Last week, Governor Fallin and legislative leaders announced a state budget deal for 2014 that is being considered by the Legislature as HB 2301. Here’s what you need to know.

In real dollars, appropriations remain significantly below pre-recession years

Although the nominal value of the appropriations budget is approaching the pre-recession high, this number does not reflect the actual size of our state government. Using real dollars (adjusted for inflation with the Consumer Price Index) shows that the state budget remains below every year from 2006, when Oklahoma was just coming out of a recession, to 2010, when the most recent recession hit. Next year’s appropriations will remain 8 percent below their pre-recession peak. In real dollars, 40 out of the 73 appropriated state agencies, boards, and commissions remain 20 percent or more below FY 2009 funding levels.

 Appropriations-06-14-CPIadjusted

 The fact that state appropriations remain suppressed demonstrates the lasting effect of tax cuts that were phased in from 2006 to 2012. The state’s economy has emerged from the downturn, and Oklahoma added 220,000 residents since 2006, the equivalent of finding another Norman, Lawton, and Poteau. Absent tax cuts, real revenues would be meeting and exceeding past years. (And before anyone jumps to claim that tax cuts were responsible for this growth, notice that Oklahoma’s population has increased steadily since 1990.)

The budget gives less priority to common education and corrections

Among the ten largest agencies that receive almost 90 percent of state appropriations, there were some clear winners and losers in this year’s budget agreement. The biggest loser was common education, which saw its share of appropriations drop by more than one-half of a percentage point. If common education had been budgeted the same share of appropriations for next year, schools would have received an additional $38.5 million.

10-largest-2014Another loser was the Department of Corrections. Flat funding for the Department this year amounts to a drop of almost one-quarter of a percentage point in the total state budget going to the DOC.

Faring better were the Department of Human Services and the Department of Mental Health and Substance Abuse Services. The increased support for DHS will fund court-ordered improvements to our state’s child welfare system and efforts to reduce the waiting list for Oklahomans with developmental disabilities. The mental health increase is targeted at suicide prevention, prescription drug abuse prevention and treatment, and counseling for children with mental illnesses.

Funding for the remaining largest agencies, including higher education, OHCA (Medicaid), CareerTech, Juvenile Affairs, and Public Safety, remains consistent with previous years. However, state troopers under the Department of Public Safety are among the most upset with the budget deal, because it does not allow for any increase in their pay.

The percentage of appropriations going to transportation also remained about the same, but that leaves out a $59.7 million increase in the amount going to the ROADS fund for highway and bridge repairs. Money for this fund is taken off the top of income tax collections before anything is appropriated by the Legislature.

Government consolidation does not appear to be creating savings

In 2011, Oklahoma passed a much heralded bill to save money by consolidating and streamlining state administrative functions. Three appropriated agencies (the Department of Central Services, the Office of State Finance, and the Office of Personnel Management) and two non-appropriated boards (the Employee Benefits Council and the the State and Education Employees Group Insurance Board) were consolidated under the new Office of Management and Enterprise Services (OMES). Consolidation was estimated to save $4.2 million in 2012 and $6.5 million in 2013.

However, spending on the new agency is actually set to increase. This year, Central Services, State Finance, and Personnel Management were funded a combined $40.1 million. Under the FY ‘14 budget agreement, OMES would receive $45.1 million.

[Update] OMES Director Preston Doerflinger responded:

“It must be noted that the $5 million appropriation increase to OMES for FY 14 is for upfront costs of the statewide information technology consolidation. Initially, a $100 million bond issue was sought to cover the upfront costs of the IT consolidation. Because that bond issue was not pursued, OMES has self-financed those upfront costs for the past two fiscal years. It has been paid for out of the agency’s operating expenses with cash rather than with debt, meaning that OMES has and continues to incur minimal upfront costs related to providing consolidated IT services across state government.

While it is fine to point out that OMES will receive a $5 million increase for that specific purpose, it is misleading to insinuate that HB 2140 isn’t producing savings solely because of the increased appropriation. The consolidation has met and in some cases exceeded its projected savings. If not for the savings generated by HB 2140, a larger appropriation increase for upfront IT consolidation costs would likely be necessary due to the state’s decision not to finance those costs on the front end through a bond issue.”

Overall, the latest budget deal shows that the public sector cutbacks made during the recession are sticking around in better economic times. The situation in Oklahoma matches a nationwide decline in public investment due to shrinking state and local government budgets. The ratio of government jobs to total population has fallen to a 50-year low. In the short term, these cuts are contributing to the weakness of our economic recovery. In the longer term, we may cause serious damage to economic growth due to inadequate investments in education, infrastructure, and other core public services that facilitate the private sector.