Breaking down the FY 2015 budget

Yesterday the legislature passed the FY 2015 General Appropriations bill, which funds state government for the upcoming year on the basis of an agreement reached by Governor Fallin and legislative leaders.  While negotiators were clearly dealt a tough hand in constructing a budget, the results were disappointing for anyone hoping for a budget that meets the state’s critical obligations in a responsible and sustainable way.

Total legislative appropriations for FY 2015 are $7.193 billion, which is essentially unchanged from last year’s $7.197 billion budget (1). Starting with some $188 million less revenue  than was appropriated this year, the budget tapped  $254 million in one-time revenues that were transferred from a variety of accounts, including the Cash Flow Reserve Fund ($101 million), the Unclaimed Property Fund ($40 million), and more than two dozen agency revolving funds ($108.2 million).

The budget includes $80 million in additional revenue for common education, with half going to fund increased health care costs for teachers and support staff, and half going to the state aid formula. This is the largest increase in state aid funding in seven years, but still leaves state support $172 million below pre-recession levels. Once again, there is no money to boost teacher salaries, which is likely to worsen already critical teacher recruitment and retention challenges. Higher education, meanwhile, received flat funding, which leaves state support for colleges and universities $51 million below FY 2019 levels, despite rising enrollment and increased operating costs.

Several other agencies got flat funding or slight increases, but are still facing significant cuts because they need additional funding to continue operating at existing levels. The Oklahoma Health Care Authority faces an $85 – $90 million shortfall for FY 2015, which could lead to some $225 million in total cuts given the loss of federal matching dollars. OHCA is looking at limiting health care benefits, increasing patient co-payments, and slashing reimbursement rates for providers by up to 8 percent.  The Department of Mental Health and Substance Abuse Services needed some $21 million more to stay even, but received just $2.2 million, while the Department of Human Services received no money to address a loss of $8.3 million in Medicaid matching funds.

Most agencies will receive less state funding again next year, with 5.5 percent cuts being most common. Coming on top of six years of cuts and flat funding, this year’s cuts will leave many state agencies 15 to 30 percent below where they were six years ago, without considering inflation or higher caseloads. The Health Department was cut $2.3 million, or 3.4 percent, and is 19.1 percent below 2009. The Department will reduce funds for community health centers for uncompensated medical care by one-third next year.  Cumulative cuts will reach 26 percent for the Tourism Department and Arts Council, 24 percent for the Department of Libraries, and 15 percent for the Office of Juvenile Affairs.  Many Department of Corrections workers are among those in 25 agencies who  will receive long overdue pay raises, but the Corrections budget was cut by $5 million  overall, even as its facilities remain dangerously understaffed. 

Overall, the unending budget crunch is affecting Oklahoma’s prosperity by weakening our ability to educate our students and workforce, maintain our infrastructure, promote our businesses, and assist our most vulnerable populations. Our budget shortfall, occurring at a time of a booming energy sector and steady economic growth, is largely the self-inflicted result of policy choices made over many years. As Finance Secretary Preston Doerflinger stated in April:

These revenue issues are the creation of government, not the economy. Off-the-top apportionments, corporate income tax declines, tax credits and other tax and budgeting choices that in some cases date back decades are the reason this situation exists.

The shortfall gave policymakers a real opportunity to address some of these issues by closing tax loopholes and ending unnecessary tax breaks. Instead, this session, the legislature made matters worse and dug us deeper into a hole by using one-time revenues to fund ongoing operations; by passing a $267 million delayed tax cut; and by extending and expanding wasteful tax breaks. Until we stop slashing taxes and allowing wasteful tax breaks and loopholes to grow and multiply, we will continue to fall short. Oklahomans deserve better.

(1) We include in the FY 2015 totals a number of one-time and ongoing expenditures totaling $71.6 million that were counted as FY 2014 supplementals in documents provided with the budget agreement. We will discuss this issue in a future post.