The reason is an artifact of how the Rainy Day Fund is implemented. The trigger for making deposits into the fund depends not on budget needs, but on how good we are at forecasting revenues. Each year, the State Board of Equalization estimates how much tax revenue the state will receive in the coming fiscal year. If General Revenue (GR) collections come in above projection, the Rainy Day Fund gets the surplus, until the fund is at 15 percent of the previous year’s GR certification.

Spending out of the Rainy Day Fund is also partially tied to the accuracy of our estimates, since up to 3/8ths of it can be appropriated when revenue comes in under the projected amount.  Another 3/8ths can be used when revenue is projected to be below the previous year. The remaining 1/4th can be used when an emergency is declared by the Governor and 2/3rds of the House and Senate or, without the Governor, 3/4ths of the House and Senate.

The most obvious problem with this system is that it depends on the Board of Equalization to make inaccurate revenue estimates in a way that underestimates swings in both directions. Luckily, that has usually been the case, as the graph below shows.

Because of a natural tendency to underestimate growth for years in which revenues are increasing and underestimate drops in years when it is decreasing, the rainy day fund has generally worked as it is supposed to. When times are good, revenues come in above projections, so we deposit money in the fund. When times are bad, our projections are too high, so we are able to withdraw funds.

However, it doesn’t always work that way, particularly in years when we are coming out of a recession. As can be seen in FY ’03-FY ’04 and in FY ’10-FY ’11, revenues actually increased and came in above projections when they were expected to decrease. In this situation, the Rainy Day Fund will absorb a big portion of new revenues, despite the fact that they represent recovering normality, not excess prosperity. That creates a situation like we have this year, when there are “surplus” funds even though most agencies are still undergoing budget cuts. Perversely, this could prolong the pain of the recession, which is the opposite of what the Rainy Day Fund is intended to do.

Another drawback is that if our revenue projections ever become more accurate, we will stop making any deposits into the Rainy Day Fund, and it will be harder to make withdrawals.

A more rational method would be to make deposits based on revenue increases above a multi-year average from previous years, so that it both reflects real surplus revenues and is not distorted by one very bad year. For example, Virginia makes deposits when tax revenues are at least 8 percent above the previous year and 1.5 percent above the six-year average.

Deposits and withdrawals could also be tied to measures of economic growth besides tax revenues. For example, Indiana allows deposits to its Rainy Day Fund only when adjusted personal income shows annual growth of more than 2 percent and withdrawals only when it is less than negative 2 percent. An advantage of this type of metric is that it won’t be distorted by changes in tax policy.

We can debate which specific triggers to use, but almost any trigger that reflects real changes in state revenues or the economy would be an improvement over a system that only works when the State Board of Equalization makes the right mistake.

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Oklahoma’s Rainy Day Fund helps protect against economic downturns. The Rainy Day Fund (formally known as the Constitutional Reserve Fund) was created in 1985 in response to a dramatic revenue downturn. It is designed to collect extra funds when times are good and to spend those funds when revenues cannot support ongoing state operations.

Money flows in to the Rainy Day Fund when revenue is more than estimated. Any General Revenue Fund collections beyond 100 percent of the estimated amount must be deposited into the Rainy Day Fund (unless it already has the maximum amount specified by the Constitution, 15 percent of the current revenue estimate for the General Revenue Fund).

The Constitution allows the Fund to be spent in four instances:

• Up to three-eighths of the amount in the Fund may be used to make up for a shortfall in the current year’s collections.
• Up to three-eighths of the amount in the Fund may be used in the budget for the next year if General Revenue collections are forecast to be less than the current year’s collections.
• Up to one-fourth of the amount in the Fund may be spent through the appropriations process for an emergency. There are two methods for declaring an emergency: The Governor, with the agreement of two-thirds of each the House of Representatives and the Senate, can declare emergency conditions exist; or the Speaker of the House and the President Pro Tempore of the Senate, with the agreement of three-quarters of each the House and Senate, can jointly declare emergency conditions exist without the Governor’s consent.
• Up to $10 million may be spent on tax incentives for at-risk manufacturers.

The chart below shows how the Rainy Day Fund has been used to help maintain fiscal stability over the last decade.

During the early part of the 2000s the balance of the Rainy Day Fund grew to a peak of $340 million due to modest revenue growth and limited appropriations. In FY 2003 and 2004, nearly the entire balance of the Fund was needed to maintain service levels during a severe revenue downturn. Strong revenue growth due to economic recovery and high energy prices, combined with not spending any of the Fund, allowed it to meet its legal maximum at the time, $597 million, in FY 2009.

