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A year without tax cuts–almost

by | May 28th, 2009 | Posted in Blog, Taxes | Comments (0)

In the first year that Republicans fully control the Legislature, who would expect we’d have so little to report from the tax cut beat? The economy and a $600-plus million revenue shortfall, of course, were major factors in tax decisions. Legislators did not want to cut taxes and have to make the corresponding budget cuts in the same session.

We’re pleased our elected officials understood that state services are in a precarious position, even with our current revenue structure. We’re  even happier that they largely avoided the “easy” alternatives of making reductions that took place in later years or only affected local governments. Proposals to cut the income tax from 5.5 percent to 5.25 percent next year–regardless of the revenue picture–and to put more limits on the growth of property taxes, were both left on the shelf. So were elimination of the sales tax on groceries, reducing the 50-cent monthly 911 tax, and any number of sales and income tax exemptions.

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We're not like California–are we?

by | May 27th, 2009 | Posted in Blog, Budget | Comments (1) is an indispensable–and free–source of news and analysis on just about every aspect of state government. Last week, staff author Pamela M. Prah provided an excellent analysis on the state of California’s budget crisis and–more importantly for us–what other states can learn from it.

California has always been a trendsetter. What happens in California often pops up elsewhere. Which raises this question: Are the perpetual billion-dollar deficits that haunt California state government unique to the Golden State or the harbinger of what other states can expect?

Here’s a quick rundown of what’s gotten California in trouble–a budget deficit left wide open by voters’ rejection of several tax and budget measures yesterday– and our take on how Oklahoma compares:

  1. California depends too much on a small group–wealthy taxpayers–for its revenue. In California, a higher tax rate for very high income families and businesses and a capital gains tax are great when the economy is strong, but revenue from the rich plummets when the economy turns down. Oklahoma doesn’t have this problem. If anything, we go too far in the other direction. We depend too much on lower-income taxpayers since our income tax applies at very low income levels.
  2. California’s budget has been gridlocked lately due to divided government. Republican Governor Arnold Schwarzenneger and a legislature dominated by liberal democrats disagree fundamentally on what government should be doing. The result is nasty partisan battles, short-term fixes, and a growing gap between revenues and promised spending. Oklahoma has divided government, too, though the parties are reversed. This year’s budget agreement–which took weeks to negotiate, helped some interests while cutting many core services, and ignored long-term problems and opportunities–shows we have a little California in us, too.
  3. California is one of 16 states that requires a super-majority vote to increase taxes. So is Oklahoma, thanks to State Question 640. According to Prah, this requirement makes it harder to modernize the tax code to keep up with the changing economy and growing public expectations.

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State Coverage Initiative: Will consensus be enough?

by | May 26th, 2009 | Posted in Blog, Healthcare | Comments (3)

Last week,  I attended a meeting of the State Coverage Initiative (SCI), an effort that has taken shape over the past two years under the leadership of Insurance Commissioner Kim Holland to develop a plan to extend health insurance coverage to a sizable segment of the 640,000 Oklahomans who are currently uninsured. The meeting reached a consensus on adoption of the SCI strategic plan, which lays out a blueprint for expanding coverage.

The cornerstone of the plan would be a gradual expansion of Insure Oklahoma, the public-private partnership which provides subsidized employer-based coverage for working adults, along with a public product for eligible adults without access to employer coverage. The program, which is funded by a portion of tobacco tax revenues approved by voters in 2004,  has now grown to cover just under 20,000 Oklahomans, which is about half of the capacity under existing revenues. The principal SCI recommendation is to generate new revenues by assessing a dedicated fee on all health insurance claims paid by health insurers in Oklahoma. It is estimated than an initial 1 percent fee would generate $78 million that, along with matching federal funds, could insure an additional 80,000 Oklahomans.  If and when 75 percent of the target population is reached, the assessment would increase.

The main argument advanced by the SCI leadership in favor of the new health care assessment is the need to confront the enormous cost-shifting that currently takes place in paying for health care for the uninsured. As Commissioner Holland stated in a recent op-ed:

One billion dollars each and every year. That’s how much it costs to provide health care to the citizens of Oklahoma who do not or cannot pay for the care they need and receive. That’s $1 billion that is added to the medical bills and insurance premiums of those who do pay. Imagine what would happen if this $1 billion hidden tax were eliminated — health care costs would be reduced, and health insurance premiums would be reduced.

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A quick look at the new state budget

by | May 26th, 2009 | Posted in Blog, Budget | Comments (2)

Though the dust hasn’t yet settled at the Capitol, Oklahoma’s Legislature has nearly finished a budget for FY’10, which starts July 1. The final budget totals $7.231 billion. Legislators used $641 million from the federal stimulus bill to make up for a state revenue decline of more than $600 million. The resulting spending total is 1.5 percent higher than last year’s, counting the stimulus. Without the stimulus, state spending is down 7.1 percent.

OK Policy will shortly be releasing a full-fledged issue brief that will look in detail at the numbers and what they could mean in FY’10 and beyond. Meanwhile, we have put together a four-page fact sheet that shows how this year’s budget fits into historical perspective, where the money comes from, and how it is allocated among state agencies.(With the Senate’s abrupt adjournment on Friday, some appropriation bills await final passage. The numbers in the fact sheet are based on appropriation bills that have passed both chambers or been voted out of conference committee.)

