The Governor’s Budget In-Depth: Budget cuts plus tax cuts don’t add up

With state agencies and schools still struggling to climb out  of deep budget holes from the last recession, Governor Mary Fallin’s FY 2015 Executive Budget proposes even deeper cuts that could seriously harm our families and our economy.

With initial estimates showing $170 million less available for the FY 2015 budget, it was clear that the Governor faced hard choices. Under her proposed budget, total FY 2015 appropriations would be $7.022 billion. This is $137 million, or 1.9 percent, less than the FY 2014 budget. Excluding $45 million in last year’s budget from the Rainy Day Fund for disaster relief following the Moore tornado, the FY 2015 budget would be $92 million, or 1.3 percent less.

FY06-FY05ExecAs can be seen from the graph, next year’s budget would fall below that of 2008 and 2009, even before adjusting for inflation. Once inflation is taken into account, this year’s budget is already $572 million, or 7.4 percent, less than 2009. The Governor’s latest proposal would cut the overall budget to more than 9 percent below 2009 funding in real dollars.

The Governor’s budget includes $126 million in additional revenue beyond the December certification by transferring cash balances from agency revolving funds ($83 million) and increasing the amount authorized from the HB 1017 Education Reform Fund ($43.2 million). At the same time, the Governor proposes lowering the top  income tax rate from 5.25 to 5.0 percent in 2015. This would reduce available revenue by $47.4 million in FY 2015 and by $118.5 million in FY 2016. As we showed last year, cutting the top income tax rate by 0.25 percentage points would provide the median Oklahoma household a $30 tax cut. More than two-fifths of all households would enjoy no benefit because they are not taxed at the top income rate.

On the spending side, the Governor proposed increases for a small number of agencies. These included:

  • $37 million more for the Department of Human Services to help meet the state’s legal obligations under the child welfare reform settlement and move some families off the developmental disabilities waiver waiting list;
  • $4 million more to the Department of Public Safety for state trooper pay raises;
  • $2 million for the Office of the Chief Medical Examiner for debt service on its new facility, and
  • $780,00 more for the Ethics Commission to upgrade its software system.

(The real big winner, as in previous years, is the Department of Transportation, which will enjoy an automatic $59.7 million increase to the ROADS Fund without any action by the Legislature).

Under the Governor’s plan, two core agencies would receive increases that fall far short of what is needed:

  • The Governor proposes a $50 million, or 2.1 percent, increase for common education intended for “local school district operations, reading sufficiency programs, charter school building funds and teacher benefit costs.” However, the State Department of Education requested an increase of $174.9 million for FY 2015. It will need $59 million more just to cover anticipated increases in teacher and staff benefit costs, and asked for an additional $26 million more for reading sufficiency, ACE remediation and other education ‘reforms’. The $50 million increase would therefore leave little or nothing to boost  state aid funding, schools’ main source of support for salaries and operations. State aid funding remains more than $200 million below FY 2008 while student enrollment is up over 30,000 students.
  • The Department of Corrections would receive a tiny $2.4 million, or 0.5 percent increase, at a time when the Department has lost over 400 corrections officers over the past six years and has the highest inmate-to-staff ratio in the nation.

Most other agencies would be slapped with a 5 percent cut in appropriations. The impact would be most severe for the Oklahoma Health Care Authority (OHCA), which oversees Medicaid. OHCA needs $144.5 million more next year to maintain its program at existing levels due to rising health care costs and declining federal support, but instead faces a cut of $47.7 million under the Governor’s budget. There are simply no ways to address large Medicaid shortfalls without eliminating critical health care benefits or slashing provider rates. Other state agencies that operate Medicaid programs, such as the Department of Mental Health and Substance Abuse Services and the Department of Human Services, need additional state funds to make up for the loss of federal support.

Across the rest of state government, budgets have never recovered from the shortfalls that followed the 2008-09 recession. Of the 73 appropriated state agencies, 40 are operating at 20 percent or more below FY 2009 funding levels, accounting for inflation. Like the Department of Corrections, agencies such as the Office of Juvenile Affairs, Department of Veterans Affairs, and Health Department are struggling with critical under-staffing problems. Agencies have already spent years cutting the fat and tightening their belts. Squeezing further is more likely to cut off their oxygen than to make them leaner and more efficient.  Oklahoma families and businesses will experience longer waiting lists for fewer services. Agencies tasked with ensuring our safety, education, and public health will depend on even more overworked and underpaid state employees, working out of poorly maintained facilities.

In this situation, the only responsible path is to put more revenue  on the table. Ending the $250 million tax break for horizontal drilling would be the most important and sensible step to take. Other options could  include tapping the Rainy Day Fund, ending the double deduction of state income taxes, expanding collections of online sales tax, tightening the Quality Jobs program, and modernizing the gas tax to pay for increased transportation funding. The state could  also ease the health care funding shortfall by accepting federal funds to expand insurance coverage, which would free up state-only dollars.

And it should go without saying: more tax cuts are exactly the wrong priority.

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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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