Balancing the state budget: Can we avoid a catastrophe?

The Oklahoman’s Michael McNutt covered the remarks I made last week at a panel on the state budget crisis at the University of Central Oklahoma’s Southwest Business Symposium. My conclusions were rather stark:

“We’ve been able to avoid the apocalypse up until now,” David Blatt, director of the Oklahoma Policy Institute, a state policy think tank, said. “If we’re going to avoid a sort of catastrophe, we need additional revenue to close that gap,” Blatt said…

The magnitude of the budget crisis that is being faced for the upcoming budget year is only beginning to be grasped. In short:  the Board of Equalization has certified just over $5.415 billion in available state dollars for FY ’11. That is $1.55 billion less than this year’s revised budget after the mid-year cuts that were made to bring the budget into balance. Assuming the state uses an additional 3/8ths of the Rainy Day Fund and the remaining available federal stimulus dollars, that still leaves a gap approaching $800 – $850 million, according to our calculations. This gap is equivalent to 12 percent deeper cuts across all agencies of state government above the cuts already enacted the past two years. The actual  gap may be somewhat lower, if the full balance of the Rainy Day Fund is used and if additional federal Medicaid matching dollars materialize as hoped, but the prospect of deep cuts next year looms large. This outlook has been confirmed in recent pronouncements by Senate Pro Tem Glenn Cofee and other legislative leaders.

At the UCO budget forum, House Appropriations Chair Ken Miller spoke with heartfelt emotion about a recent visit to his office  from a victim of domestic violence who shared her fears about the impact that budget cuts are having on services for this highly vulnerable population. But while budget cuts that have already been implemented are having a far-reaching impact on services and programs, the injection of vast amounts of available non-recurring revenues into this year’s budget have greatly mitigated the extent to which key education, health care, social service and public safety agencies have been forced to absorb funding reductions. While some agencies have absorbed cuts of 10 – 15 percent, others have been cut much less than that. Overall, this year’s final budget is 2.2. percent below last year’s. This is why the prospects of cutting an additional 12 percent, or even 10 percent or 5 percent, on top of this year’s cuts are so alarming.

However, the point I made at the forum, and one that we can expect others to start making more vocally, is that closing the budget gap through an exclusive reliance on deeper cuts is a choice, not an inevitability. Due to State Question 640 and the state’s political climate, outright tax increases may well be off the table. However, there are other revenue options out there.  The Governor’s budget proposed over $700 million in revenue enhancements ranging from stepped-up tax collections and the elimination and suspension of tax credits to bond issues, revolving fund transfers, and fee increases. These proposed revenues served to limit additional budget cuts to an additional 2.5 percent, on average, above this year’s. His proposals are not the only, or necessarily in all cases the most feasible or plausible, options. But given the consequences that would follow from an exclusive reliance on cuts, they deserve a fair and full discussion.

Over the coming days, we will be running a series of blog posts that will explore in more detail several of the most promising policy options for bridging a portion of the huge looming budget shortfall. We believe there is still time to avoid the catastrophe I alluded to in Edmond. But time is running out.