by David Blatt; published January 13, 2009

Oklahoma is in the midst of its worst fiscal crisis since the oil bust of the 1980s. Revenue collections are coming in 28 percent below a year ago and the state is projecting budget shortfalls of at least a billion dollars this year and next. Even with federal stimulus dollars and the eventual use of the state's reserve funds, budget shortfalls are already resulting in deep and painful cuts to core programs serving senior citizens, people with mental health disorders, victims of domestic violence, troubled teens and others that are likely to lead to greater costs over time.

Even if the economy starts to rebound quickly, the budget squeeze will continue, as revenues are unlikely to recover to pre-downturn levels until at least 2013.

While short-term challenges are rightly receiving the highest priority, it is not too soon to draw lessons from what has transpired during the downturn to help us manage the full length of the fiscal crisis and respond better the next time the economy falters. Here are four suggestions for what we can do.

First, the fact that Oklahoma's revenues have fallen so far below projections speaks to the need for improved budget forecasting. An official forecasting body that includes the Office of State Finance, Tax Commission, legislative staff, and academic and private economists could lead to a technically improved, more transparent process. In addition to annual forecasts, this body could be charged with creating long-term forecasts that would help align spending commitments with projected revenues.

Secondly, we need to reconsider our system of tax expenditures - the hundreds of exemptions, deductions and other forms of preferential treatment embedded in the tax code. Because they are not subject to legislative appropriation, tax breaks have been left largely untouched and unscrutinized while direct budgetary expenditures are being slashed. Policymakers should consider capping the amount of some tax breaks and suspending some in years when revenues have declined.

Third, the severity of this budget crisis has been exacerbated by the fact that tax cuts and statutory spending increases adopted several years ago during much different economic times continue to kick in. The Legislature should make any future phased-in tax cuts and earmarked revenue allocations contingent on sufficient revenue growth and a return to pre-downturn budget levels. In addition, it could adopt pay-go provisions that would require new tax cuts and spending commitments to be budget neutral.

Finally, as several policymakers have already suggested, the state should increase the cap on the Rainy Day Fund and create a reserve fund specific to Gross Production Taxes, our most volatile and unpredictable revenue source.

We believe these are all sensible, fiscally responsible proposals that should appeal to legislators from both parties struggling to deal with what is certain to be a long, deep and painful fiscal crisis. We are hopeful that some of these proposals will be considered during the upcoming legislative session.

Blatt is director of policy for Oklahoma Policy Institute, a state policy think tank (http://okpolicy.org).

The Legislature should make any future phased-in tax cuts and earmarked revenue allocations contingent on sufficient revenue growth and a return to pre-downturn budget levels.

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