Oklahoma Policy Institute Recommends Using Rainy Day Fund Now to Minimize Damage to State Services

(Oklahoma City, May 11, 2009): A new issue brief released today by Oklahoma Policy Institute (OK Policy) urges state leaders to add the Rainy Day Fund (RDF) into the discussion of the state budget for the upcoming fiscal year, FY ’10. The recommendation is based on projections of the economic downturn and its effect on the state’s budget.

“We could be facing a situation where the people and communities of Oklahoma are about to get drenched by budget cuts, while we are left holding on to an unopened umbrella,” said David Blatt, OK Policy’s Director of Policy. “The state’s Rainy Day Fund was designed to be used at the onset of a downturn to make up for shortfalls and minimize the extent of cuts to key public services. Not using a portion of the Rainy Day Fund in next year’s budget creates the real prospect that most or all of the fund will be left untouched at the end of the worst recession in decades.”

Oklahoma’s revenues have fallen dramatically in the last half of the current budget year (FY ’09) and official estimates are that the decline will continue for FY ’10. This decline has created the budget shortfall for the upcoming budget year of over $600 million. Based on economic forecasts and experiences from past downturns, the brief projects that state revenues are likely to begin recovering and show very modest growth in FY ’11. The recovery will be slow, however, and the state will likely not reach pre-recession budget levels until FY ’13. Over the full length of the downturn, the state faces projected shortfalls of some $1.45 billion; even with the use of federal stimulus funds, budget shortfalls could exceed $500 million.

OK Policy argues the state’s goal should be to use all available resources to keep spending at a consistent level that is as close to pre-recession budgets as possible. While some have argued the prudent course is to save the Rainy Day Fund, which has a balance of almost $600 million, the rules governing its use prohibit spending most of the fund once revenues begin to recover, even to make up for ongoing shortfalls.

“If the economy begins to turn around as expected at the end of this year and revenues tick back up in FY ’11,” Blatt commented, “then we will be limited to using no more than a quarter of the RDF each in FY ’11 and FY ’12, and only upon declaration of an emergency. That leaves a dramatic budget shortfall in FY ’10 and risks leaving most of the Rainy Day Fund untouched in one of the worst recessions Oklahoma has ever faced.”  

In addition to recommending that leaders apply a portion of the Rainy Day Fund to ease shortfalls in FY ’10, OK Policy recommends that scheduled tax cuts be delayed until the economy has recovered, that the Rainy Day Fund be restructured so it is more useful in recessions that cover two or three fiscal years, and that the state’s budget process incorporate meaningful long-range forecasting.
You can read full text of the brief here.


Oklahoma Policy Insititute (OK Policy) advances equitable and fiscally responsible policies that expand opportunity for all Oklahomans through non-partisan research, analysis, and advocacy.

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