The Fund was exhausted to help reduce the impact of revenue shortfalls in FY ’10-11. The 2010 Legislature appropriated $224 million from the Rainy Day Fund to offset FY ’10 shortfalls, appropriated $273 million for the FY ’11 budget,  and transferred $100 million to a cash fund to be used in FY ’12.

Because GR exceeded estimates in FY ’11, a $219.4 million deposit was made into the RDF at the start of FY ’12. Unless revenue collections come in below appropriated amounts, a maximum of one-quarter of the RDF could be appropriated upon an emergency declaration (see above).

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The first meeting of a legislative task force for the study of state tax credits and economic incentives is scheduled for this Friday.  Oklahoma City Councilman Ed Shadid calls for halting plans to build a convention center downtown in favor of quality of life projects like trails, sidewalks and senior wellness centers.  Republican State Representative George Faught announced his candidacy for Congress in Oklahoma’s Second District.  CapitolBeatOK presents different perspectives on the state’s recent $219 million deposit into the Rainy Day Fund.

Home foreclosures in Oklahoma were down significantly during the first half of this year.  The Tulsa area had the eighth-fastest growth in clean economy jobs between 2003 and 2010.  Oklahoma has seen a sharp increase in oil drilling.  Sen. Tom Coburn may rejoin a group of senators known as the ‘Gang of Six’ for bipartisan budget negotiations.  Grand Lake’s blue-green algae toxin warning has been lifted. 

Edmond joins Oklahoma City in establishing a water conservation schedule and will temporarily buy needed water from Oklahoma City.  Citizens of Ada ask for a public apology from the city after the chair of a city beautification committee used the n-word during a meeting.  The number of Oklahoma residents who say they are living with a same-sex partner has increased dramatically, according to the 2010 Census.

The OK Policy Blog has an interview with the interim director of the University of Tulsa’s new School of Urban Education.  In Today’s Policy Note, the National Employment Law Project issued a report documenting widespread hiring discrimination against the unemployed.  Today’s Number of the Day is how many jobs Oklahoma needs to get back to pre-recession levels. These stories and more below the jump.

In The News

Dank tax credit study launches Friday

Rep. David Dank will open his much-anticipated study of state tax credits with a look at the fact that some credits can be used to soften the effect of guaranty-fund assessments on insurance companies.  The Task Force for the Study of State Tax Credits and Economic Incentives, which Dank co-chairs along with Sen. Mike Mazzei, R-Tulsa, takes off at 10 a.m. Friday, with a meeting scheduled to take up most of the day.  “I just think we need to make a determination on the three points that the attorney general said constituted a rightful incentive, and whether or not those credits actually should be paid by the community as a whole, which is all the taxpayers, or whether it should be paid by the people in the industry and the policyholders based on their needs and what they purchase in terms of property and casualty, health and others,” Dank said. “I mean, who should be paying those assessments?”

Read more from 23^rd & Lincoln at http://journalrecord.com/23rd-and-Lincoln/2011/07/13/dank-tax-credit-study-launches-friday/

The New OKC Convention Center and Hotel: Implications for MAPS 3 and Economic Development

Forced to face a vote on its own, the voters almost certainly would not have approved financing a new convention center at this time. Given the will of the people, and OKC’s horrifying and unsustainable health epidemics, the “quality of life projects” such as trails, sidewalks, and senior wellness centers, neglected over the 1 years since MAPS 3 passage due to our preoccupation with the convention center, should be implemented with urgency. The people did not approve funding for a very expensive convention center hotel, studies do not support its development, and ongoing financial losses of these hotels are commonplace and can be severe.

Read more from the OKC Gazette at http://npaper-wehaa.com/oklahoma-gazette#2011/07/13/?article=1322856

Faught Launches Congressional Campaign

State Representative George Faught (R-Muskogee) announced today his candidacy for Congress in Oklahoma’s Second District, a seat currently held by Rep. Dan Boren. Faught  (pronounced ‘Fŏt’)  formed an exploratory committee to consider a possible run after Rep. Boren’s announcement that he would not seek re-election in 2012.  “The citizens of eastern Oklahoma deserve a proven leader to represent their conservative values in Washington, D.C.” declared Faught. “Today, our country has arrived at a critical crossroads. Out of control spending and unsustainable debt have brought America to the verge of economic collapse. We are engaged in a battle over what kind of country we’re going to leave for our children and grandchildren, and I am ready to fight for their future.”

