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 »

Just before the start of the Legislative session, Governor Henry announced that he had reached an agreement with Speaker Benge and President Pro Tem Coffee on the FY ‘10 budget.  Faced with projected mid-year revenue shortfalls of slightly more than $800 million, the leaders agreed that agency appropriations from the General Revenue Fund would continue to be cut by 10 percent for the remaining months of the year, with supplemental funding made available to certain agencies (Common Ed, Higher Ed, Health Care Authority, Corrections and Rehab Services) to mitigate the extent of cuts.

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In Monday’s State of the State address, Governor Henry laid out the broad parameters of his FY ’11 Executive budget. The Governor’s speech likened our current fiscal storm to the severe weather the state has faced recently and so often in our past.  While the Governor stated clearly that continued budget cuts are unavoidable due to the dramatic plunge in revenues that has hit the state during the current fiscal year (FY ’10) and that will continue next year, he earned loud, bipartisan applause when he declared:

We all will be asked to sacrifice. But we cannot balance the budget at the expense of the most vulnerable among us.

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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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In a press release Tuesday afternoon, Governor Brad Henry, Speaker Chris Benge and Senate Pro-Tem Glenn Coffee announced agreement on how to address the shortfalls in the FY ‘10 budget that have resulted from this year’s revenues coming in sharply below the certified estimate.

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: Read the rest of this entry »

As state leaders struggle to find solutions to this year’s revenue shortfalls and funding gaps, it is not too soon to draw lessons from the current state fiscal crisis to design policies that will allow us to respond better the next time the economy falters. This post, the second in a four-part series that will recommend changes to our budget and tax system, looks at options for strengthening our budget reserve funds.  Our first post recommended enhanced and expanded budget forecasting; subsequent pieces will consider multi-year revenue commitments and tax expenditures. Together, our proposals are designed to improve the Legislature’s ability to manage budget downturns.

Like most every state, Oklahoma has established a budget reserve fund to put money aside during times of robust growth that is then made available to cushion the impact of economic downturns.  Oklahoma’s Constitutional Reserve Fund, known as the Rainy Day Fund (RDF), was created by a vote of the people in 1985. Under the Constitution, deposits are made into the Rainy Day Fund of all General Revenue (GR) collections that exceed 100 percent of the final certified estimate made by the State Board of Equalization for a given year. Deposits are capped at 10 percent of the General Revenue Fund certification for the preceding year.  If the RDF is already at its cap, additional surpluses spill over to the General Revenue Fund. Read the rest of this entry »

If state fiscal conditions can be likened to the weather, it’s been apparent for many months that Oklahoma is in the midst of a toad strangler of a rain, to borrow the Tulsa World’s colorful characterization. Going into the current fiscal year, the state faced projected revenue shortfalls of over $600 million.  While most agencies had their budgets cut by 5-7 percent, the use of some $640 million of federal stimulus dollars allowed the largest core agencies to receive smaller cuts or small increases, while the Rainy Day Fund was left intact. This year’s revenue collections, however, are coming in nearly 25 percent below the certified estimate. Agency budgets have been cut 5 percent each month, which has forced a growing number of agencies and school districts to reduce staff and scale back or eliminate core programs. Read the rest of this entry »

Yesterday’s announcement of state revenue collections for September marked the end of a truly dismal quarter. Collections for the 1st quarter of FY ‘10 were 29.5 percent below the first three months of FY ‘09. The graph below shows that this continued and amplified the trend of the final two quarters of last year, when revenues  dropped by 15.3 percent and 26.3 percent, respectively. The graph also shows how much more severe the current fiscal crisis is than the one earlier this decade, where the worst quarter saw revenues fall by just over 12 percent.

In addition to plunging compared to the prior year, September’s GR collections again fell far short of the certified estimate on which this year’s appropriations were based. September revenues were 29.2 percent below the estimate, falling short by a greater amount than in July (-18.1 percent) and August (-28.2 percent). For the third straight month, the Treasurer announced an immediate 5 percent across-the-board cut to agency allocations.

The shortfalls are grim news for state agencies and for those who are served by state-funded programs and services. In recent weeks we have begun to learn more about the unavoidable  consequences of monthly 5 percent cuts. The Department of Human Services has announced$14.6 million in cuts, including a $7.4 million reduction for senior nutrition programs. The Office of Juvenile Affairs announced the cancellation of a $1.3 million program for troubled youth in Pryor, along with 5 percent cuts to all their contractors and up to 22 furlough days for their staff.  The Department of Mental Health and Substance Abuse Services has indicated that cuts are forthcoming to youth substance abuse services and treatment for persons with severe mental illness.  At a meeting we held last week, the Director of the Department of Corrections indicated that private contractors would be cut starting this month and that by February the agency, which is already staffing at 77 percent of capacity, would start imposing furloughs on prison staff.

The budget cuts that are now being implemented and proposed are likely to create real hardships for Oklahomans. Social service and health care programs are threatened at a time when many families and communities are already suffering from the downturn. Cutting rates to local contractors and furloughing public employees  is harmful to the state’s  economy.  In many cases, cuts that will provide some short-term savings will cause greater long-term costs, as when funding is cut from community-based services that may help seniors or persons with disabilities stay out of institutions, or when prevention efforts are abandoned.

But the reality is that there are no good or easy solutions. OK Policy’s preliminary projection, which we will be fine-tuning based on yesterday’s figures, is that the GR shortfall over the entire course of FY ‘10 is likely to equal the full amount that can be accessed from the Rainy Day Fund plus across-the-board cuts of 5 percent or greater. Easing the burden of budget cuts for some agencies would require cutting other agencies even more deeply, or identifying new revenues – which are extremely hard to come by in a state with such deeply-entrenched political and constitutional obstacles to raising taxes.

There are some steps we could take now, though, to smooth the rest of this year and improve our ability to deal with the rest of this recession and the one that comes next. We’d like to see our elected leaders and top managers explore:

• developing and sharing revenue forecasts for the rest of this year and the next couple years, so our elected officials can develop a comprehensive approach and so agencies, their constituents, and citizens can know what to expect;
• holding hearings so state agencies and their partners in local government and direct service agencies can use those revenue forecasts to anticipate and prepare for the impact on services and citizens;
• working toward an improved forecasting process; and
• starting to reconsider how we handle reserve funds by evaluating whether the Rainy Day Fund cap is too low  and the restrictions on its use are too great, as well as whether we should get volatile revenues like taxes on oil and natural gas out of the stream of recurring revenues.

Oklahoma is, to a certain and alarming extent, stuck with the current revenue shortfall and service squeeze as long as the national economy heads downhill and gas prices stay low. We are not, though, doomed to face the bottom and recovery without better information to help guide policymakers towards the best possible decisions.