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Human services–forward into the unknown

by | May 22nd, 2009 | Posted in Blog, Budget | Comments (0)

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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Stimulus Funds – There but for the Grace of Congress…

by | May 21st, 2009 | Posted in Blog, Budget | Comments (0)

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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Out of step

by | May 21st, 2009 | Posted in Blog, Budget | Comments (0)

A new report by our friends at the Center on Budget and Policy Priorities shows that the approach Oklahoma policymakers are taking to the current fiscal crisis – implementing budget cuts without drawing down reserves or looking at raising revenues – is increasingly out of step with the nation as a whole:

The current recession has taken a heavy toll on states’ ability to meet public needs. The combination of declining revenues and increasing demand for services has created budget shortfalls in 47 states.

To begin closing the gaps between the cost of programs and the amount of money available to pay for them, so far at least 34 states have cut services to families and individuals, including services that benefit vulnerable families. But these cuts have not solved state budget problems, because the sheer size of state budget shortfalls is so great – estimated to exceed $350 billion over the next two and a half years. Were states to rely on spending cuts alone to close their gaps, it would require unprecedented reductions in such essential public services as health care, education, and assistance for the elderly and disabled.

Instead of a cuts-only approach, states increasingly are employing a combination of budget solutions that also involves drawing down reserve funds, maximizing the use of federal dollars, and raising taxes. A number of prominent economists have pointed out that budget cuts are more harmful to state economies during a recession than properly structured tax increases, so it is good policy to use tax increases to fill a substantial portion of deficits that exceed the amount that can be closed with reserves or federal funds.

So far, in 2009, 16 states have raised new revenue through tax measures. Another 17 are giving serious consideration to doing so. These actions are in addition to revenue actions taken by 10 states in late 2007 and 2008 as the recession’s effects began to be felt. Although some of these measures are relatively small in terms of the amount of revenue raised, others — such as packages enacted in California and New York and under consideration in Illinois — are very significant.

The paper also shows that states that enacted significant tax increases over the course of the last state fiscal crisis (2002-04) saw growth rates in personal income, employment and the median wage from 2004-07 that were virtually indistinguishable from the national average.

In Oklahoma, the constitutional constraints of SQ 640 and political realities have effectively kept tax increases off the table as revenues have collapsed in recent months. However, the unwillingness even to tap into our Rainy Day Fund has left Oklahoma with few tools other than budget cuts at our disposal to manage the fiscal crisis.

You can find full coverage of the state fiscal crisis from the Center’s state budget and tax website.


by | May 20th, 2009 | Posted in Blog, Economy | Comments (0)


The May edition of Numbers You Need, our monthly update of key Oklahoma economic and budget trends,  includes some recent data on bankruptcy filings in Oklahoma that provides another indicator of the spread of economic hardship in the state. For the fourth quarter of 2008, a total of 2,956 bankruptcies were filed in Oklahoma. This was an increase of 34.2 percent over the same quarter in 2007. For the year, there were 11,214 bankruptcy filings in Oklahoma, a 23.0 percent increase from 2007, which saw 9,122 filings. Nationally, bankruptcy filings rose at a higher rate than in Oklahoma – 31.4 percent in 2008 compared to 2007 – likely reflecting the recession hitting Oklahoma later. National rankings for 2008 are not yet available, but in 2007, Oklahoma ranked 22nd highest among the states, with a bankruptcy rate of 2.44 per 1,000 population.

The data also allow us to separate out business and non-business filings and chapters of the bankruptcy code.  Personal bankruptcies accounted for 95.9 percent of the filings in Oklahoma in 2008, which was a share very similar to the national average of 96.3 percent. Four out of every five filings (79.7 percent) in Oklahoma were filed under Chapter 7, under which a debtor liquidates non-exempt property in exchange for being discharged of some of their debt. One in five (19.8 percent) bankruptcies were filed under Chapter 13, under which debtors are allowed to retain ownership and possession of their assets, but must devote some portion of their future income to repaying creditors, generally over a period of three to five year.  A tiny number of bankruptcies – just 0.5 percent – were filed under Chapters 11 or 12 of the bankruptcy code.

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It's raining and we're starting to leak

by | May 19th, 2009 | Posted in Blog, Budget | Comments (0)

The initial reports on the agreement for the Fy ’10 budget reached on Friday between legislative leaders and the Governor were positive due to the availability of over $600 million in federal stimulus dollars, key education, health care, and public safety agencies received flat funding or increases to cover mandatory costs without recourse to the Rainy Day Fund or tax increases. While most agencies were hit with budget cuts of 7 percent, news articles and editorials expressed confidence that agencies would be able to absorb these funding reductions without having to implement layoffs or furloughs.

Quickly enough, the picture has begun to darken. Today brings the first reports of agencies considering furloughs, with the Department of Public Safety, which is facing a budget cut of $6.3 million, announcing it is looking at imposing a six day furlough for its staff of 800 state troopers in an effort to save $1.8 million. The Department would also eliminate its annual trooper academy and leave vacancies unfilled.
According to DPS Commissioner Kevin Ward:

“Our concern is with the smaller academy this year not filling all the slots that are going to come open through attrition and no academy next year, we’re kind of getting into a decline in personnel out there,” he said.

“As people quit, like driver’s license examiners, we’re not going to be able to replace them and so some of our areas in which lines are long now, they could get longer.”

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Easy money

by | May 19th, 2009 | Posted in Blog, Capitol Matters | Comments (0)

Sunday’s Tulsa World reports that one of many important decisions left to the last week of the legislative session is whether to modernize Oklahoma’s unemployment insurance (UI) system to qualify for $75 million in additional federal stimulus money. According to Governor Brad Henry’s spokesman Paul Sund,

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.

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