[This post has been changed slightly from the original. An earlier version questioned SoonerPoll's reliability without providing evidence to back up that claim.]

As part of the agreement to raise the federal debt ceiling, Congress will vote on a Balanced Budget Amendment this fall. Every Republican Senator has endorsed it. So have many Oklahoma state legislators.

So what’s the problem with a Balanced Budget Amendment?

#1: The BBA endorsed by Senate Republicans is not really about balancing the budget.

In fact, this amendment would make it much harder if not impossible to balance the budget, because it would require any tax increases to have a two-thirds majority in both houses of Congress.

On top of that, it says total spending cannot exceed 18 percent of GDP. To understand how radical this is, we should realize that not a single year’s budget under the George W. Bush or Reagan administrations would be constitutional under this rule. Even Rep. Paul Ryan’s budget plan, which included cuts so unpopular that they were quickly abandoned by Republicans, would have spent too much under this amendment.

There are problems with using GDP as a metric in the first place. Calculating GDP is not an exact science, and it is constantly revised, sometimes retroactively. Nor is government spending as a percentage of GDP useful as a measure of anything. The size of government fluctuates over time to reflect age demographics (older populations require more government services), an evolving economy (as health care becomes a larger part of the overall economy, the public sector will grow), and democratic will (generations of Americans have voted in the social safety net that we have today).

That brings us to…

#2: The Balanced Budget Amendment is undemocratic.

The appropriate size of government has been contentiously debated for decades, and Americans remain split on this issue. By creating supermajority requirements for tax increases and putting arbitrary limits on budget size, the Amendment attempts to make an end run around this debate in favor of a minority’s desire to shrink the public sector.

In some cases, it is important to protect minority rights against an overweening majority. That is the motivation behind the First Amendment, which protects the freedom of speech and religion even for unpopular beliefs. These and other rights are the principles we have elevated above democratic influence.

However, we should be very cautious about creating new rights. Those who want smaller government should not have the right to enforce that desire outside the normal democratic process. The BBA is just an attempt to fix the game.

Besides, when inevitable disagreements arise over how to define “balanced” or which revenue projections to use, it is unclear how any requirements will be enforced. Do we really want the courts to take over government budgeting?

#3: State-level balanced budget requirements only work because of federal help.

A common argument made by supporters of a BBA is that most states, including Oklahoma, have a balanced budget requirement, so the federal government should be able to have one too. However, states are only able to balance their budgets during bad times because the federal government does not. This chart provides a clear example:

Oklahoma avoided disastrous cuts during the recession by using federal relief from the stimulus bill (shown in yellow) to supplement state appropriations. In 2010, that federal money accounted for more than 12 percent of all state appropriations. The picture is the same nationwide – without an influx of counter-cyclical federal spending, we would have seen devastating job losses in the public sector that almost certainly would have sent the economy into a severe depression.

Even during good years, federal money makes up a significant part of the state’s budget and the overall economy of Oklahoma. The federal government spent $38.5 billion in Oklahoma last year, which works out to $10,256 for each resident. The budget has never been balanced without federal help.

The Takeaway

The fact that the proposed balanced budget amendment was written with such obvious flaws should tell us something: it was only ever a political ploy. Certainly it’s important to pay attention to our debt over the long-term, but almost no budgets are balanced year-to-year in this way. Even individual households routinely take on debt for a mortgage or auto loan. A shoddily constructed BBA allows politicians to claim credit for supporting “balanced budgets” while knowing it will never pass.

At least we should hope so, because the prospect that they believe their own rhetoric about this terrible idea is even scarier.

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Yet the impact of the downturn would have been genuinely catastrophic had Congress not provided substantial fiscal relief to the states as part of last year’s stimulus bill.  Formally known as the American Recovery and Reinvestment Act,  the stimulus bill provided states money in two basic forms – a State Fiscal Stabilization Fund, intended primarily for common and post-secondary education, and enhanced federal matching funds for Medicaid. Over the past two years, the Legislature approved the use of $1.375 billion in stimulus funds, allocated as follows:

These stimulus funds have directly served to limit the cuts to schools and to major health care and social service agencies to under 10 percent; indirectly, they have averted deeper cuts to public safety, transportation, and all other state agencies by freeing up state dollars for these functions.

