State appropriations vary based on economic and revenue growth. In years where the economy is strong, appropriations can grow a great deal. When the economy is weaker, revenues do not grow as fast and may decline, so spending does not grow as much, and may even fall.
State appropriations have been cut repeatedly over the past decade: The state budget grew during the boom years of the mid-2000s and reached a peak of $7.125 billion in FY 2009. Then the onset of the Great Recession, coinciding with the full phase-in of income tax cuts passed in earlier years, led to a steep decline in state funding from 2010-12. Budget cuts would have been even more severe but for the availability of federal stimulus funds thought the American Recovery and Reinvestment Act, the state’s Rainy Day Fund, and various revenue enhancements approved by the Legislature.
Following the Great Recession, state appropriations grew for three consecutive years (FY 2013-2015), although their new peak of $7.235 billion was well below pre-recession levels when adjusted for inflation. Since 2015, the downturn in the energy sector, combined with further cuts to the top income tax rate and the continued cost of tax breaks, has led to two consecutive years of large budget shortfalls and cuts. Budget cuts would have again been even deeper but for the use of money from the Rainy Day Fund and the use of various revenue enhancements, most of which amounted to one-time funds, rather than recurring revenues.
The initial appropriation for FY 2017 is nearly identical that of ten years ago. Due to inflation and population growth, this budget funds considerably less service than it did ten years ago. Adjusted for inflation, the FY 2017 budget is 15 percent less than the budget for FY 2007.
If oil and natural gas prices recover, future budgets may be more stable, but this is uncertain unless policymakers address the factors contributing to the state’s structural budget deficit.
For more information, see OK Policy’s FY 2017 Budget Highlights