Read more from the Muskogee Politico at http://www.muskogeepolitico.com/2011/07/faught-launches-congressional-campaign.html

On a rainy day, analysts debate best use of Rainy Day Fund deposit

State Finance Director Preston Doerflinger’s announcement of a $219 million deposit into the Rainy Day Fund sparked immediate hopes among many government employees to see some funding restored to next year’s budgets.  However, other voices say the state should take advantage of Oklahoma’s good economic news to move aggressively to “right size” government and fund priorities.

Read more from the CapitolBeatOK at http://capitolbeatok.com/_webapp_3931530/On_a_rainy_day,_analysts_debate_best_use_of_Rainy_Day_Fund_deposit

Oklahoma foreclosures drop

Home repossessions in Oklahoma were significantly less common during the first half of 2011 than they were at anytime in the previous year.  A report by data service RealtyTrac Inc. says 8,586 foreclosures were filed from January to June. That’s down 12 percent from the previous six months and 17 percent from the first half of 2010.  The resulting foreclosure rate of one for every 192 households gave Oklahoma the 28th-highest foreclosure rate in the country.  Oklahoma’s downward trend continued in June, with the foreclosure rate of one for every 842 households falling 2.5 percent from May and 5.2 percent from June 2010.

Read more from the Tulsa World at http://www.tulsaworld.com/business/article.aspx?subjectid=32&articleid=20110714_32_E1_Homere773312

Tulsa low in ‘clean jobs’; But growth in that sector ranked eighth nationally

Tulsa and Oklahoma City rank in the bottom half of the nation’s top 100 metros in the number of “clean” or “green” economy jobs, according to a study released Wednesday by Brookings Institution Metropolitan Policy Program.  The size of Tulsa’s clean economy numbered 7,130 jobs last year, putting the metro area at No. 68 in the ranking. Oklahoma City followed right behind at No. 69 with 6,854 clean jobs.  Between 2003 and 2010, the Tulsa area had the eighth-fastest growth in clean economy jobs, adding 3,054 such jobs for an 8.3 percent average annual growth. For that same period, the Oklahoma City metro added 2,019 clean jobs and ranked 37th.

Read more from the Tulsa World at http://www.tulsaworld.com/business/article.aspx?subjectid=48&articleid=20110713_46_E1_Tulsaa89432

Oklahoma Experiencing Resurgence in Oil Drilling

American Petro-Hunter has been making progress at the Company’s Northern Oklahoma property recently announcing its first oil and gas sale shortly after the project went into production.  Oklahoma has seen a sharp increase in the amount of rigs within its borders, especially since the first half of 2010. According to a June 2011 Report by Headwaters Economics horizontal drilling, a technique employed by American Petro-Hunter, has been one of the leading reasons for the growth and development as more oil and gas is able to be recovered from what used to be unconventional plays.

Read more from Benzinga at http://www.benzinga.com/markets/11/07/1763431/oil-and-gas-stocks-news-oklahoma-experiencing-resurgence-in-oil-drilling#ixzz1S526KYP

Coburn may return to Senate’s ‘Gang of 6′

Sen. Tom Coburn said Wednesday that he may rejoin the so-called Gang of Six, the bipartisan band of senators seeking to reach agreement on a big deficit-cutting deal that would blend spending cuts with a tax code overhaul.  The Oklahoma Republican dropped out of the group two months ago saying Democrats weren’t willing to cut enough spending from programs like Medicare. He says he may rejoin the group depending on how it responds to ideas he’s sent over. The closely watched group has been working for months in hopes of a bipartisan deficit-cutting deal that might gain momentum despite the partisanship consuming Capitol Hill.

Read more from NewsOK at http://newsok.com/coburn-may-return-to-senates-gang-of-6/article/feed/275916#ixzz1S51BTA6c

Algae warning lifted at Grand Lake

Blue-green algae toxins in Grand Lake have subsided enough to lift a warning against direct contact with lake water, the Grand River Dam Authority’s chief environmental officer said Wednesday.  “Based on the latest test results … the main part of the lake were totally negative” for toxins, said Ecosystems Manager Darrell Townsend.  Townsend said people should still avoid algae “scums” that continue to collect in the back of coves.

