An initial look at Governor Fallin's FY12 Executive Budget

On Monday, Governor Mary Fallin introduced her FY ’12 Executive Budget (click here for the full budget or here for appropriations total by agency).  Although state revenues have begun to rebound from the recession, the recovery is projected to remain slow and incomplete during the year ahead.  In December, the Board of Equalization certified available revenues of just over $6.1 billion for next year’s budget, which is some $600 million less than what was appropriated in the current budget year. Legislators used some $1.2 billion in non-recurring money from the federal stimulus bill, the state’s Rainy Day Fund, and assorted one-time measures to bring this year’s budget into balance.

In presenting her budget, Governor Fallin tried to strike a balance between a pair of principles and priorities. On the one hand, she insisted that the the budget would be balanced almost entirely through spending cuts and not revenue increases:

Our first priority will be to balance our state budget without raising taxes, which we can do by carefully prioritizing our spending and enacting government reform.

I have proposed a series of cost-saving measures that will make government more efficient and effective while focusing on eliminating wasteful spending.

Those cost-saving measures are essential, because the bottom line is we can’t spend what we don’t have.

On the other hand, the Governor stressed the importance of enacting less severe cuts to core public functions, “like keeping our citizens safe, building our transportation infrastructure, educating our children, and caring for the less fortunate, the sick and the elderly.”

In total, the Governor’s budget would appropriate $6.325 billion to all agencies in FY ’12. This represents a reduction of $389 million, or 5.8 percent, from FY ’11, and $800 million, or 11.2 percent, from FY ’09. The proposed FY ’12 appropriation would remain substantially below the levels of FY ’07, despite five years of increasing population and caseloads, inflation, and higher mandatory expenses for employee health care and retirement benefits.

The Governor adopted three main approaches to address the roughly $600 million shortfall: agency cuts, savings and efficiencies, and revenue enhancements.

• Overall, agency cuts totaled $201.4 million. Most agencies were cut 5 percent from their FY ’11 base (see this summary for details). However, “core agencies” in the domains of education, health and human services, public safety and the judiciary were cut 3 percent or less, while a number of agencies that the Governor proposed be consolidated or self-funded were cut more.
• The Governor’s budget included $273.2 million from an array of expected efficiencies and savings across all agencies of state government that together were labeled “government modernization”. Of this total, more than two-thirds ($192 million) is attributed to reduced IT spending during the current and upcoming years, while an additional $70 million in expected from reduced payroll expenses through a “hard” hiring freeze and a reduction in budgeted vacancy rates. Smaller savings are expected from purchasing and accounting reforms;
• Finally, the budget makes available some $320 million in additional revenue beyond those certified in December. The bulk of this revenue consists of $102 million in remaining federal stimulus funding; $100 million from the State Transportation Fund that would be freed up by additional bonding; and $104 million generated by moving to a two-year motor vehicle registration system for non-commercial vehicles. While the Governor proposes a few changes in how and when some taxes are collected, her budget includes no new revenue streams.  She also supports allowing the top income tax rate to drop from 5.5 percent to 5.25 percent next January.

Many agency officials and advocates expressed relief that the cuts in the Governor’s budget were less than feared. But two notes of caution are in order. First, it is uncertain whether Governor Fallin’s key revenue-generating ideas will gain legislative approval or whether the anticipated savings from “government modernization” will fully materialize.  Without these measures, cuts would have to be even deeper than those the Governor recommends. (On the other hand, the budget does leave $100 million unspent, which can be used to plug holes. In addition, if the revised certification to be presented later this month to the Board of Equalization projects stronger revenue collections over the next 17 months than December’s initial estimates, the budget gap will not be as sizable).

Secondly, even with these optimistic assumptions about savings and new revenues, the impact of the cuts in the Governor’s budget remain extremely worrisome.   With a few exceptions, most agencies are facing FY ’12 funding that is 15 to 25 percent below their budgets for FY ’09. The ability of these agencies to fulfill their basic functions – whether that is protecting the public health from disaster and disease, dispensing justice in a timely fashion, or conducting inspections and issuing licenses – has already been critically corroded by successive rounds of cuts.  Even those core agencies that are partially protected will see their funding reduced in FY ’12, despite, rising operating costs and caseloads, which means the ongoing potential for serious damage to public programs.

In a briefing held after the Governor’s State of the State address, Secretary of State Glenn Coffee stressed that the Governor’s proposals are intended to open the conversation on next year’s budget, not be the final word. All of us who depend on state services – on the school teachers, safety inspectors, child welfare specialists, nursing home attendants, and corrections officers who protect our safety and well-being and make us a stronger state – will need to actively follow and participate in this conversation in the months ahead.