Next year’s budget starts over $400 million in the hole

“hole” by Jon Rawlinson is licensed under CC BY 2.0

When Governor Mary Fallin delivered her State of the State address in February, she made a strong call for lawmakers to end the practice of balancing the state budget through the use of one-time revenues, saying:

Oklahoma will continue to struggle if we don’t fix the structural deficits of our budget… So, as our state’s top leaders, let’s focus on the REALITY of our state budget deficit. To start, for decades we have attempted to balance our budget for too long with the use of one-time resources. We cannot afford to pass another budget using a large amount of non-recurring revenue.

Governor Fallin proposed a budget that filled the hole and provided targeted funding increases without one-time revenues, but the bulk of her new recurring revenue relied on the expansion of the sales tax to nearly 150 additional services, which proved to be a total non-starter in the Legislature.

The Legislature ultimately approved a budget that included over $820 million in new revenue above the amount certified in February that they could use. These revenue measures included a combination of new and increased taxes or fees, the elimination or reduction of tax exemptions and incentives, tax compliance initiatives, and transfers from the Rainy Day Fund and various other state and agency funds (click here for a detailed list of revenue adjustments and the legislation that authorized them).

If the goal was to balance the budget without relying on one-time revenues, lawmakers can claim only limited success. Of the $854 million in revenue enhancements that went towards the FY 2018 budget, roughly $486 million, or 57 percent, is recurring revenue. The three largest recurring revenue streams, which together account for over 85 percent of the new  recurring revenue, are a $1.50-per-pack fee on cigarette sales, partial elimination of the sales tax exemption for motor vehicle sales, and an increase in the tax rate on horizontal wells drilled prior to 2015. However, these may all be challenged as violations of the constitutional rules regarding “revenue bills.” The other recurring revenues are projected to raise $66 million.

At least $368 million of the revenue enhancements used to balance the FY 2018 budget are one-time revenues, as detailed in the table. An additional $53.6 million was transferred from the State Transportation Fund to the Special Cash Fund. Because this money had already been certified, it isn’t included among the measures that generate new revenue.

In commenting on this session’s budget agreement, Gov. Fallin noted: “When legislators return next year, they will already face a $400 million hole caused by one-time funds and $100 million of obligations coming due over the next 12 months that will need to be paid.” The Governor’s list of obligations includes such things as increased bond and lease payments, Medicaid growth, cost increases in teacher and state employee benefits,  and increased enrollment in the Oklahoma Promise scholarship program. As the next fiscal year approaches, this list is likely to expand and the price tag of simply maintaining current programs at existing levels will rise.

The use of  $400 million in one-time revenues and at least $100 million in non-discretionary spending increases virtually ensures that, even if our economy fares well, next year’s Legislature will once again face a budget hole, although the hole is likely to be substantially smaller than the $875 million shortfall faced this year or the $1.3 billion hole that confronted legislators in 2016. 

When legislators return next year, they will already face a $400 million hole caused by one-time funds and $100 million of obligations coming due over the next 12 months that will need to be paid. – Gov. Mary Fallin”

We must also not pretend that simply filling the hole caused by the use of one-time revenues will be enough to fix our structural budget deficit. The cost of maintaining services increases steadily over time as school enrollment, prison populations, and Medicaid and human service caseloads grow. State agencies need to spend more to cover increased utility, food, equipment, and fuel costs.  Teachers and state employees must receive raises to maintain their standard of living and to allow the state to be a competitive employer.

For years, flat funding and budget cuts has meant that an accumulating deficit in our state’s investment in human and physical capital. That deficit undermines our communities and our future economy. The task of fixing our revenue system, ending tax loopholes and special interest giveaways, and rebuilding a sustainable budget that benefits all Oklahomans must remain our state’s highest priority.

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ABOUT THE AUTHOR

David Blatt helped found OK Policy in 2008 and became the organization's Executive Director in 2010. David 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. He lives in Tulsa with his wife, Patty Hipsher, a special education teacher in Broken Arrow, and their son, Noah.

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