Source: Tulsa World, June 5, 2009

On Thursday, Treasurer Scott Meacham declared a revenue shortfall for the current budget year, FY ’09, and announced that state agencies would be required to take an across-the-board cut in their allocations for June, the final month of the fiscal year. After five straight months of steeply declining revenues, General Revenue Fund (GRF) collections in May reached the point where they had fallen below 95 percent of the certified estimate upon which FY ’09 appropriations had been allocated.  Through May, GRF collections were at 94.9 percent of the estimate. This translates to a shortfall of $6.8 million.

The constitutional language related to revenue shortfalls is found in Article 10, Section 23.10; the relevant section states:

(T)he Legislature shall provide that all appropriations shall be reduced to bring them within revenues actually collected, but all such reductions shall apply to each department, institution, board, commission or special appropriation made by the State Legislature in the ratio that its total appropriation for that fiscal year bears to the total of all appropriations from that fund for that fiscal year.

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When legislative leaders and the Governor announced the FY ’10 budget deal last Friday, they stated that the agreement “protects the four core functions of government, including education, health care, corrections and transportation.” It may not be that simple. The Department of Human Services, the agency that operates programs primarily serving vulnerable children, families, seniors, and persons with disabilities, was dealt a cut of $9.4 million for FY ’10 compared to FY ’09. Even though this cut equals only 1.68 percent of agency appropriations, it is becoming apparent that DHS could be hard-pressed to continue operating existing programs. For this agency, and likely several others, we may not know what is protected, and how, for months after the Legislature heads home tomorrow.

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.

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It is clear that the $7.2 billion FY ’10 budget agreement reached by legislative leaders and the Governor will lead to a tough and painful year ahead as agencies struggle to address increased costs and growing caseloads on flat or reduced funding. However, there is no question that the state would be looking at a full-scale catastrophe if not for the availability of the federal stimulus dollars that were part of the $787 billion American Recovery and Reinvestment Act (ARRA) passed by Congress in February. As was reported when the budget agreement was announced, next year’s state budget is expected to include some $641 million of ARRA dollars. As we’ve been tracking the General Appropriations bill (SB 216) and agency budget bills making their way through the process over the final week of session, a number of important details about the use of stimulus funds in the FY ’10 budget are now coming to light.

As we discussed in our issue brief on the stimulus package, ARRA included two funding streams intended to help support state budgets battered by the economic downturn:

1. The State Fiscal Stabilization Fund (SFSF), which is divided into two components: 81.8 percent is earmarked exclusively for education, while 18.2 percent is general purpose funding that can be used for “other high priority needs such as public safety and other critical services, which may include education”. Oklahoma was allocated $472.8 in education stabilization funds and $105.2 million in general purpose funds; and

• Enhanced federal Medicaid matching funds (enhanced FMAP).  The amount of enhanced FMAP funding is dependent on both a state’s unemployment rate and the amount of a state’s Medicaid expenditures over the 27-month period, which began back in October 2008 and extends through December 2010, when the enhanced FMAP is in effect.  One recent estimate, from the Federal Funds Information for the States, estimates that Oklahoma will draw some $950 million in additional federal Medicaid funds, but legislative staff projects that the total will be closer to $800 million.

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