Read more from the Tulsa World at http://www.tulsaworld.com/news/article.aspx?subjectid=12&articleid=20110713_12_0_CHANDL880703&rss_lnk=12

Edmond follows OKC into water rationing

Mandatory water rationing is effective immediately in Edmond. The City of Edmond has announced the watering of lawns will depend on odd to even addresses for residences and businesses.  Double-digit temperatures in Edmond this summer combined with less than average rainfall has increased water usage in the community, causing the City of Edmond to temporarily buy additional water from Oklahoma City, said Fred Rice, Edmond Water Resources superintendent.  The schedule will follow Oklahoma City’s water conservation schedule and applies to watering lawns. Residents and businesses with even-numbered addresses can water on even-numbered days and odd numbered addresses on odd-numbered days.

Read more from the Edmond Sun at http://www.edmondsun.com/local/x574266226/Edmond-follows-OKC-into-water-rationing

Ada committee racist comment

Citizens of Ada ask for a public apology from the city for the use of the n-word during a city meeting. Fox 25 obtained the recording of that beautification committee meeting. Chair Dexter Pruitt said, “We got too many ‘expletive’ and Mexicans moving in.” That committee is now disbanded. Citizens plan to speak before the council Monday.

Read more from Fox 25 at http://www.okcfox.com/newsroom/top_stories/videos/kokh_vid_3662.shtml?wap=0

2010 Census indicates increase among same-sex homeowners in Oklahoma

Oklahoma became one the first states to ban on gay marriage seven years ago, yet the number of residents who say they are living with a same-sex partner has increased dramatically over the past 10 years, according to U.S. Census figures released Thursday.  The number of male respondents who said they were living with male partners increased to 4,393 in 2010, a 56 percent increase from the 2000 Census. The number of women who said they were living with female partners went up more than 83 percent over the same period, from 2,952 to 5,409, the Census found. There was also a nearly 63 percent increase in the number of respondents, gay and straight, who said they were unmarried and living with their partner, from 53,307 in 2000 to 86,694 last year.

Read more from the Associated Press at http://www.therepublic.com/view/story/aebfe9933c274365a694d062894d773c/OK–Census-Oklahoma-Gay-Households/

An interview with Dr. Thomas Benediktson about TU’s new focus on urban education

The University of Tulsa recently announced that it is changing the name of its education department to the School of Urban Education. The change reflects an increased focus on the issues confronted in low-income, urban districts. OK Policy spoke with Dr. Thomas Benediktson, dean of the College of Arts and Sciences at TU and interim director of the School of Urban Education, about reasons for the change and what it means for Oklahoma.

Read more from OK Policy Blog at http://okpolicy.org/blog/education/an-interview-with-dr-thomas-benediktson-about-tus-new-focus-on-urban-education/

Quote of the Day

“I really believe it was the core of improvement for us,”

Diane Hensley, principal of Mark Twain Elementary School on how Literacy First helped turnaround her school’s performance.

Number of the Day

80,000

Oklahoma’s jobs deficit – or the difference between the number of jobs Oklahoma has and the number it needs to get back to pre-recession levels.

Source: Economic Policy Institute via Oklahoma Policy Institute

See previous Numbers of the Day here.

Policy Note

Hiring Discrimination Against the Unemployed

More than 14 million Americans are counted as officially unemployed (a number that excludes those who have given up looking for work), and more than six million of those have been jobless for longer than six months. Equally discouraging, job creation has stagnated, with employers nationwide adding only a net of 43,000 new jobs over the last two months.  Making matters worse, U.S. employers of all sizes, staffing agencies and online job posting firms are using recruitment and hiring policies that expressly deny employment to the unemployed—simply because they are not currently working.  Despite considerable media coverage since the practice was first reported, a recent informal sampling of online job postings conducted by the National Employment Law Project (NELP) documents that the practice of excluding unemployed job seekers persists.

Read more from the National Employment Law Project at http://www.nelp.org/page/-/Press%20Releases/2011/PR_FairEmploymentBill_7-12-2011.pdf?nocdn=1

You can sign up here to receive In The Know by e-mail.

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The impact (of budget cuts) is being felt by Oklahoma families, businesses and communities in far-ranging ways… Deeper cuts will further impinge the ability of state agencies to fulfill their core missions and may seriously affect the well-being of schoolchildren, seniors, persons with disabilities, correctional and public safety officers, and other members of our communities.

In this context, the Governor and legislative leaders are actively considering additional ongoing or one-time revenue sources that could avert truly catastrophic cuts to core services. One option being discussed is appropriating this year’s “5 percent money” for next year’s budget.  This post explains the “5 percent option” and suggests why, on balance, we think a portion of this money should be used, along with other revenue solutions.

