 percent for seven months (there were no cuts to July allocations). This equates to a 7.5 percent cut in GR over the full course of FY ’10. Total across-the-board GR cuts will equal $385.7 million.
• The agreement also includes supplemental funding for four agencies.  The Department of Education will get an additional $104.4 million. The bulk of these funds are intended to make up for the $80 million projected shortfall in the HB 1017 Fund, crating a net increase of $24.4 million.  Additional funds will also be provided to the Oklahoma Health Care Authority ($33 million), Regents for Higher Education ($25.6 million) and Department of Corrections ($7.2 million). Excluding the funds intended to address the HB 1017 Fund shortfall, total supplementals will equal $90.2 million

In total, OK Policy calculates that the agreement calls for appropriations to be cut by $295.5 million. Please see this spreadsheet (PDF) that provides agency-level calculations of FY ’10 cuts and revised appropriations under the agreement.

Given projected shortfalls of $809 million and cuts of $295.5 million, the question that still needs to be sorted out is where exactly the $513.5 million in additional revenue needed to bring the FY ’10 budget into balance will come from.  The leadership announcement remained short on details. According to the press release:

…state leaders also agreed to use reserve dollars from the Rainy Day Fund and the state stimulus account to help balance the budget.

The amount of additional stimulus and Rainy Day Fund dollars that will be injected into the FY ’10 budget is not specified in the release; however, Speaker Benge is quoted saying:

This agreement maintains more than half of our state’s total reserve dollars for fiscal year 2011 and beyond

The Rainy Day Fund has a current balance of $597 million; if less than $300 million of that amount will be used in FY ’10, then the agreement would seem to require well over $200 million in additional federal stimulus dollars or other unspecified revenues for FY ’10. The initial FY ’10 budget included $640 million in stimulus dollars, which was seen to represent one-half of total available dollars from the stimulus package that could be used to stabilize the state budget.

The conclusion of an agreement on the FY ’10 shortfall will certainly make the Legislature’s task in the upcoming session much less complicated and hopefully bodes well for the ability of the Governor, Senate and House to reach consensus. But it’s necessary to point out two things. First, even with the injection of well over $1 billion in  stimulus and Rainy Day Funds to buttress the FY ’10 budget, the cuts agencies are facing this year are having serious and worsening effects on public services over a wide swath of state government. Many agencies that took 5 – 7 percent cuts going into FY ’10 are now looking at 12 – 15 percent cuts compared to last year’s budget, while even those agencies that were spared steep cuts going into the year are reducing or eliminating core services. The Oklahoma Health Care Authority, which has already cut provider rates and scaled back benefits in recent months,  indicated yesterday it will have to implement another round of cuts to manage ongoing 10 percent monthly budget reductions over the remainder of this year.

Secondly, this agreement should result in final FY ’10 appropriations of some $6.935 billion. The initial FY ’11 certification of available ongoing state dollars is for $5.295 billion, or 24 percent less than the revised FY ’10 total. The one certainty at this point is that the challenge of finding revenues to fill that shortfall and mitigate the severity of cuts in FY ’11 will remain daunting.

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all agencies face a tight and difficult year ahead as they wrestle with increases in mandatory operating expenses and, for some, rising caseloads in a downturn, with flat or reduced funding.

This year, the adoption of the budget is just the start of a process that will unfold over the next 13 months. Agencies must allocate appropriated  and other funds to their programs, figure out how they’ll cover all these built-in cost increases, adjust service levels and, in all probability, adjust again later in the year. We won’t know until next June or later how it all worked out.

But it does start at the beginning, and that’s where our budget review helps. It is the first comprehensive look at the budget process and the outcomes it led to. Here’s what you’ll find inside:

1. Analysis of the speedy drop in available state revenue.
2. Details of how federal stimulus money and state revenue changes allowed the overall budget to grow slightly.
3. A rundown of how individual agencies fared and what that says about state priorities.
4. Further analysis of problems to watch for as the year unfolds.
5. A look ahead to the FY ’11 budget and beyond.
6. Recommendations to improve budgeting processes and to increase funding of state services in the economic recovery.

