OKPOLICY.ORG
Original at http://claremoreprogress.com/local/x1126802467/OK-Policy-director-paints-grim-picture-for-Chamber
by Tom Fink, Claremore Progress
CLAREMORE – Oklahoma Policy Institute Director David Blatt used figures and charts to draw a somber picture of the state’s budgetary situation to members of the Claremore Chamber of Commerce last week.
“I want to start by reminding everyone of why the budget shortfall happened,” Blatt told Chamber members at Thursday’s monthly luncheon. “Any state budget is never about just numbers – our budgets reflect our values, our goals, our priorities as a state. We depend on state governments and local governments to help us meet our goals of quality education for our children, effective infrastructure, adequate nutrition, healthcare, and all of these depend in part on public structures – schools, colleges, fire departments, safety inspectors, courts, health departments and the like, which are adequately funded.”
Blatt noted the importance to keep in mind, when talking about state budgets, that Oklahomans have among the lowest taxes in the nation.
“On average, Oklahomans pay just under 10 cents of every dollar we earn in state and local taxes,” he said. “So, we’re in the bottom fifth of states (in taxation). Due to the fact that, in large part, we have a low ‘tax burden,’ Oklahoma tends to spend less across all areas of state and local government. Depending on when you measure the figures, we average between 45th and 50th in per capita state and local spending.
“We spend about 18 percent below the national average of state and local expenditures combined . We invest less across all areas of state and local government, such as transportation, education, social services, and public safety,” he said. “The fact that we’re a low-spending state – including in areas of government, education, and public safety – reflects the fact that we continue to fall short of many of our goals. We’ve not been able to do enough as a state to reward teachers, improve our health systems, protect children and seniors, and change our infrastructures.”
Blatt said the continued funding squeezes and budget cuts in these area were “particularly alarming,” and proceeded to walk Chamber members through the state budget of the past decade.
“At the beginning of the decade, we went through a period of ‘bust and boom,'” he said. “During the early part of the decade, we saw several years of cuts in state funding which were followed by years of strong economic growth and by substantial increases in the state budget – this was about 2004. Even so, there was no massive growth in government agencies – there were not many new programs created. For the most part, all that additional money went towards paying the increasing costs of doing business or to six of the state’s ‘core’ agencies, such as the Department of Education, Human Services, the Department of Corrections, the Health Care Authority and higher education.
“Another thing we did during this time was cut taxes,” he continued. “These cuts were large, permanent and back-loaded, with the major (tax) cuts being almost all to personal income tax. These (cuts) were stretched out over several years, with the full impact of them not to be felt until (FY) 2013.”
Fast-forward to late 2008 and the recession.
“As most of you know, Oklahoma was hit later (by the recession) than most states – it wasn’t until late 2008 that we began to see our economy falter, but when it hit, it hit us hard,” he said. “Between September 2008 and June 2009, Oklahoma’s unemployment rate rose from below four percent to around seven percent. We experienced three straight quarters of negative growth – declining state personal income – from late 2008 through early 2009, although our economy has been growing faster than the rest of the nation’s since the start of 2010.”
Since then, state budgets have been “hammered,” Blatt said, with states facing cumulative budget shortfalls close to $600 billion – the largest state budget shortfalls on record.
“All but four states – Montana, North Dakota, Alaska, and Arkansas – are facing budget shortfall in (FY) 2011,” he said. “Budgetary trends for (FY) 2010 through (FY) 2012 reflect a revenue problem – we’ve seen five consecutive quarters of worsening collections, and revenue drops are more than twice as steep this time around as they were during the last (economic) downturn.
“In budgeting through this crisis, despite small variations, an overall theme has arisen of there being large shortfalls to projected revenues, fear of deep and devastating budget cuts, the use of non-recurring revenues to partly bridge the budget gap, and budget cuts across state government but less severe for core agencies,” he said.
Oklahoma Governors Henry and Fallin, with the state legislature, have used various revenue enhancements to help bridge shortfalls – most of which have been one-time or non-recurring, such as federal funds from the stimulus bill ($1.5 billion), the State Rainy Day Fund ($597 million), cash transfers from various funds ($525 million), enhanced tax compliance ($154 million), and suspending and deferral of tax credits ($129 million), according to Blatt.
Even with these revenue enhancements, various state agencies have found themselves being increasingly asked to do more with less.
“Over the past three years, almost every agency has absorbed successive and significant cuts,” he said. “Some 40 agencies – more than half of all appropriated agencies – have absorbed cuts of greater than 20 percent since (FY) 2009.
“While cuts to key health, human service, and public safety agencies have been minimized, others have been significant – such as cuts to mental health agencies (12.7 percent), DPS (12.6 percent), common education (10 percent), higher education (9.1 percent), Corrections (8.6 percent), DHS (3.9 percent), and OHCA (12.7 percent),” he said. “No agencies have been funded to cover the rising operating and employee benefit costs over the past three years, and we’re anticipating funding shortfalls to continue to impact Oklahoma students, teachers, families, public employees, non-profit organizations and private sector businesses.”
The impact on state agencies has been “grim to say the least,” Blatt said.
“We’ve got state agencies that aren’t just on a diet, they’re being starved to death,” he said. “Agencies have reduced staffing, eliminated or cut back programs, closed offices and facilities, cut rates to private contractors, and raised user fees,” he said.
Examples cited by Blatt included school districts raising class sizes, laying off teachers and staff, and eliminating services, the Department of Mental Health and Substance Abuse Services reducing beds and closing centers fore children’s mental health and adult substance abuse, cutting contracts to all providers, and the Department of Corrections cutting contracts, eliminating programs, reducing staffing to under 70 percent of authorized levels, implemented monthly furlough days, and others.
Looking ahead, Blatt said economic recovery for Oklahoma, and the rest of the country, would be “slow, unsteady, and incomplete.”
“State-appropriated spending has reached its lowest level in at least 30 years, and will fall even further in (FY) 2012,” he said. “Under current policies, revenues are unlikely to recover to pre-downturn normal levels prior to (FY) 2014 – this prospect of continued slow revenue growth and budget shortfalls has created a ‘new fiscal reality’ which calls for new perspectives and strategies.”
Effective “new perspectives and strategies” would include a revenue structure which supports public services, the preservation of the income tax, the review and reduction of tax credit programs, the modernization of the sales tax, the allowance of higher taxes on commercial properties, and the targeting of any tax relief towards those in greatest need, Blatt said.
“We’ve got to make smarter decisions,” he said. “We’ve got to consolidate duplicate agencies and streamline services, prioritize prevention and surveillance, and ensure adequate funding of public pensions – more than ever before, making smarter expenditure decisions is the new reality to improve our economic forecast.”
