If you think this is bad…Federal fiscal relief funds averted budget doomsday

The state’s deep and prolonged budget crisis has taken a serious toll on public services in Oklahoma.  We have seen rate cuts to providers of community-based health services, elimination of violence prevention programs for at-risk youth, closures of facilities for persons with mental health and addiction problems, and layoffs of hundreds of teachers and public employees, to cite just a few examples (see our updated compilation of state and local cuts). Overall, as we laid out in our FY ’11 Budget Highlights fact sheet, state appropriations have been cut by almost $400 million, or 7.2 percent, compared to FY ’09, and more than half of all appropriated state agencies must absorb state funding cuts of at least 15 percent.

Yet the impact of the downturn would have been genuinely catastrophic had Congress not provided substantial fiscal relief to the states as part of last year’s stimulus bill.  Formally known as the American Recovery and Reinvestment Act,  the stimulus bill provided states money in two basic forms – a State Fiscal Stabilization Fund, intended primarily for common and post-secondary education, and enhanced federal matching funds for Medicaid. Over the past two years, the Legislature approved the use of $1.375 billion in stimulus funds, allocated as follows:

These stimulus funds have directly served to limit the cuts to schools and to major health care and social service agencies to under 10 percent; indirectly, they have averted deeper cuts to public safety, transportation, and all other state agencies by freeing up state dollars for these functions.

Although use of Recovery Act dollars did not generate much debate in Oklahoma among those elected officials actually responsible for drafting the budget, some legislators, candidates, and policy analysts have contended that the stimulus, along with the nearly $600 million withdrawn from the Rainy Day Fund, have kept state spending at artificially and unsustainably high levels. However, without these funds, and assuming no tax increases, funding cuts across all state agencies would have approached 16 percent each of the past two years, and in many cases would have snowballed further due to the loss of federal matching funds. When core human service, education and public safety agencies presented their proposals for managing potential budget cuts in FY ’11 of an additional 10 to 15 percent, the scenarios in terms of core programs, services and jobs that would have met the axe were little short of chilling.

At the same time, the reliance on non-recurring revenues from the Recovery Act and Rainy Day Fund, along with some one-time revenue enhancements approved for the coming year, does create budget holes that even a robust economic recovery is unlikely to fill over the next year or two. This problem could be partially addressed if Congress agrees to extend the enhanced Medicaid matching rate, known as FMAP, for another six months, providing more of a glidepath than a sharp cliff to allow time for state revenues to recover. While this proposal has been a part of several economic recovery bills working their way through Congress in recent months, its future at this point is highly uncertain given growing concerns about federal spending and deficits. Yet as the Center on Budget and Policy Priorities, among others, has argued, failing to extend federal support will lead to deeper cuts to services and layoffs that will threaten the fragile economic recovery around the nation.

Overall, federal stimulus dollars could not fully protect the state budget from the impact of the Great Recession, and a reliance on non-recurring will contribute to ongoing challenges going forward. But as we continue to struggle  to control the bleeding from the cuts  imposed over the past two years, we should not fail to acknowledge how much more desperate and unsolvable our situation would have been without federal fiscal relief.