Last week I attended the annual State Fiscal Policy conference hosted by the Center for Budget and Policy Priorities, the top non-governmental organization analyzing state fiscal policy across the nation. The message we heard was clear and grim: As rough as the past two years of  revenue shortfalls and budget cuts have been here in Oklahoma and across the states, the upcoming budget year, FY ’12, is going to be even worse.

This chart created by the Center presents the story succinctly:

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Note: As the economy continues to struggle and revenue collections remain well below pre-downturn levels, we thought this a good time to repost a blog we first ran in January of this year challenging an argument we continue to hear about the need to just keep cutting public budgets.

Last week I attended the Stand Up for Seniors advocacy forum which focused on the impact the state’s worsening economic and fiscal situation is having on programs serving seniors. State Treasurer Scott Meacham was among the elected officials who addressed the gathering. In laying out the budget challenges we are facing and the limited tools at our disposal for mitigating the severity of budget cuts, Treasurer Meacham shared a conversation he had a couple of months back with a friend who expressed frustration at the inability of state government to operate more like a business. Businesses in the downturn are responding by cutting back, reducing expenses and payroll, and simply doing whatever it takes to get through until the economy recovers. Why, asked his friend, can’t state government just do the same?

The Treasurer’s response, which he echoed in this Oklahoman article,  is worth sharing and elaborating upon, because it gets to the very heart of why the state fiscal crisis is so difficult and why this matters so much. Businesses are driven by supply and demand, and by the obligation to maximize profit for shareholders. To use the proverbial private sector example, if demand for widgets declines in a downturn, then Acme Widget company will produce fewer widgets. This may mean laying people off or even going out of business, which will have an unfortunate impact on employees, their families, and communities.  But there is no obligation on any widget maker to  produce more widgets than can be profitably sold. Read the rest of this entry »

Treasurer Scott Meacham today announced that General Revenue (GR) collections for the first month of the new state fiscal year, FY ’11, came in 9.9 percent above the prior year and 11.9 percent above the official certified estimate. The sales tax and corporate income tax saw the strongest growth compared to July 2009, while personal income tax collections were off by 0.1 percent from a year ago, likely reflecting the persistence of weak employment numbers.

Although one must be careful of drawing conclusions based on a single month, July’s collections confirm that revenues are continuing the upswing seen in recent months and should further dispel fears that the state will face a third consecutive year of revenue shortfalls requiring mid-year cuts.  It now seems far likelier that the economic projections made in February that formed the basis of this year’s budget underestimated the speed and strength of the economic recovery. If GR continues to come in above 100 percent of the estimate over the course of the full year, the surplus will go to replenishing the Rainy Day Fund. Read the rest of this entry »

As legislative leaders and the Governor continue to work on an agreement on the FY ’11 budget facing a budget gap of some $800 – $850 million, here’s a quick visual reminder of why you can’t address a shortfall of this magnitude without cutting the “Core Four” of  education, health and human services, public safety and transportation:

FY '10 Initial State Appropriations

April General Revenue collections were announced this afternoon and provided further confirmation that while the fiscal free fall has now stopped, the return to pre-downturn levels is likely to remain long and slow. Overall, April’s collections of $512.3 million were almost exactly the same amount as last year’s collections of $513.4 million. Gross production taxes were up considerably compared to one year ago (+$21.4 million, 65.8 percent), while income taxes remained down (-$32.3 million, -11.5 percent). Read the rest of this entry »

As Oklahoma faces record budget shortfalls, the threat of massive cuts that would slow the state’s economic recovery and have potentially devastating effects on schools, social services, and public safety loom large. In this context, there is an urgent need for a balanced approach to bridging the state’s budget gap that includes identifying possible sources of additional one-time or ongoing revenue. This post is the second in a series that discusses some of the most promising policy ideas for generating additional revenue that would go at least part of the way to closing the budget deficit; the first looked at the sales tax discount paid to vendors.

