Oklahoma’s fiscal situation presents an apparent paradox. We have now seen state tax collections rise for five consecutive quarters and exceed prior year collections by 10.5 percent. At the same time, the state budget is still being cut. This year’s budget of $6.511 billion is $255 million, or 3.8 percent, smaller than last year’s and $614 million, or 8.6 percent, less than FY ’09.  Budget cuts are continuing to affect all areas of state government, with agencies and school districts forced to reduce and eliminate programs, lay off staff, and curtail services to the public. Unfortunately, looking ahead to FY ’13, we should anticipate minimal restoration of the funding cuts that have been absorbed these past three years, even if the state’s economic recovery continues.

The explanation for the paradox of deeper cuts coinciding with growing revenue is two-fold. First, revenue growth associated with the economic recovery has been insufficient to return to pre-recession levels. General Revenue collections in FY ’11 remained 16.5 percent below FY ’08 and substantially below levels of five years ago. Just as significantly, the rebound in state tax collections has been unable to compensate fully for the loss of substantial non-recurring revenues that were used to limit cuts. In particular, the legislature used large amounts of federal stimulus funds and state rainy day funds to balance the budget in the first two years of the crisis. It also adopted various other ‘revenue enhancement measures’ to address the shortfall, including suspending or deferring payment of tax credits, issuing bonds, transferring cash and revolving fund balances, and raising fees. 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.

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Today OK Policy released “A New Fiscal Reality for Oklahoma: The State Budget Outlook, 2011-2014,” our second annual multi-year budget forecast. Click here for the full 10-page brief or here for the 1-page summary. Dangerously nerdy readers also can check out the 17-page technical memorandum that describes our assumptions and methods.  If you just want the elevator speech, here it is:

We can choose to keep on emptying the revenue stream, spending on favored programs without demanding results, and taking life one fiscal year at a time, as we have through many years. Or we can choose to reevaluate our environment and craft a new fiscal approach that values good planning, effective spending, and generating sufficient revenue to make Oklahoma smarter, safer, and more competitive. We must choose wisely. 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 »