Crisis or correction? Exploring the sharp swings in state spending

The recent history of state appropriations, displayed here from our FY ’11 Budget Highlights fact sheet, shows a  series of successive ups and downs:

We see that the state appropriated budget for the current year, FY ’11, is 5.8 percent less than two years ago and slightly less than the budget in FY ’07.  With revenue collections having plummeted by more than 20 percent compared to pre-downturn levels, only the  adoption of various revenue enhancements and the injection of almost $2 billion in non-recurring revenues from the federal stimulus bill, Rainy Day Fund and other sources have averted more drastic cuts to agency budgets. Still, over half of all appropriated state agencies will have absorbed funding cuts of at least 15 percent, and across state government, shortfalls have forced agencies to eliminate programs and services, reduce hours of operation to the public, cut payments to private providers, and lay off or furlough employees (our online budget presentation runs through the full story).

Some have drawn a different conclusion from these numbers.  If you look at the period prior to the downturn, you see a substantial increase in the state budget – about $1.9 billion in growth between FY ’04 and FY ’08. Doesn’t that suggest that state government grew too big, and that the current period represents more of a healthy correction that a crisis? In addition, even with the cuts of the last two years, state appropriations remain 8 percent higher than they were in FY ’06.  If the state could operate with a $6.2 billion budget six years ago, surely it should be able to manage with a $6.7 billion budget in FY ’11?

There are several responses to this line of argument. First, while Oklahoma’s budget did see substantial increases in the mid-2000’s, this was  a period when the state economy was expanding rapidly and the budget was rebounding from the steep drop of the last recession. As a result, we see in the chart below that while the state appropriated budget as a share of state personal income rose from 5.2 percent in FY ’05 to 5.6 percent in FY ’07, it remained well below both its level in FY ’01 (6.1 percent) and its 30-year historical average (5.8 percent). We can also see that the state budget’s share of state personal income has now fallen for three consecutive years; we strongly expect it to hit an historic low in FY ’11.

Next,when we look at where the additional spending during the growth years was allocated, we find that there were few new programs enacted during those years and no wholesale expansion of state government. Of the $1.85 billion in increased funding between FY ’04 and FY ’08, almost 80 percent, or some $1.45 billion, went to just five core state agencies – Common Education, Higher Education, Medicaid (Oklahoma Health Care Authority), Human Services, and Corrections. Within these agencies, additional dollars were allocated largely to cover increased operating expenses and  growing populations and to replace the loss of federal matching funds. State leaders from both parties also supported a few targeted investments, such as teacher pay increases, statewide  full-day kindergarten, the Oklahoma’s Promise higher ed scholarship program, and rate increases for health care and social service providers.

Meanwhile, the cost to state agencies and school districts of operating programs and services continues to rise in bad fiscal times as in good. Since FY ’06, the Consumer Price Index has increased by about 11 percent, affecting the cost of such expenditures as utilities, fuel, food, supplies and equipment purchased by government. Although state employees have not received general pay raises in several years, the cost of mandatory employee retirement and health care benefits  continue to rise. The cost of state agency contributions for employee retirement plans has grown from $141 million in FY ’06 to $214 million in FY ’10, while the cost of the state employee benefit allowance has increased by $162 million since FY ’06. The state had 20,000 more students in public schools in 2009-10 than in 2005-06 and 2,500 more inmates in state correctional facilities. And the combination of ever-increasing health care costs and rising caseloads in a downturn have exerted especially acute pressures on the budget of the Medicaid program.

The question of whether state spending is too high, too low, or just right can likely never be answered to everyone’s satisfaction. But according to the most recently available data, Oklahoma’s total state and local spending was less, on a per capita basis, than all but five other states in 2007. We spend well below the national average on every major area of government, including education, health and social services, transportation and public safety. The period of robust revenue growth in the mid-2000’s allowed us to catch up and make genuine progress in some areas.  The real fear is that this current period of extended revenue shortfalls and budget cuts will seriously weaken our essential public structures and force us to fall further behind in our its goals of creating a healthier, better educated and more prosperous state.


Former Executive Director David Blatt joined OK Policy in 2008 and served as its Executive Director from 2010 to 2019. He previously served as Director of Public Policy for Community Action Project of Tulsa County and as a budget analyst for the Oklahoma State Senate. He has a Ph.D. in political science from Cornell University and a B.A. from the University of Alberta. David has been selected as Political Scientist of the Year by the Oklahoma Political Science Association, Local Social Justice Champion by the Dan Allen Center for Social Justice, and Public Citizen of the Year by the National Association of Social Workers.

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