They did what?? Funding grabs create shortfalls for many agencies

Faced with a nearly $200 million shortfall in building the FY 2015 budget, legislative leaders and Governor Fallin had three basic choices.

They could have simply cut spending, slashing deeply across all areas of government. This would have left unaddressed critical needs for schools, state employees, the child welfare system, and others, and forced massive cuts on our health care system.

They could have filled the budget hole by curbing tax breaks and closing tax loopholes. This would have strengthened our faltering tax system over the long term but would have antagonized powerful beneficiaries of tax preferences and anti-tax hardliners.

Instead of either of these tough options, they went for the seemingly easier one of balancing the budget by scrounging together whatever money they could find in state funds, even if they were only one-time revenues and even if the money was collected for other purposes than supporting general state operations.

The $7.193 billion total budget included $292 million in one-time revenue, of which $191 million was transferred from nearly 30 different agency revolving funds and other state funds (the remainder came from cash reserves). These one-time dollars allowed for additional funding for certain budget priorities, mitigated the severity of cuts for many agencies, and led to next year’s overall budget remaining at almost the same level as this year. But digging into agency funds raises some serious concerns.

Last week, OK Policy broke the story of how the General Appropriations bill includes $7.9 million that was intended for the Oklahoma Promise scholarship program, also known as OHLAP (Oklahoma Higher Learning Access Program). Not only does this maneuver risk breaking a promise to provide scholarships to all eligible Oklahoma students next year, it may also have violated state law. These concerns led Governor Fallin to postpone the scheduled meeting of the board tasked with allocating these funds until a solution can be found.

We have now spoken with directors and top staff at several other agencies that had their revolving funds tapped for millions of dollars to help balance the FY 2015 budget. In almost all cases, these actions appear to have created significant concerns for the agencies whose funds were tapped:

• The Oklahoma State Department of Health (OSDH) had $5 million taken from the Trauma Care Assistance Fund. To mitigate the impact on trauma care providers, OSDH is looking to reduce funding to six federally-qualified health centers, the major community-based providers of care for the uninsured in Oklahoma, by up to $1.381 million in FY 2015. This would be a 40 percent reduction from their FY 2014 funding at a time when some of these providers are already facing critical funding shortfalls. They may also reduce support for the cord blood bank by $500,000. While this will still leave a $3 million shortfall in payments to trauma care providers in FY 2015, the agency is seeking ways to limit the size and severity of cuts. The Health Department must also absorb a $2.28 million, or 3.6 percent, appropriations cut.
• The Oklahoma Center for Advancement of Science and Technology (OCAST) had $4 million taken out of two revolving funds on top of a $1 million (5.5 percent) cut in appropriations.  The two revolving funds, which are funded through the agency’s appropriated dollars, help universities, foundations, and businesses fund high-tech research that will benefit Oklahoma’s economy. The funding grabs will mean fewer contracts can be awarded in FY 2015. The director of i2E, Scott Meacham, states that, “As a result of this loss of seed funding, four to eight new companies will not get started in Oklahoma and new innovations that could have been funded by OARS [Oklahoma Applied Research Support] won’t be.”
• The Oklahoma Aeronautics Commission had $3 million taken from its revolving fund.  The loss of funding will affect the agency’s Capital Improvement Program that specifies the capital projects to be done at public airports across the state for three years. The Aeronautics Commission, a non-appropriated agency, is funded entirely from excise taxes assessed on the purchase of new and used aircrafts and aircraft registration and license fees. Because aircraft sales are dependent on the state’s economic health, the agency tries to keep at least one year’s operating funds in reserve, but this transfer leaves the fund below that threshold.
• The Oklahoma Department of Transportation (ODOT) had $17.5 million taken from the Weigh Station Improvement Revolving Fund. The loss of this funding will affect scheduled capital improvements for weigh stations on Oklahoma’s highways.

Although there may be instances where revolving funds have grown to untenable levels, we learned that in almost all cases, agencies were not consulted in these decisions or provided an opportunity to meet with budget-makers to account for their revolving fund balances or explain the consequences if funds were transferred out. Like the Regents for Higher Education on the OHLAP funds, many agencies only seem to have learned that their funds were up for grabs after the General Appropriations bill was passed.

The lawmakers behind this year’s budget deal seem to have put most of their energy into avoiding hard choices. They showed no political courage to fix a faltering tax system. They also refuse to honestly lay out the funding cuts that not fixing the tax system will require. The result is economic disruption and uncertainty that will do serious damage to our state’s prosperity.