Under Article X, Section 23 of the Oklahoma Constitution, the Legislature may appropriate no more than 95 percent of the estimated revenue for the upcoming year certified by the State Board of Equalization. There are seven certified funds, of which the largest and most important is the General Revenue (GR) Fund. The “5 percent money” refers to the balance, or cushion, between 100 percent of the certified GR estimate and the amount the Legislature can appropriate. If GR comes in above 95 percent of the estimate, the 5 percent money becomes available on July 1st of the next year. Normally, that money stays in the GR Fund and is then appropriated for the year after.  GR above 100 percent of the estimate all goes to the Rainy Day Fund.

The certified GR estimate  for the current year, FY ’11, was $4,888.6 million. The Legislature appropriated $4,6444.2 million in GR, leaving 5 percent money of $244.4 million. Through the first nine months of FY ’11, GR has come in at 104.2 percent of the certified estimate, and monthly collections are on an upward trajectory. It is now highly likely that GR for the full year will come in above 100 percent of GR. This means that on the first day of FY ’12, $244.4 million of GR will become available. The question facing those negotiating the  budget is whether to appropriate some or all of that $244.4 million in FY ’12, or whether to hold it in the GR Fund for appropriation in FY ’13.

The idea of using the 5 percent money, first proposed by then-Treasurer Scott Meacham in December, has been endorsed by several elected officials. As House Appropriations and Budget Committee Chair Earl Sears said:

There are (Republican legislative) members out there that say those funds should not be used at this time… That philosophy is there, and what has pre-empted that philosophy is we’ve got a $500 million shortfall.

However, Senate leaders seem less open to appropriating this year’s 5 percent money for next year’s budget.

While opponents of using the 5 percent money haven’t formally laid out their position, three concerns seem to be involved.  The first involves the legality of appropriating the 5 percent dollars, especially since those revenues will not become available until the start of next fiscal year. However, while it hasn’t been done before, there seems to be nothing that expressly prohibit the use of this year’s 5 percent money for next year’s budget.

A second concern is that revenue collections could end up falling short of 100 percent of this year’s estimate  by year’s end. This could be addressed by appropriating less than the full $244.4 million of 5 percent money in case of a late-year collapse in collections. Since we’ll have nine to ten months of actual collections to go on, budgeting this year’s 5 percent money in next year’s budget actually involves less uncertainty than the normal practice of appropriating next year’s budget based on estimated collections.

The final concern is that including up to $244 million in 5 percent money in next year’s budget is short-sighted policy in light of the state’s ongoing fiscal challenges. The state is already staring at shortfalls for FY ’13  due to the end of federal stimulus dollars and Rainy Day Fund money,  the full phase-in of the cut to the top income tax rate, and deferred payments on tax credits owed to the oil and gas industry and others.  Together, these factors mean $300 to $400 million of this year’s budget will not be available next year. This gap may equal or exceed revenue growth, even assuming a continued economic recovery. Using all of the 5 percent money in FY ’12 could thus create dependence on money that may not be available in the future.

Given the tension between the need to avert truly catastrophic budget cuts next year and the prospect of continued shortfalls on the horizon, the right answer regarding the 5 percent money should be neither all nor nothing. We believe the best approach is to use a portion of this year’s 5 percent money in next year’s budget while adopting other measures that would bring in additional revenues for next year and beyond. Balancing the budget with a portion of the 5 percent money is, quite simply, preferable to balancing the budget by endangering the core service in public safety, health care and education upon which Oklahomans’ prosperity, security and well-being depend.

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When it comes to the state questions on this November’s ballot, Tulsa World editor Wayne Greene has been playing the role of Mikey. This summer he penned a series of columns (you can read a couple of them here and here) that explored the eleven constitutional changes that Oklahoma voters will decide this election.  His verdict:

…I haven’t found much to like. Most of the questions on the ballot range from the vaguely obnoxious (reconfiguring the membership of a state commission that has not met one time in state history) to the truly malignant (requiring voters to show government-issued IDs in order to vote). If you’re an all-or-nothing kind of person, the best choice clearly would be to simply go down the line and mark “no” on every question.

However, Greene’s “Life (cereal) – changing moment” came with the eleventh and final proposal on the November ballot, SQ 757, which would increase the cap on the state’s Constitutional Reserve Fund, or Rainy Day Fund, from a maximum of 10 percent of General Revenue Fund collections to 15 percent. Somewhat grudgingly, Greene concedes:

But there is one referendum – State Question 757 – that is a pretty good idea.

