FY '10 Budget: Not a done deal?

Just before the start of the Legislative session, Governor Henry announced that he had reached an agreement with Speaker Benge and President Pro Tem Coffee on the FY ’10 budget.  Faced with projected mid-year revenue shortfalls of slightly more than $800 million, the leaders agreed that agency appropriations from the General Revenue Fund would continue to be cut by 10 percent for the remaining months of the year, with supplemental funding made available to certain agencies (Common Ed, Higher Ed, Health Care Authority, Corrections and Rehab Services) to mitigate the extent of cuts.

However, as we noted at the time, the announcement left a key question unanswered:

Given projected shortfalls of $809 million and cuts of $295.5 million, the question that still needs to be sorted out is where exactly the $513.5 million in additional revenue needed to bring the FY ‘10 budget into balance will come from.

Speaker Benge was quoted at the time as saying that the agreement would leave over half the $597 million in the state Rainy Day Fund unspent in FY ’10. However, when the Governor’s budget was released last week, it included $485.6 million from the Rainy Day Fund – or over 80 percent of the total balance – to make up for shortfalls in the FY ’10 budget. The remainder of the FY ’10 shortfall (which is likely closer to $545 million in total) would be filled with surplus oil revenues and transfers from agency balances.

When asked about this, Speaker Benge downplayed the discrepancy:

“I don’t think it’s an agreement breaker,” Benge said. “We can continue forward. We will use (federal) stimulus money for the balance. I think it will work out just fine.”

To my mind, what this uncertainty reveals is that this year’s budget cannot be fully resolved until there is a deal on next year’s budget.  The budget negotiators are looking at a total pool of potentially available funds – including state tax revenues, federal stimulus dollars, reserve funds, and possible new revenues from other sources – that need to be stretched to cover the remaining months of FY ’10 and all of FY ’11.  Revenue decisions will also be closely linked to decisions about how deeply to cut agency budgets in FY ’11. Until  the whole picture is drawn at least in outline, it doesn’t seem like there can be agreement on the size of each of the parts or how they fit together.

Yup, it’s for sure going to be a bumpy ride.