Were you aware that Oklahoma allows a state income tax deduction for state income taxes? The idea doesn’t sound plausible, but it’s true.  Among the allowable deductions for those who claim itemized deductions on their federal taxes is one for state income tax. In 2007, according to IRS statistics (Excel file),  about 400,000 Oklahomans claimed this deduction to the tune of $2.2 billion. Due to a quirk of Oklahoma tax laws, those deducting state income taxes from their federal taxes are also allowed to claim this deduction against their state income tax. Read the rest of this entry »

With state revenue collections seeing their steepest plunge in a generation, Oklahoma is enduring a tough year of state budget cuts that are already having a harmful effect on families, communities and the economy. However, while the severity of this year’s cuts has been mitigated, the outlook for next year’s budget is substantially worse. In the absence of new revenue, we should expect additional budget cuts of 10 to 12 percent across the full range of state agencies beyond those cuts already enacted this year. While we know far too little about how deeper cuts will be absorbed by state agencies and school districts, we are certain that if  the budget were to be balanced exclusively by cuts, the impact will be devastating to our schools, safety net programs, infrastructure, and public safety.

In this context, there is an urgent need for a balanced approach to the state’s budget shortfall that includes identifying possible sources of additional one-time or ongoing revenue. Governor Henry, in his FY ’11 Executive Budget,  proposed over $700 million in revenue enhancing measures, along with additional cuts across all of state government, savings from efficiencies and consolidation, and the use of remaining stimulus and reserve fund balances. Not all of the Governor’s ideas are likely to gain traction, but they provide a good starting point for an urgently-needed  discussion. In this and subsequent blog posts, OK Policy will explore some of the most promising policy ideas for generating additional revenue that would go at least part of the way to closing the budget deficit.

One straightforward revenue-generating idea involves limiting the discount that the state pays retailers for collecting the state sales tax. Currently Oklahoma is among 26 states that provides vendors some form of compensation, or discount, for collecting and remitting sales tax. As the policy organization Good Jobs First has noted: Read the rest of this entry »

Even assuming that we are in the early stages of what will eventually be a robust economic recovery, Oklahoma’s budget crisis is not going to end anytime soon. Revenue collections this year and next are projected to come in 20 to 25 percent below their levels of FY ’08, the year prior to the onset of the downturn. The Legislature has been able to use substantial amounts of non-recurring revenue from the federal stimulus bills and the state’s Rainy Day Fund to soften the shortfall and thus far avoid the catastrophic impact of budget cuts in the 20 – 25 percent range across the full range of state government.  However, next year’s cuts look to be substantially deeper than this year’s. After FY ’11, most or all of the non-recurring revenues will likely be exhausted. As shown in the chart below, we project that  revenue collections are likely to remain 10 percent below those of FY ’08 in FY ’12, and may not return to pre-downturn levels until at least FY ’13. Read the rest of this entry »

Just when it looked as if the the extended negotiations over how to address FY ’10 budget shortfalls were finally resolved, a new wrinkle emerged this week.  As a means to protest the continued failure to find supplemental funds for senior nutrition programs in the Department of Human Service, Senate Democrats refused to approve the emergency clause on a bill to transfer $30 million to the Special Cash Fund . Without an emergency clause, the transfer cannot take effect until July 1st, which threatens a whole series of agreements between the House, Senate and Governor intended to put this year’s budget to rest. (Update: an agreement was announced Wednesday afternoon on funding for senior nutrition programs allowing the emergency clauses for the funding bills to be passed). Read the rest of this entry »

Our friends at the Center on Budget and Policy Priorities (CBPP) have put out a new paper addressing the acute fiscal crisis facing states across the nation. As shortfalls reach a level where they are seriously compromising the ability of state government to provide core public services, the Center calls for a balanced approach that “ensures that no one segment of residents and businesses bears the brunt of recession-induced deficits.” Their seven components of a balanced approach are:

• Efficiency – focusing on the goals of expenditures and whether there are better ways to reach those goals;
• Using all available resources – employing reserves, rainy day funds, and federal fiscal relief funds responsibly and wisely;
• Scrutinizing all spending, not just what is appropriated through the budget – including programmatic expenditures made in the form of tax breaks;
• Improved collections – aggressively seeking taxes due that are not being paid;
• Tax increases – particularly those that have a more positive impact on the economy than spending cuts;
• Prioritization – making careful decisions based on goals and effectiveness when budgets must be cut; and
• Paying close attention to future impact while fixing today’s problems.

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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.

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Our friends over at Oklahomans for Responsible Government have a blog post up on the FY ’10 budget agreement expressing dismay over the use of (an unspecified amount of) Rainy Day Funds to help cover this year’s revenue shortfall. They say:

OFRG argues that the Rainy Day Fund needs to be as full as possible for FY 2012 because stimulus funds will no longer be available, leaving a $600-million dollar hole in the budget, about the same amount as the Rainy Day Fund has.

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