Although use of Recovery Act dollars did not generate much debate in Oklahoma among those elected officials actually responsible for drafting the budget, some legislators, candidates, and policy analysts have contended that the stimulus, along with the nearly $600 million withdrawn from the Rainy Day Fund, have kept state spending at artificially and unsustainably high levels. However, without these funds, and assuming no tax increases, funding cuts across all state agencies would have approached 16 percent each of the past two years, and in many cases would have snowballed further due to the loss of federal matching funds. When core human service, education and public safety agencies presented their proposals for managing potential budget cuts in FY ’11 of an additional 10 to 15 percent, the scenarios in terms of core programs, services and jobs that would have met the axe were little short of chilling.

At the same time, the reliance on non-recurring revenues from the Recovery Act and Rainy Day Fund, along with some one-time revenue enhancements approved for the coming year, does create budget holes that even a robust economic recovery is unlikely to fill over the next year or two. This problem could be partially addressed if Congress agrees to extend the enhanced Medicaid matching rate, known as FMAP, for another six months, providing more of a glidepath than a sharp cliff to allow time for state revenues to recover. While this proposal has been a part of several economic recovery bills working their way through Congress in recent months, its future at this point is highly uncertain given growing concerns about federal spending and deficits. Yet as the Center on Budget and Policy Priorities, among others, has argued, failing to extend federal support will lead to deeper cuts to services and layoffs that will threaten the fragile economic recovery around the nation.

Overall, federal stimulus dollars could not fully protect the state budget from the impact of the Great Recession, and a reliance on non-recurring will contribute to ongoing challenges going forward. But as we continue to struggle  to control the bleeding from the cuts  imposed over the past two years, we should not fail to acknowledge how much more desperate and unsolvable our situation would have been without federal fiscal relief.

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The stimulus bill increased the federal matching rate, known as FMAP for a period of nine quarters, or 27 months.  The enhanced FMAP took effect retroactive to October 1, 2008 and was set to expire at the end of this calendar year, December 31, 2010. Under the extension proposals before Congress, the enhanced FMAP rates would remain in effect until the end of June, 2011. According to our best information, Oklahoma would continue to receive an FMAP of 76.73 percent over the course of the extension, which is nearly 12 percentage points higher than the base FMAP rate (64.94) that Oklahoma is scheduled to receive in the absence of Congressional action.

Given the size of the Medicaid program, the enhanced FMAP has had an enormous impact on the state budget. Oklahoma’s initial FY ’10 budget included just under $400 million in enhanced FMAP, which was used to offset declining state revenues and support the budgets of the Oklahoma Health Care Authority and other state agencies that provide state match for Medicaid services.  Along with fiscal relief allocated through the State Fiscal Stabilization Fund, these federal dollars allowed Oklahoma to avoid implementing deep cuts to Medicaid and other programs going into FY ’10, while leaving the Rainy Day Fund untapped for later in the downturn. Last month, leadership agreed to draw deeper into the enhanced FMAP pool to the tune of $144.7 million to shore up the FY ’10 budget in the wake of declining state revenue collections.

As this update from Dawn Horner of Georgetown’s Center for Children and Families indicates, the enhanced FMAP extension has been approved by both the House and the Senate in different jobs bills, which would need to be reconciled before a final package could be sent to the President for his  signature (These bills are different than the jobs bill extending employment tax breaks that the President has already signed).  Since the FMAP provisions have been packaged with extensions of unemployment and COBRA benefits that are Congressional priorities, approval seems likely but not certain.

It’s important to bear in mind that enhanced federal Medicaid funding comes with certain strings attached. As under the initial stimulus bill, states would be prohibited from restricting Medicaid eligibility below levels in effect on July 1, 2008 (see our fuller discussion of how states must safeguard Medicaid eligibility). In addition, under the Senate version of the extension, Governors would have to formally request the funds and certify that they will be used.

