State revenues: The storm may be subsiding but the forecast remains bleak

David Blatt // November 11, 2009 // Updated: May 1, 2019
OK Policy Articles & Research //

The latest monthly budget release (PDF) from Treasurer Scott Meacham provided some good news and some bad news. The bad news is that October revenues fell well short of projections, as they have in each month of the current fiscal year. General Revenue (GR) for October was 18.2 percent  below the official estimate and 23.7 percent below below last year’s collections. The good news is that the shortfalls are slightly less than in previous months. Over the first three months of FY ’10, General Revenue collections averaged 26.0 percent below the estimate and 29.5 percent below prior year collections. October’s slightly improved performance led the Treasurer to declare:

I am cautiously optimistic that October collections could show our economy has finally bottomed and we may start seeing some recovery in actual revenue collections.

Yet, the forecasts produced by OK Policy in our newly-released issue brief suggest that even if a recovery is now beginning, we are looking at a deep and extended budget crisis. We generated multiple revenue estimates using a variety of forecasting techniques; our middle scenario is that General Revenue (GR) is likely to come in at about $4.4 billion in FY ’10. This would create a shortfall of just over $700 million compared to what was appropriated from current year GR in this year’s budget. This amount exceeds the total that can be generated from full-year 5 percent across-the-board cuts ($257 million) plus tapping the full amount available from the Rainy Day Fund for the current year ($373 million). This suggests that deeper cuts than the 5 percent monthly cuts already being implemented and/or new revenues in addition to the amounts available from the Rainy Day Fund may well be needed to balance this year’s budget.

GR10forecasts

This situation presents a real quandry for our elected leaders. As Treasurer Meacham stated over the weekend:

My concern is that there are agencies that don’t appear to be able to take more than a 5 percent cut without it affecting their core services.

What should we do to address this situation? Four months into the fiscal year, the state’s response to the current downturn has been a series of largely piecemeal and ad hoc reactions to monthly revenue shortfalls. A more coherent and better-planned approach is both possible and necessary.  The editorial in this morning’s Oklahomans shares some of our primary recommendations for navigating the crisis:

→Increasing the cap on contributions to the Rainy Day Fund from the current 10 percent.

→A plan for how the fund will be used in the next few months.

→Quarterly revenue forecasting, to be aired in public reports.

→Public hearings on the impact of cuts in state services.

→Multiyear revenue estimates extending two years beyond the current fiscal year.

Given the likely prolonged nature of the budget crisis – we forecast that it will take until FY ’12 or FY ’13 until revenues fully recover to pre-downturn levels, without adjusting for inflation – making the best possible effort to improve our forecasting capacities should be a particular priority. In that way, we can chart our path for the slow return to better days that now may at least on the horizon.

ABOUT THE AUTHOR

David Blatt // dblatt@okpolicy.org

Former Executive Director David Blatt joined OK Policy in 2008 and served as its Executive Director from 2010 to 2019. He 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.

2 thoughts on “State revenues: The storm may be subsiding but the forecast remains bleak”

  1. Pingback: The Rainy Day Fund debate: Not if, but when…and how much? | OK Policy Blog
  2. Pingback: Learning from the crisis: More frequent and better forecasting can help guide a path | OK Policy Blog

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