Spring Haircuts

On Friday afternoon, legislative leaders and the Governor announced the outline of a long-awaited budget agreement. This step is necessary to start the flood of bills to fund state agencies, allocate some of the federal stimulus money, and decide what to do with various tax cut proposals that are still floating around the Capitol. The expectation is that all budget bills will get passed in time to adjourn by this Friday.

In the announcement of the agreement, House Speaker Chris Benge (R-Tulsa) acknowledged the difficulty involved in crafting a budget during a recession:

In a down financial year, the budgeting process is always difficult as we take close stock in exactly how we are spending taxpayer dollars. This year was especially complicated by the federal stimulus money Oklahoma received and our dedication to making sure those one-time dollars were used as prudently as possible. This budget is a reflection of the surgical cuts we promised the people of Oklahoma early in session. The easy route would have been to cut every agency by the same amount and go home…This effort will maintain many of the core services upon which Oklahomans depend each and every day while ensuring our government is as efficient as possible.

A spreadsheet distributed on Friday compares proposed FY ’10 funding with actual FY ’09 funding for each agency. To fund the proposed $7.200 billion FY ’10 budget, the agreement uses some $640 million in stimulus dollars, plus over $100 million in additional state funds beyond the revenues certified as available in February. “Surgical cuts” turns out to mean seven percent reductions for most agencies, smaller reductions for others, and essentially flat funding or small increases to cover increases in mandatory costs for several key agencies, including common ed, higher ed, Medicaid, and Corrections. Some key law enforcement and judicial agencies, including the Department of Public Safety, the District Courts, District Attorneys and the Indigent Defense System, face cuts of 6 to 7 percent, as do most regulatory agencies, such as the departments of  Labor and Consumer Credit; administrative agencies, such as the Tax Commission and State Auditor’s Office, and economic development agencies, such as the Department of Tourism. The Rural Economic Action Program, which supports rural water projects, had its $15.5 million budget eliminated entirely.

Even agencies that took smaller cuts or received flat funding will face serious funding gaps in FY ’10. While the Department of Human Services saw its cuts limited to $9.4 million (1.7 percent), the agency had requested over $50 million in additional money in FY ’10 just to maintain services at existing levels given increased costs and enrollment. The agency will face a great struggle to avoid cutting programs that serve the most vulnerable Oklahomans, as will the Department of Mental Health and Substance Abuse Services, which faces a $4.1 million cut. Even with flat funding, the Department of Corrections projects it will have to make about $15 million in cuts to cover unfunded employee benefit increases and inmate growth, among other things, but it does not expect to have to implement layoffs or furloughs.  For other agencies, furloughs and layoffs are definite possibilities.

The Legislature and Governor are to be commended for their commitment to protecting key public services and their willingness to use federal stimulus dollars to make up for a portion of the shortfall in state revenues. But the steep cuts and funding gaps that most agencies will face in the coming year will leave financially-strapped agencies less capable of fulfilling their missions, whether protecting the public safety, administering justice, regulating businesses to protect consumers, providing care to the needy, or educating children.

The unfortunate aspect of this outcome is that there was an alternative -using a portion of the state’s $600 million Rainy Day Fund to supplement revenue collections and stimulus dollars to avert or mitigate the severity of budget cuts. Appropriating even $100 million out of the Rainy Day Fund for FY ’10 would have sufficed to keep all agencies at flat funding for FY ’10 and provide an additional $35 million to cover increased costs for key services now facing shortfalls. As we argued in our recent issue brief, Now Is the Time, we saved during the good years for precisely this purpose. The brief argues that the rules of the Rainy Day Fund encourage its use early in the downturn, not later. By next budget year we are likely to see some revenue growth. That restricts how we can use the Rainy Day Fund. It is possible we could get clear through the recession with most or all of the Fund untouched. Meanwhile, all Oklahomans are hurt because the state reduces its efforts to protect our environment, patrol our highways, provide health and mental health care, and attract new businesses.

While the budget bills will speed through the process prior to the end of session, it will be weeks before the full details of the budget agreement are understood and months before we begin to have a full sense of how agencies choose to implement funding reductions and the impact these decisions have on programs and services for Oklahoma families and communities. OK Policy is preparing a fuller summary of the budget agreement for release soon after session. We hope you will help keep us informed of the impact of budget decisions on the programs you work with and care about so that we can start identifying options and developing recommendations to help us through the continued difficult fiscal times that lay ahead.