According to (unpublished) calculations from Federal Funds Information for States, the 6-month enhanced FMAP extension would provide Oklahoma an additional $285 million based on projected FY ’11 state spending levels. With the state facing an $800 million shortfall, the temptation to use this full amount to ease the FY ’11 budget gap will be great. At the same time, using the full amount in FY ’11 risks steepening the perilous funding cliff the Medicaid program faces in FY ’12 once the enhanced federal match runs out, creating the threat of drastic cuts to Medicaid benefits and eligibility.

While the outcome of the enhanced FMAP provision is of obvious importance for the state budget, it’s important to keep in mind that what is ultimately at stake is the maintenance of health care coverage for Medicaid recipients. Georgetown’s Center for Children and Families expresses this clearly:

In the current recession, [Medicaid] has become more important than ever, offering coverage to an addition 2 million children. In the absence of an extension of Medicaid fiscal relief, there is a significant risk that the recent gains made for children’s coverage will be lost and that many families will have to forego one of the few bright spots in these uncertain times – a source of stable, reliable coverage for their children.

Extending the enhanced Medicaid match will ease, though not solve, the state’s fiscal woes and at least defer the date when Medicaid coverage for low-income children and families comes under threat. Let’s hope Congress gets this done.

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The importance of SNAP to Oklahomans is at least two-fold. As shown by the latest numbers released this week by the USDA, food insecurity remains prevalent in Oklahoma, with an average of 14.0 percent of people in the state over the period of 2006-08 indicating that they were unable at times over the year to afford adequate food.  For hard-pressed families, SNAP benefits provide an essential support to family budgets, allowing for the purchase of weekly groceries where otherwise children, seniors, and working-age adults might go hungry or without adequate nutrition. The program now serves one out of every seven Oklahomans and one out of four children. In August, the average monthly SNAP benefit was $127 per person and $296 per household.  This is a substantial increase from last September, when the average monthly benefit was $97 per person and $237 per household. The increase reflects both a 13.4 percent in SNAP benefits that was part of the stimulus package approved by Congress this spring, and declining household incomes, which has left families eligible for higher benefits amounts.

Secondly, the Supplemental Nutrition Assistance Program is of great importance to the economy of the state and local communities. In FY ’09, the USDA value of SNAP benefits in Oklahoma was $592 million, according to the annual report of the Department of Human Services, which is equal to about one-half of one percent of the state’s total GDP (PDF).  SNAP expenditures averaged $166 per person for the entire state population, and exceeded $300 per person in some low-income counties, such as Adair, Choctaw, McCurtain and Seminole. Because SNAP benefits are spent in local grocery stores and markets, they have a powerful economic mutliplier effect – according to the analysis of Mark Zandi of Moody’s Economy.com, every $1.00 increase in federal food stamp benefit produces $1.73 in increased GDP, an amount exceeding any other form of federal spending enacted as part of the stimulus package. Finally,  SNAP benefits are 100 percent federally funded, so the program is not jeopardized by state revenue shortfalls or budget cuts during the economic downturn.

We hope that DHS’ monthly string of new caseload records will soon end as an economic recovery begins to take hold. Until then, there is little doubt that SNAP is serving a key role as a safety net program mitigating the severity of the downturn on Oklahoma families and communities.

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A recent piece in the Tulsa World by staff writer Michael Overall presented a moving look at the efforts of Tulsa’s two domestic violence shelters, Day Spring and Domestic Violence Intervention Services (DVIS), to cope with rising demands for services. Like many others in the social services sector, Day Spring and DVIS are facing the real, day-to-day effects of the declining economy. As  job losses mount and financial uncertainty builds, the impact is being felt in growing levels of household stress. This can have explosive and violent consequences. The article focuses on Grace, a thirty-something, college-educated woman “wearing trendy high heels and a business blazer” who has been at Day Springs since late March.

“I knew it was putting a lot of stress on him, a lot of pressure,” says Grace. “The pressure turned into anger, and the anger turned into…” Her voice trails off without finishing the sentence, but shelter personnel confirm that she suffered physical and psychological abuse.

