On Monday, Governor Mary Fallin delivered her State of the State address and presented her FY 2014 Executive Budget. As we noted in our public statement, the Governor has proposed much more modest tax cuts than she did last year and has targeted a portion of growth revenues to worthwhile priorities in the areas of health and human services. Yet by promoting a cut to the tax income rate without identifying any way to pay for it, the Governor’s budget falls far short of addressing many of the state’s urgent priorities. This post looks more closely at the revenue and spending choices contained in the FY 2014 Executive Budget
The State Board of Equalization in December certified $7.046 billion as available for appropriations in FY 2014, an increase of $214 million, or 3.1 percent, from FY 2013. The Governor’s FY 2014 budget would appropriate some $98 million less than the December certified amount. The budget sets aside $40.7 million for the initial cost of the proposed reduction in the top income tax rate from 5.25 to 5.0 percent. The total appropriations impact of a 0.25 percent top rate cut is estimated by the Oklahoma Tax Commission at $106 million; however, since the new rate would take effect midway through the fiscal year on January 1, 2014, its full impact would only be seen in FY 2015. The Governor’s tax cut proposal is limited to cutting the top rate; unlike last year’s tax plan, there would be no adjustments to tax brackets or attempts to offset lost revenue by eliminating any tax preferences. The Governor’s budget also varies from the December certification by excluding $35.9 million in additional revenues the state had anticipated receiving if various federal tax cuts been allowed to expire at the end of 2013.
This year’s budget differs from those in past years by not building in additional revenues from non-certified sources. For example, the Governor’s budgets from the past two years included substantial revenue from moving car tag renewals to a two-year system, transferring balances from revolving funds, and appropriating cash reserves. Previous Governors have utilized similar revenue enhancements. By avoiding these measures, often seen as revenue gimmicks, the Governor’s budget is leaner than it otherwise might have been. In constructing the budget this session, the legislature may well chose to avail itself of various revenue streams that the Governor avoided.
On the expenditure side, the Governor proposes total FY 2014 appropriations of $6.951 billion, which would be an increase of $106.5 million, or 1.6 percent, over FY 2013 (including $18.5 million in FY 2013 supplementals). The largest funding increases would go to three health and human services agencies:
- Department of Human Services, +$50.6 million (8.6 percent) for continued implementation of the child welfare Pinnacle Plan ($40 million) and rate increases for providers of home- and community-based services for the elderly and persons with disabilities ($10.6 million);
- Oklahoma Health Care Authority, +$40 million (4.3 percent) for enrollment and utilization increases in the Medicaid program, including enrollment growth among currently eligible populations as the Affordable Care Act is implemented;
- Department of Mental Health and Substance Abuse Services, +$16 million (5.1 percent) for various programs, including mental health crisis centers, the Systems of Care program, and prevention efforts targeting prescription drug abuse and suicide.
The Governor also proposes an increase of $13.5 million for the Department of Education to support recent educational reforms. This amounts to an increase of just 0.6 percent for common education, and would leave state funding for common education $185 million below its levels of FY 2009. The Governor’s proposed increase is less than 5 percent of the $289 million requested by the Department, which was intended to restore cuts to the state aid formula and to programs and activities, as well as provide a teacher pay raise. Although the Governor allocates $8.5 million as an FY 2013 supplemental to fund the cost of teacher health benefits (compared to the department’s $37 million supplemental request), these costs are not annualized in the FY 2014 budget.
Common education is not the only critical need to fare badly. The Governor’s budget allocates no additional dollars for higher education or vocational education, even though her State of the State stressed the need to increase the number of college graduates and strengthen training in science, technology, engineering and mathematics. The Department of Corrections is seeking $60 million to address critical staffing shortages and overcapacity, but was granted an increase of only $1 million, or 0.2 percent. There is less than $1 million in additional funds for the Office of Juvenile Affairs for intensive treatment beds, even though the Secretary of Health has warned that understaffing of juvenile facilities is putting the public at risk. Across state government, most agencies would again receive flat funding with no additional dollars to cover years of rising operating expenses and employee benefit costs. Although some state employees have gone without pay raises since 2006, the Governor’s budget provides only for a study of employee compensation.
Later this month, the Board of Equalization will certify updated revenue projections, which will create binding appropriations limits for the FY 2014 budget. We hope that the legislature will firmly reject any tax cuts that are not fully offset with additional revenues and will look with an open mind to other tax reforms that would help Oklahoma make the crucial investments in education, infrastructure, health and public safety on which our prosperity depends.