On Monday, Governor Mary Fallin delivered her State of the State address and FY 2016 Executive Budget. Her speech emphasized the need to address hurdles in the areas of education, health, and criminal justice that are impeding the state’s progress. However, since the December meeting of the Board of Equalization, which certified some $300 million less revenue for next year’s budget, it’s been clear that efforts to tackle these priority areas would be limited by continued lack of funding.
Here are four key takeaways from the Governor’s budget:
1. More cuts are ahead
Overall, the Governor proposes total state appropriations in FY 2016 of $7.212 billion, an increase of 0.4 percent. While the budget provides slight increases or holds harmless some 15 of the largest agencies in education, health care, human services, public safety, and transportation, most agencies – 55 in total – would absorb 6.25 percent cuts.
Most of the agencies slapped with cuts in FY 2016 were cut 5 percent this past year and have never had funding restored from the sharp downturn of 2009-2011 (see the spreadsheet of annual agency funding). Many agencies are looking at state appropriations in FY 2016 that are more than 20 percent less than before the last recession. These are agencies that serve a vital role in administering the law, enforcing economic rules, boosting the state’s economy, and promoting art and culture. For example, if 6.25 percent cuts are implemented:
- The State Bureau of Investigation would be appropriated 22.3 percent percent less than in FY 2009;
- Department of Environmental Quality: -31.3 percent;
- Department of Tourism and Recreation: -30.9 percent;
- Department of Agriculture: -29.9 percent;
- OCAST (Oklahoma Center for Advancement of Science and Technology): -29.8 percent;
- Arts Council: -31.1 percent;
- Historical Society: -24.8 percent;
- Office of Disability Concerns: -31.9 percent
These decreases do not take into account the effect of inflation on operating costs, or of increases in population, enrollment, and caseloads. Years of budget cuts have already severely eroded the ability of many state agencies to perform their core functions, forcing them to reduce services and eliminate programs, and to hike fees, fines, and user charges to fund the services that are left.
2. Funding increases fall short
The Governor’s budget provides modest funding increases to five agencies: Department of Education (+$25 million); Oklahoma Health Care Authority (+$20 million), Department of Corrections (+15 million); Department of Human Services (+$16 million); and the Department of Mental Health and Substance Abuse Services (+$5 million). In all these cases, the proposed increases fall far short of what the agencies need to cover increased costs and to address urgent priorities.
In the case of common education, for example, a $25 million increase would mostly go to the increased cost of health benefits for teachers and support staff ($15.5 million); the remaining $10 million would come nowhere close to funding growing student enrollment, much less provide a pay raise for teachers, who have gone seven years without one. The $15 million in additional dollars for the Department of Corrections is a fraction of the $85 million requested by the agency, of which $26.2 million is targeted for the growing inmate population in contracted facilities, and $14.6 million for salary increases to address critical retention and recruitment issues.
3. Continued reliance on one-time funds
To make the budget balance, the Governor proposes $300 million in transfers from unspecified agency revolving funds. She states:
Every year, state agencies maintain large cash balances in various agency revolving funds and other accounts. Even after the use of $292.7 million in cash from those revolving funds and other sources in the FY-2015 appropriated budget agreement, state agencies presently have more than $900 million in unencumbered dollars in revolving funds.
It’s not clear that agency revolving funds are a sound or feasible approach to raising revenue to fund the state budget. In the first place, most revolving funds consist of moneys raised from fees, taxes, and charges for a specified statutory purpose. Last year, two Attorney General’s opinions struck down efforts by the Legislature to transfer funds from the Oklahoma Higher Access Learning Program Trust Fund and the Trauma Care Revolving Fund. The latter ruling found that the Legislature had run afoul of constitutional language that “no tax levied and collected for one purpose shall ever be devoted to another purpose.” Other transfers last year – including $3 million from Oklahoma Aerospace Commission – may also have been legally suspect.
Even if raiding revolving funds is legally permitted, it’s an unsustainable practice for balancing the budget. As we confront the persistent and growing fiscal gap, we need serious tax reform that will produce the revenue needed to fund basic public services.
4. It will likely get worse
The Board of Equalization will meet later this month to certify a revised and binding fiscal estimate for FY 2016. The initial revenue estimates were based on economic projections for next year – including an average oil price of $59.97 per barrel and natural gas price of $3.96 per MCF – that now seem overly optimistic. The revised recertification is expected to be lower by at least $25 million. Finance Secretary Preston Doerflinger has acknowledged that an emergency declaration that would make available for appropriation up to one-quarter of the Rainy Day Fund, currently at $535 million, will likely be on the table.
The Governor has identified reforming unsustainable budget trends as a top priority, and proposes several measures, including more performance-based budgeting, greater scrutiny of tax credits, and a biannual session devoted solely to the budget, that are worth considering. But none of these reforms will offer immediate relief from years of bad budget practices and tax policies that have dug us into our current deep hole.