Both Tulsa shelters are struggling with “an unprecedented surge” of women seeking services that began in January and is showing no signs of abating. The shelters are operating at full capacity; Overall notes that “(w)ith a record number of women coming to the shelter — and with most of them staying longer — the overcrowding seems likely to get worse.”

But there’s at least some hope on the horizon. One component of the federal stimulus bill (ARRA) provides $225 million in increased funding to states to combat domestic violence. Oklahoma is in line to receive $1,773,156 from the STOP formula grant award.  According to the U.S. Department of Justice website, STOP grants are intended “to promote a coordinated, multidisciplinary approach to enhance services and advocacy to victims, improve the criminal justice system’s response, and promote effective law enforcement, prosecution, and judicial strategies to address domestic violence, dating violence, sexual assault, and stalking”. Oklahoma will also receive an additional $156,250 to help support dual domestic violence and sexual assault coalitions.

I spoke with Marcia Smith, the executive director of the Oklahoma Coalition Against Domestic Violence and Sexual Assault about how Oklahoma’s funds will be allocated. Under the terms of the grant, 70 percent of the state’s STOP grant funding will go to law enforcement and the courts, and 30 percent will go to victims services providers, awarded via a competitive allocation process. Shelter operators expect to use the stimulus funds to avert layoffs and the closure of satellite offices, and to establish an economic empowerment program for survivors of domestic violence.

We hear a lot of griping about the stimulus bill being just so much “pork” and “government spending out of control”.  In reality, for providers like Day Springs and survivors like Grace, it’s about nothing less than saving lives.

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Accountability is essential for any government program. Taxpayers cannot determine whether their resources are being used appropriately unless they can tell what is being spent, where it is spent, who is benefiting from the spending, and what is being accomplished. Congress and President Obama built unprecedented accountability tools into ARRA. If carried out faithfully, these tools will help us determine not just if the stimulus money is spent fast, but if it is spent right.

This week, STAR released a report that gave states two grades – one for a state’s main ARRA website and one for its reporting on transportation spending. Results are mixed.

Some state ARRA sites support the President’s promise that the $787 billion stimulus plan will be carried out with “an unprecedented level of transparency and accountability.” Other state sites are half-hearted efforts that provide residents little useful data on the largest federal stimulus since the New Deal.

Oklahoma comes out below average in STAR’s ratings. Oklahoma’s main site does a good job of centralizing program information and showing how funds are allocated in the state, but falls short in showing where money is being spent, which projects are being funded, and who is getting contracts. To this, we’d add that the site has an excellent compendium of news releases on the stimulus, but the site is  not always kept up to date.

The Oklahoma Department of Transportation (ODOT) site fares better in STAR’s rating, but still lags behind other states. It provides detail on individual projects and contracts, but offers no summary information on how much is being spent in a county, with a single contractor, or even how much is for new roads vs. resurfacing.

Also this week, OK Policy released its  second Stimulus Update, which evaluates over $700 million in ARRA infrastructure funding in Oklahoma. Nearly $400 million in Oklahoma Department of Transportation (ODOT)  projects, mainly resurfacing of state highways, are under contract and spending has topped $40 million. Federal, state, local, and tribal governments will be replacing buses, rehabilitating airport runways and dams and flood control structures, and expanding water and waste water systems. Infrastructure programs, which make up eight percent of all ARRA spending, can help Oklahoma’s economic recovery and pave the way for economic growth and lower costs in the future. With improvements in our accountability efforts, we’ll be able to tell when and where projects are being funded, who is building them, and what they are accomplishing.

Our stimulus page includes the previous Stimulus Update, as well as our earlier stimulus issue brief and fact sheet and links to valuable ARRA resources.

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all agencies face a tight and difficult year ahead as they wrestle with increases in mandatory operating expenses and, for some, rising caseloads in a downturn, with flat or reduced funding.

