OKPOLICY.ORG
Yesterday’s announcement of state revenue collections for September marked the end of a truly dismal quarter. Collections for the 1st quarter of FY ’10 were 29.5 percent below the first three months of FY ’09. The graph below shows that this continued and amplified the trend of the final two quarters of last year, when revenues dropped by 15.3 percent and 26.3 percent, respectively. The graph also shows how much more severe the current fiscal crisis is than the one earlier this decade, where the worst quarter saw revenues fall by just over 12 percent.
In addition to plunging compared to the prior year, September’s GR collections again fell far short of the certified estimate on which this year’s appropriations were based. September revenues were 29.2 percent below the estimate, falling short by a greater amount than in July (-18.1 percent) and August (-28.2 percent). For the third straight month, the Treasurer announced an immediate 5 percent across-the-board cut to agency allocations.
The shortfalls are grim news for state agencies and for those who are served by state-funded programs and services. In recent weeks we have begun to learn more about the unavoidable consequences of monthly 5 percent cuts. The Department of Human Services has announced$14.6 million in cuts, including a $7.4 million reduction for senior nutrition programs. The Office of Juvenile Affairs announced the cancellation of a $1.3 million program for troubled youth in Pryor, along with 5 percent cuts to all their contractors and up to 22 furlough days for their staff. The Department of Mental Health and Substance Abuse Services has indicated that cuts are forthcoming to youth substance abuse services and treatment for persons with severe mental illness. At a meeting we held last week, the Director of the Department of Corrections indicated that private contractors would be cut starting this month and that by February the agency, which is already staffing at 77 percent of capacity, would start imposing furloughs on prison staff.
The budget cuts that are now being implemented and proposed are likely to create real hardships for Oklahomans. Social service and health care programs are threatened at a time when many families and communities are already suffering from the downturn. Cutting rates to local contractors and furloughing public employees is harmful to the state’s economy. In many cases, cuts that will provide some short-term savings will cause greater long-term costs, as when funding is cut from community-based services that may help seniors or persons with disabilities stay out of institutions, or when prevention efforts are abandoned.
But the reality is that there are no good or easy solutions. OK Policy’s preliminary projection, which we will be fine-tuning based on yesterday’s figures, is that the GR shortfall over the entire course of FY ’10 is likely to equal the full amount that can be accessed from the Rainy Day Fund plus across-the-board cuts of 5 percent or greater. Easing the burden of budget cuts for some agencies would require cutting other agencies even more deeply, or identifying new revenues – which are extremely hard to come by in a state with such deeply-entrenched political and constitutional obstacles to raising taxes.
There are some steps we could take now, though, to smooth the rest of this year and improve our ability to deal with the rest of this recession and the one that comes next. We’d like to see our elected leaders and top managers explore:
- developing and sharing revenue forecasts for the rest of this year and the next couple years, so our elected officials can develop a comprehensive approach and so agencies, their constituents, and citizens can know what to expect;
- holding hearings so state agencies and their partners in local government and direct service agencies can use those revenue forecasts to anticipate and prepare for the impact on services and citizens;
- working toward an improved forecasting process; and
- starting to reconsider how we handle reserve funds by evaluating whether the Rainy Day Fund cap is too low and the restrictions on its use are too great, as well as whether we should get volatile revenues like taxes on oil and natural gas out of the stream of recurring revenues.
Oklahoma is, to a certain and alarming extent, stuck with the current revenue shortfall and service squeeze as long as the national economy heads downhill and gas prices stay low. We are not, though, doomed to face the bottom and recovery without better information to help guide policymakers towards the best possible decisions.