We agree that SQ 757 is a good idea. Rainy Day Fund deposits are made whenever General Revenue Fund collections exceed 100 percent of the certified estimate for the year. As we argued in an issue brief from earlier this year that tried to identify the lessons we should be learning from the current budget crisis, the current 10 percent cap is too low to sustain state services through the revenue downturns that accompany even a mild recession, much less the major economic dislocation we’ve experienced the past two years. Increasing our budget reserves will provide future policymakers a means of averting deep budget cuts that affect essential public services and are economically harmful during a downturn. Right now, the maximum cap is $514 million; SQ 757 would increase that to $771 million.

As Greene points out in his column, there is an unavoidable trade-off involved in putting surpluses into savings during years when revenue growth exceeds estimates: there is less money to spend during good times.  Between FY ’04 and FY ’08, strong economic growth created revenue surpluses that not only allowed the RDF to grow to its maximum level, but also generated “spillover” of $725 million that was appropriated for one-time and ongoing expenditures over several years. If and when the state finally emerges from the current downturn, there will be urgent demands to allocate additional funds on worthwhile purposes just to restore services to prior levels.  And should SQ 744 pass, mandating annual increases in funding for common education regardless of the revenue situation, the competition for available resources will become especially intense. However, in our view, the benefits of increasing our reserves so as to cushion the magnitude of cuts and layoffs when the inevitable next downturn hits outweighs those of catching up on spending when times are good.

We should also note that, in addition to increasing the cap on the Rainy Day Fund by passing SQ 757, there are other policy changes that should be considered in the years ahead that would make our annual budgets less vulnerable to extreme fluctuations and prepare us for future downturns. One promising idea would be to create a second reserve fund specific to gross production tax revenues, our most volatile and unpredictable revenue source.  Legislation to create an Energy Stabilization Fund was approved last year by the Legislature but vetoed by Governor Henry. In addition, the current rules which tie RDF deposits to revenues exceeding estimates also merit rethinking. Essentially, the Fund now depends on faulty budget forecasting; an alternative, which we will lay out more fully at a later time, would tie RDF deposits to annual changes in revenue growth.

For now, the bottom line is: Try SQ 757. It will be good for you, and you might just like it.

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OVERVIEWS

The State Election Board has compiled all eleven state questions into a single PDF document.

These websites provide helpful overviews of all the measures on November’s ballot:

• The Secretary of State lists each proposed state question, along with the short title that will appear on the ballot. You may also view the full text of the document by selecting the corresponding Adobe PDF icon.
• Ballotpedia provides a list of the questions and links to additional information on each one.

INDIVIDUAL QUESTIONS

For each question, we link to the Ballotpedia article and full text of the measure from the Secretary of State’s website. Where available, we’ve identified selected additional information and analysis, including pieces we have published and analysis by two journalists – Wayne Greene, an editor of the Tulsa World, and Patrick McGuigan, editor of CapitolBeatOK.com – who have published columns on several ballot measures.

State Question 744: Amount of money the State provide common schools

• Full text
• Yes on SQ 744 website
• One Oklahoma Coalition (anti-744) website
• Oklahoma Policy Institute’s issue brief and fact sheet opposing SQ 744
• Kurt Hochenauer op-ed supporting SQ 744

State Question 746: Voter Identification, proof of identity

• Full text
• OK Policy blog post: “Would SQ 746 solve a problem or create one?”
• Oklahoman editorial supporting SQ 746
• CapitolBeat OK analysis

State Question 747: Limiting term of office of certain elected officials

• Full text
• Tulsa World article on SQ 747
• Wayne Greene column
• CapitolBeat OK analysis

State Question 748: Apportionment Commission changing to Bipartisan Commission on Legislative Apportionment

• Full text
• Wayne Greene column
• CapitolBeatOK analysis

State Question 750: Initiative and Referendum Designation of signature percentage base

• Full text
• Wayne Greene column
• CapitolBeatOK analysis
• Citizens in Charge statement in favor of SQ 750

State Question 751: Providing that the English language is the common and unifying language of Oklahoma

• Full text
• Enid News editorial opposing SQ 751
• Wayne Greene column
• CapitolBeatOK analysis
• U.S. English website (supportive of English-only)
• Latina Lista blog post opposing SQ 751

State Question 752: Modifying the composition of the Judicial Nominating Commission

• Full text
• Wayne Greene column
• CapitolBeat OK analysis

State Question 754: Providing the Legislature shall not be required to make expenditures for any function of government using a predetermined formula of any kind or by reference to the expenditure levels of any other state government or any other entity.

• Full text
• Wayne Greene column on SQ 744 and SQ 754
• Oklahoma Gazette article on SQ 744 and SQ 754

State Question 755:  Courts to rely on federal and state laws when deciding cases forbidding courts from looking at international law or Sharia Law.