This year, the adoption of the budget is just the start of a process that will unfold over the next 13 months. Agencies must allocate appropriated  and other funds to their programs, figure out how they’ll cover all these built-in cost increases, adjust service levels and, in all probability, adjust again later in the year. We won’t know until next June or later how it all worked out.

But it does start at the beginning, and that’s where our budget review helps. It is the first comprehensive look at the budget process and the outcomes it led to. Here’s what you’ll find inside:

1. Analysis of the speedy drop in available state revenue.
2. Details of how federal stimulus money and state revenue changes allowed the overall budget to grow slightly.
3. A rundown of how individual agencies fared and what that says about state priorities.
4. Further analysis of problems to watch for as the year unfolds.
5. A look ahead to the FY ’11 budget and beyond.
6. Recommendations to improve budgeting processes and to increase funding of state services in the economic recovery.

Once you’ve read the budget brief, you’ll be caught up with us and ready to see the rest of the budget picture develop.

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What does all this federal money do? Our upcoming Online Guide to Oklahoma Budget and Taxes has some answers. The guide is unique among the available sources of information on government finance in Oklahoma. It is broader than any other source, covering both state and local government and describing all sources of revenue and spending, not just taxes and appropriations. Here’s an extract that provides an overview of federal funding and what it helps us accomplish.

Oklahoma received approximately $5.5 billion in federal funds in 2007. This section discusses the federal funding by functional area, beginning with the largest revenue source and continuing through the smallest. Grant amounts are for 2007.

Human services is the largest grant category, totaling $3.12 billion. Most of these grants go to state agencies, which then distribute funding to human services agencies and eligible Oklahomans.

The Medicaid health program for low-income and senior populations is the largest grant ($2.455 billion, or nearly half of all grant funding). This program is operated by the Oklahoma Health Care Authority. Most of the money goes to doctors, hospitals, nursing homes, and other health care providers. Other large human services grants are:

• Temporary Assistance to Needy Families, which serves qualifying low-income families ($135 million).
• Headstart preschool programs for low-income children ($131 million).
• Affordable child care for low-income families ($95 million).

Education grants are the second largest category, totaling $612 million in 2007. Major education grants in Oklahoma are:

• Title I funding for local school districts with high percentages of low-income students ($217 million).
• Grants to school districts for special education and disability services ($207 million).

Transportation grants are the third largest source of federal funding for Oklahoma, just under $600 million. At $501 million, spending from the Highway Trust Fund is the second largest single grant program.This source, financed by the federal gas tax, provides funding to build and maintain highways, public transit, and bicycles and pedestrian facilities. Other transportation grants are for airports and public transit.

Agriculture grants total approximately $400 million and provide funding directly to farmers and to purchase food and thus increase farm demand and prices. The major grants to Oklahoma are:

• Supplemental Nutrition Assistance Program (formerly food stamps), a 100-percent federally funded program that provides assistance for low-income families. The federal government paid $498 million in benefits to Oklahomans in 2007.
• Child nutrition programs, which provide both cash and food to the state for school lunches. The grants are passed on to local school districts that provide the lunches and other meals ($211 million).

Other significant federal funding sources are:

• Housing and community development ($392 million) grants programs that subsidize housing for low-income households, Native American Block Grants for tribes to improve housing and community infrastructure, and Community Development Block Grants, which help cities and counties provide new facilities and services in low- and moderate-income areas.
• Energy and environment grants, totaling $143 million, to regulate air, water, and ground pollution, to provide financial assistance for local government water and sewer projects and to help tribes manage their operations.
• Grants for disaster relief, unemployment compensation and job training, caring for veterans and a wide range of other activities.

The stimulus has gotten a lot of attention and will stay in the news while it is spent over the next two or three years. When it is finished, though, Oklahomans and their state and local governments will still depend on a wide range of federal funding to maintain our health, infrastructure, environment, and security.

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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.

