From the frying pan to the fire: As FY 10 budget battle re-erupts, the real hard work waits

Just when it looked as if the the extended negotiations over how to address FY ’10 budget shortfalls were finally resolved, a new wrinkle emerged this week.  As a means to protest the continued failure to find supplemental funds for senior nutrition programs in the Department of Human Service, Senate Democrats refused to approve the emergency clause on a bill to transfer $30 million to the Special Cash Fund . Without an emergency clause, the transfer cannot take effect until July 1st, which threatens a whole series of agreements between the House, Senate and Governor intended to put this year’s budget to rest. (Update: an agreement was announced Wednesday afternoon on funding for senior nutrition programs allowing the emergency clauses for the funding bills to be passed).

This latest dispute is likely to further defer lawmakers’ attention from focusing on the challenges in constructing the budget for the year ahead. With less than three months until the Legislature’s scheduled adjournment, this is worrisome. For if this year’s budget situation has been bad, next year’s quite frankly, looks  catastrophic.

Let’s start by reviewing what had been decided for this year. The leadership agreement announced in mid-February called for 3/8ths of the Rainy Day Fund, or $223.7 million, to be used in FY ’10. Money from the RDF is targeted to the Department of Common Education ($193.7 million in HB 2352) and the Oklahoma Health Care Authority ($30 million in HB 2353).  Leadership has also decided to dig deeper into federal stimulus funds for FY ’10. Common Education is now set to receive an additional $37.1 million from the State Fiscal Stabilization Fund, while an additional $144.6 million of enhanced Medicaid matching funds, or FMAP, made available by the stimulus will go to the Health Care Authority and Department of Human Services (all but $3 million of this amount is to offset a loss in General Revenue, rather than being additional funds). Other additional revenues made available for Fy ’10 include $38.3 million in gross production taxes,  $30 from the Unclaimed Property Fund (in the disputed bill), and $15.7 million being transferred from the State Transportation Fund.

As can be seen from the Table, the Legislature has now used over $800 million in stimulus funds in the FY ’10 budget. When the Rainy Day Fund is added in, the amount of non-ongoing revenue being used this year exceeds $1 billion. According to my figures, these non-ongoing revenues will account for some 15  percent of this year’s total state appropriations, which look to be some $6.965 million.

How big of a hole does this leave for next year? The Board of Equalization has certified $5.415 billion in available revenue for FY ’11. Using the revised FY ’10 appropriations as the starting point, there is a $1.55 billion revenue gap.

Available non-recurring revenue will close this gap some, but far from entirely. There has already been agreement to use an additional 3/8ths, or $223.7 million, of the Rainy Day Fund in FY ’11 (This would leave the fund with just under $150 million that is available upon declaration of an emergency). The State Fiscal Stabilization Fund, which can only fund Common Education and Higher Education, has a remaining balance of $199 million.  The amount of enhanced FMAP still available is less certain, because it involves multiple agencies and depends on actual expenditures. But the allocation of the additional $145 million in stimulus funds to the FY ’10 Health Care Authority and DHS budgets significantly worsens the FY ’11 outlook.  At this point, however, there is likely well under $300 million of remaining enhanced FMAP funds available.  (That number could, however, rise if the enhanced FMAP rate is extended for an additional two quarters as part of the jobs bill currently being considered by Congress).  Along with the remaining State Fiscal Stabilization Funds, we can expect to have under $450 million in stimulus funds for FY ’11, or $350 million less than in FY ’10.

The bottom line is that even after Rainy Day Funds and stimulus, there looks to be some $850 million less available revenue next year than this year. That’s equal to 12 percent of total state funding for this year applied across all government agencies. We can’t forget that many state agencies have already absorbed 5 – 7 percent cuts going into FY ’10 and up to 7.5 percent mid-year cuts, forcing furloughs, lay-offs and closures. We can’t forget that even agencies that have been partially protected by stimulus funds and supplementals have already been forced to reduce payments to health care providers and cut back services to seniors, children with mental illness, and other vulnerable populations.

The Governor in his FY ’11 Executive budget offered a series of revenue-enhancing proposals that together were estimated to generate over $700 million, including expanded tax collections of remote sales,  additional bonding, and suspension and elimination of tax breaks. Not all the Governor’s ideas are likely to fly. But if and when the final remaining FY ’10 issues are resolved, it will be urgent to start concentrating really seriously about what revenue options and cost-cutting measures should be on the table for next year to avoid a budgetary apocalypse.

ABOUT THE AUTHOR

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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