• Full text
• Wayne Greene column
• Rex Duncan interview on “Hannity” supporting SQ 755 (You Tube)
• Wikipedia article on Sharia
• CapitolBeatOK analysis of SQ 755

State Question 756: Health Care System

• Full text
• OK Policy guest blog (Ryan Kiesel) against SQ 756
• Goldwater Institute case on unconstitutionality of federal health care law
• CapitolBeatOK analysis

State Question 757: Constitutional Reserve Fund

• Full text
• CapitolBeat OK analysis

Alas, the voters will not have a say on one raging state controversy -  the Flaming Lips’ Do You Realize was officially designated the official state rock song by an Executive Order of Governor Brad Henry and will not be on the November ballot.

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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.

At the same time, it’s important to recognize that revenues are far from having fully rebounded from the downturn. Here’s a look at July GR over the past 11 years:

This year’s collections remain 19 percent below the pre-downturn peak and slightly below collections of five years ago. This situation contrasts with the recession of 2002-03, when revenues were able to surpass pre-downturn levels within one year. We still expect that it will be FY ’13 before state revenues return to where they were prior to the recession, without adjusting for inflation or population growth. Given the heavy reliance on non-recurring revenues from the federal stimulus bill, Rainy Day Fund and other sources, the challenges the next Legislature and Governor will face in developing a budget that avoids further cuts and begins to restore services to pre-downturn levels are still likely to be substantial.

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This latest dispute is likely to further defer lawmakers’ attention from focusing on the challenges in constructing the budget for the year ahead. With less than three months until the Legislature’s scheduled adjournment, this is worrisome. For if this year’s budget situation has been bad, next year’s quite frankly, looks  catastrophic.

Let’s start by reviewing what had been decided for this year. The leadership agreement announced in mid-February called for 3/8ths of the Rainy Day Fund, or $223.7 million, to be used in FY ’10. Money from the RDF is targeted to the Department of Common Education ($193.7 million in HB 2352) and the Oklahoma Health Care Authority ($30 million in HB 2353).  Leadership has also decided to dig deeper into federal stimulus funds for FY ’10. Common Education is now set to receive an additional $37.1 million from the State Fiscal Stabilization Fund, while an additional $144.6 million of enhanced Medicaid matching funds, or FMAP, made available by the stimulus will go to the Health Care Authority and Department of Human Services (all but $3 million of this amount is to offset a loss in General Revenue, rather than being additional funds). Other additional revenues made available for Fy ’10 include $38.3 million in gross production taxes,  $30 from the Unclaimed Property Fund (in the disputed bill), and $15.7 million being transferred from the State Transportation Fund.

As can be seen from the Table, the Legislature has now used over $800 million in stimulus funds in the FY ’10 budget. When the Rainy Day Fund is added in, the amount of non-ongoing revenue being used this year exceeds $1 billion. According to my figures, these non-ongoing revenues will account for some 15  percent of this year’s total state appropriations, which look to be some $6.965 million.

How big of a hole does this leave for next year? The Board of Equalization has certified $5.415 billion in available revenue for FY ’11. Using the revised FY ’10 appropriations as the starting point, there is a $1.55 billion revenue gap.

Available non-recurring revenue will close this gap some, but far from entirely. There has already been agreement to use an additional 3/8ths, or $223.7 million, of the Rainy Day Fund in FY ’11 (This would leave the fund with just under $150 million that is available upon declaration of an emergency). The State Fiscal Stabilization Fund, which can only fund Common Education and Higher Education, has a remaining balance of $199 million.  The amount of enhanced FMAP still available is less certain, because it involves multiple agencies and depends on actual expenditures. But the allocation of the additional $145 million in stimulus funds to the FY ’10 Health Care Authority and DHS budgets significantly worsens the FY ’11 outlook.  At this point, however, there is likely well under $300 million of remaining enhanced FMAP funds available.  (That number could, however, rise if the enhanced FMAP rate is extended for an additional two quarters as part of the jobs bill currently being considered by Congress).  Along with the remaining State Fiscal Stabilization Funds, we can expect to have under $450 million in stimulus funds for FY ’11, or $350 million less than in FY ’10.

The bottom line is that even after Rainy Day Funds and stimulus, there looks to be some $850 million less available revenue next year than this year. That’s equal to 12 percent of total state funding for this year applied across all government agencies. We can’t forget that many state agencies have already absorbed 5 – 7 percent cuts going into FY ’10 and up to 7.5 percent mid-year cuts, forcing furloughs, lay-offs and closures. We can’t forget that even agencies that have been partially protected by stimulus funds and supplementals have already been forced to reduce payments to health care providers and cut back services to seniors, children with mental illness, and other vulnerable populations.