The budget agreement allocates stimulus funds as follows:

• State Fiscal Stabilization Fund – Education: $236.4 million
  • Common education – $167.6 million
  • Higher education – $68.8 million

• State Fiscal Stabilization Fund – General Purpose: $10.0 million
  • Oklahoma Health Care Authority – $10.0 million

• Enhanced FMAP – $424.7 million
  • Oklahoma Health Care Authority -  $316.5 million for FY ’10 plus $30.0 million for FY ’09 (HB 1198);
  • Department of Human Services – $71.3 million
  • Department of Mental Health and Substance Abuse Services – $3.7 million
  • Health Department – $1.3 million
  • Office of Juvenile Affairs – $0.7 million
  • Physician Manpower Training Commission – $0.4 million
  • J.D. McCarty Center – $0.4 million

A few points are worth making. The budget allocates 50 percent of the total Education funds from the SFSF for FY ’10, and divides them between common education and higher education proportionate to their FY ’09 appropriation. The general purpose state fiscal stabilization funds, which are considered to be up to the Governor’s discretion, were apparently left untouched, except for a $10 million appropriation to the Health Care Authority. The enhanced FMAP funds were allocated to those agencies that provide the state share for Medicaid services. The enhanced FMAP rates will be in effect for 27 months, beginning back in October 2008 and continuing through December 2010; in most cases, the Legislature authorized agencies to spend an amount of enhanced Medicaid funds in FY ’10 corresponding to half of the entire 27-month amount.

The explicit intent of providing states with billions of dollars in fiscal stabilization and enhanced Medicaid funds was to help them avoid or minimize cutbacks of vital public services, layoffs, tuition hikes, and tax increases.  By using its federal stimulus dollars to plug the shortfalls caused by failing state revenues in the FY ’10 budget, Oklahoma at least stands a fighting chance of averting the worst of those outcomes during this economic downturn.

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There is no downside to accepting the dollars. If we reject them, there is the risk that Oklahoma businesses may ultimately be asked to pick up the tab if or when unemployment funds run short.

In April, we released an issue brief that points out that Oklahoma needs to make minor changes to qualify for the funding:

1. Make the “alternative base period” (the period for which earnings are counted to determine unemployment compensation) permanent. Oklahoma adopted an alternative base period in 2002 but it is suspended when the balance of the unemployment trust fund falls. This is a fiscally sound requirement, but it also can cut unemployment benefits when they are needed most.
2. Expand the definition of “compelling family circumstances” that allow a worker to collect unemployment when leaving a job voluntarily. The new circumstances–domestic violence, transfer of a spouse,  and illness of the worker or family member–help make the UI system better fit today’s families.
3. Cover workers seeking part-time jobs if their previous work experience is part-time.

Shortly after the stimulus passed, the “UI modernization” became something of a punching bag for Republican governors. They planned on refusing the money since it would be a one-time funding boost that requires potentially costly long-term improvements to the unemployment system.  Here in Oklahoma, Representative Mike Reynolds (R-Oklahoma City) is making the same argument:

The bottom line is, it obligates us to future costs.

The financial–and human– equation is overwhelmingly in Oklahoma’s favor, however. The Oklahoma Employment Securities Commission estimates the three changes listed above would cost less than $3 million per year during economic downturns and $100,000 per year when the alternative base period would have been in place anyway. The $75.9 million in federal funds will pay for the additional costs–and benefits for Oklahoma workers–for years to come.

What happens if we fail to modernize UI? Probably a tax increase on businesses and benefit cuts for unemployed workers. Both are required when balances of the unemployment trust fund fall far and quickly enough. The fund has fallen by more than $100 million since August.

The Legislature thus faces what would seem to be a simple choice. Modernized Unemployment Insurance to help Oklahoma’s working families and fund it with federal money, or let Oklahoma businesses and unemployed workers pick up the tab with higher taxes and smaller benefits.

The World headline reads “State in dilemma over jobless funds.” The Legislature has one simple choice to make: approve UI modernization this week. Take the easy money and help unemployed Oklahomans. There’s no dilemma involved.

Update: SB 1175, which implements the changes needed to the UI program to be eligible for the additional federal money has emerged out of conference committee and last night gained final passage in the Senate on a unanimous 40-0 vote. It now awaits final action in the House.

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