Growing disconnect between budget politics and reality

Last week we reported that next year’s revenues are expected to be 7 percent below their levels of six years ago (FY ’07), even though costs are higher due to inflation, population growth, and increased caseloads

Elsewhere, people seem to have read a different budget estimate than the one we saw. Two elements of the discussion show a growing disconnect between Oklahoma’s budgetary politics and reality.

First, Governor Mary Fallin and many others continue to advocate for reduction or elimination of the state income tax. A closer look at the budget shows that, of the $400 million forecast revenue growth from FY ’11 to FY ’13, fully  half comes from the income tax. Overall, the income tax is expected to provide $2.5 billion next year for General Revenue, the HB 1017 Education Reform Fund, and the ROADS Fund, which has helped restore the worst of our roads and bridges. Cutting this vital revenue support makes no budget sense. It also makes no economic sense.

Second, the budget “shortfall” was reported as $150 million, the rough difference between revenue growth and loss of one-time budget boosters in the FY ’12 budget. But the shortfall in meeting our public needs is much greater. To determine this, we would have to start with the $600 million difference between the budget for FY ’09, when the recession began, and the estimate for FY ’13. A more realistic calculation would also add at least $100 million for the increase in the cost of providing services over the last four years. So the true budget shortfall is closer to $700 million, not $150 million.  Our recent forecast indicates we won’t reach this level until FY ’15, if we keep the current revenue structure.

And even that calculation is deeply flawed, in that it assumes the FY ’09 level of service should be the target. However, in FY ’08, the most recent available year, Oklahoma state and local governments spent 18 percent less than the national average and ranked 43rd among the states in spending. At least monthly, a new national ranking puts Oklahoma among the bottom states in health, education, transportation, or environment and shows the impact of this chronic under-investment. Our state’s economic and social viability are being eroded by poor budget decisions.

Measuring shortfalls against last year’s budget is a not-so-subtle way of assuming that last year’s budget was the correct one. That could be the case, but probably is not. Instead of letting the available revenue define the budget, Oklahoma should define the budget by the cost of providing the services that are needed to educate children, protect seniors, reduce poverty, maintain infrastructure, and promote economic growth. Current services budgeting and pay-as-you-go policies are used by many states to help define budgetary needs and hold elected officials accountable for whether and how they choose to meet those needs.

Adopting these important reforms would be the right way to begin to get our fiscal house back in order. Cutting income taxes can and should wait until we’ve worked harder at defining what we want and need our state government to do and developed a realistic plan for how to pay for it.

ABOUT THE AUTHOR

Paul Shinn

Paul Shinn is a Budget and Tax Senior Policy Analyst with OK Policy. Shinn has held budget and finance positions for the Oklahoma House of Representatives, the Department of Human Services, the cities of Oklahoma City and Del City and several local governments in his native Oregon. He's also taught political science and public administration at the University of Oklahoma, University of Central Oklahoma, and California State University Stanislaus. While with the Government Finance Officers Association, Paul worked on consulting and research projects for the U.S. Environmental Protection Agency, the U.S. Department of Transportation, and several state agencies and local governments. He also served as policy analyst for CAP Tulsa. He holds a Ph.D. in Political Science from University of Oklahoma and degrees from the University of Oregon and the University of Maryland College Park. He lives in Oklahoma City with his wife Carmelita.

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