The Governor in his FY ’11 Executive budget offered a series of revenue-enhancing proposals that together were estimated to generate over $700 million, including expanded tax collections of remote sales,  additional bonding, and suspension and elimination of tax breaks. Not all the Governor’s ideas are likely to fly. But if and when the final remaining FY ’10 issues are resolved, it will be urgent to start concentrating really seriously about what revenue options and cost-cutting measures should be on the table for next year to avoid a budgetary apocalypse.

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

His speech was most eloquent, perhaps, when he spelled out what’s really at stake when it comes to cutting government:

As we proceed, I implore you to remember there are very real – and human – consequences to budget cuts. The men and women who make state government work are not numbers on a spreadsheet.

Government is the schoolteacher grading papers at night. It is the meat and poultry inspector ensuring a safe food supply. It’s the child welfare specialist investigating suspected child abuse. It’s the nursing home attendant caring for a loved one … the speech pathologist working with special-needs children … the corrections officer tasked with keeping dangerous criminals behind bars.

The challenge for the Governor, and for legislators hoping to mitigate the of budget cuts and protect core government services, is how to balance the budget when revenues are projected to come in some $800 million below initial appropriations for this year and when certified state revenues for FY ’11 are some $1.9 billion below the initial FY ’10 budget of $7.2 billion. Other than making the case for tapping the state’s Rainy Day Fund, the Governor’s speech itself offered no details on how to accomplish this task. However, the Executive Summary to his FY ’11 does lay out the Governor’s strategy for bringing the budget into balance.

The broad outlines of the Governor’s approach are as follows. First off, as announced last week in an agreement between the Governor, House Speaker, and President Pro Tem, the FY ’10 revenue shortfall will be filled in part by across-the-board annual budget cuts averaging 7.5 percent of funding from General Revenue. These cuts, which amount to some $465 million, are to be offset by some $180 million in supplemental funding divided between common education, higher education, Medicaid and corrections. That still leaves an FY ’10 gap of over $500 million, which the Governor proposes to fill with $485 million from the Rainy Day Fund and transfers from agency revolving funds.

For FY ’11, the budget would be balanced as follows under the Governor’s plan:

• FY ’10 cuts would be annualized and increased by an additional 0.5 percent to 3 percent for all agencies.  In addition, pass-through funds to several agencies would be suspended. In total, this represents some $380 million in budget reductions for FY ’11 compared to initial FY ’10 appropriations;
• $696 million in remaining stimulus funds;
• $67 million in Rainy Day Funds.  (This would leave the RDF with some $44 million);
• $53 million in anticipated savings from agency consolidations and consolidation of information technology services;
• $233 million from new bond issues that would free up General Revenue;
• $85 million in transfers of cash balances from revolving funds;
• $239 million from a variety enhanced tax collection proposals, particularly increased sales tax collections on Internet sales and automated enforcement of vehicle insurance.
• $103 million from eliminating or suspending various tax credits;
• $58 million from increases in fees and permits.

Two points need to be made about these budget balancing proposals. First, many of those I spoke with at the Capitol who had learned of the Governor’s ideas for generating additional revenues and savings through efficiencies were skeptical that the proposals would gain legislative support or would have the fiscal impact promised in the budget. Without these measures, however, cuts would have to be even deeper than those the Governor recommends. (On the other hand, if the revised certification to be presented later this month to the Board of Equalization projects stronger revenue collections over the next 17 months than December’s initial estimates, the budget gap will not be as sizable.)

Secondly, even with these optimistic assumptions about savings and new revenues, the impact of the proposed funding levels in the Governor’s budget remain extremely worrisome.   With a few exceptions, most agencies are facing FY ’11 funding that is 10 to 17 percent below their budgets for FY ’09. Even those core agencies in education, health and human services, and public safety that are partially protected will take cuts in FY ’10 and FY ’11 and are not funded in FY ’11 to deal with rising operating costs and caseloads.

The bottom line is, for all of us who count on government – on those school teachers, safety inspectors, child welfare specialists, nursing home attendants, and corrections officers – to protect our safety and well-being and make us a stronger state, this fiscal storm still looks to have a devastating effect.

To see OK Policy’s updated spreadsheet of agency-level and overall appropriations for FY ’09 through FY ’11, and related budget information, click here.

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