Once you’ve read the budget brief, you’ll be caught up with us and ready to see the rest of the budget picture develop.

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The FY ’10 budget agreement allocates $549.7 million for FY ’10, of which $71.4 million is federal stimulus money associated with enhanced federal matching rates on the agency’s Medicaid-eligible expenditures. At its April Commission meeting, Director Howard Hendrick presented the emerging FY ’10 budget picture for the agency. He asserted that DHS required $665.8 million in state funds for FY ’10, which amounts to an increase of $106.6 million compared to FY ’09 appropriations. Based on the figures presented to the Commission, the $9.4 million funding cut means DHS could be facing a shortfall of up to $115 million in FY ’10.

At Thursday morning’s May Commission meeting, however, the tone and outlook were different. Hendrick now reckons the shortfall at closer to $50 million and believes some of this could be made up from other stimulus funds for child care, nutrition, and other programs. Still, he believes spending will be about 98 percent of current levels. When the agency is absorbing increased employee health care costs and facing greater–in some cases, record–demand for safety net services, it is hard to believe Oklahomans will not suffer service reductions as a result of this budget. Hendrick admits to having more questions than answers and indicated the Commission’s budget committee will be meeting throughout June to devise a budget strategy.

If anything, things could be worse for DHS after FY ’10. They will still be absorbing higher employee costs and could face continuing high demands for services. One-time funds account for between 15 and 20 percent of next year’s budget and the agency has less cash to carryover from FY’09 than many prior years. Hendrick rightly identifies the greatest challenge for this–and most other state agencies–as identifying a level where ongoing revenue can support ongoing expenditures and consistent service levels. This year’s budget does nothing to step in that direction and heads the opposite way in some respects. The picture for DHS and other agencies will become clearer–but probably not better–as FY’10 unfolds.

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Quickly enough, the picture has begun to darken. Today brings the first reports of agencies considering furloughs, with the Department of Public Safety, which is facing a budget cut of $6.3 million, announcing it is looking at imposing a six day furlough for its staff of 800 state troopers in an effort to save $1.8 million. The Department would also eliminate its annual trooper academy and leave vacancies unfilled.
According to DPS Commissioner Kevin Ward:

“Our concern is with the smaller academy this year not filling all the slots that are going to come open through attrition and no academy next year, we’re kind of getting into a decline in personnel out there,” he said.

“As people quit, like driver’s license examiners, we’re not going to be able to replace them and so some of our areas in which lines are long now, they could get longer.”

We can expect that DPS’ plans to furlough employees and cut public services, while the first to come to light, will not be the last. Since staff costs make up the bulk of the budget for most agencies, there seems little way for agencies to absorb cuts in excess of five percent, on top of last year’s flat funding, without reducing their workforces. Even among agencies, that took smaller cuts or received increases, such as the Department of Human Services, Oklahoma Health Care Authority, and Department of Health, the word around the Capitol is that the appropriation levels agreed to last week will fall considerably short of covering the cost of operating existing programs in the year ahead.

The Legislature may have still time to patch part of the hole in the DPS budget, but expect to hear of more major leaks in the days and weeks ahead.

update: This afternoon, the House issued a press release announcing that an additional $2.5 million had been found to avert furloughs of state troopers and to fund a new Troop K headquarters in north-central Oklahoma. Other cuts, including the elimination of patrol academies and leaving 25-40 positions unfilled, remained likely. There was no indication of how the additional appropriations would be funded. Commissioner Ward stated:

“With this $2.5 million, the department will still have to implement other cuts and there will be diminution of services of departmental personnel such as driver’s license examiners who leave the agency who won’t be replaced, but this plan will prevent any furlough of troopers on the road.”

With three days remaining until adjournment, it will be interesting to see whether other agencies and programs threatened with a loss of funds will be able to duplicate DPS’ success in calling attention to the implications of the FY ’10 budget agreement.

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