Stimulus Funds – There but for the Grace of Congress…

It is clear that the $7.2 billion FY ’10 budget agreement reached by legislative leaders and the Governor will lead to a tough and painful year ahead as agencies struggle to address increased costs and growing caseloads on flat or reduced funding. However, there is no question that the state would be looking at a full-scale catastrophe if not for the availability of the federal stimulus dollars that were part of the $787 billion American Recovery and Reinvestment Act (ARRA) passed by Congress in February. As was reported when the budget agreement was announced, next year’s state budget is expected to include some $641 million of ARRA dollars. As we’ve been tracking the General Appropriations bill (SB 216) and agency budget bills making their way through the process over the final week of session, a number of important details about the use of stimulus funds in the FY ’10 budget are now coming to light.

As we discussed in our issue brief on the stimulus package, ARRA included two funding streams intended to help support state budgets battered by the economic downturn:

1. The State Fiscal Stabilization Fund (SFSF), which is divided into two components: 81.8 percent is earmarked exclusively for education, while 18.2 percent is general purpose funding that can be used for “other high priority needs such as public safety and other critical services, which may include education”. Oklahoma was allocated $472.8 in education stabilization funds and $105.2 million in general purpose funds; and

• Enhanced federal Medicaid matching funds (enhanced FMAP).  The amount of enhanced FMAP funding is dependent on both a state’s unemployment rate and the amount of a state’s Medicaid expenditures over the 27-month period, which began back in October 2008 and extends through December 2010, when the enhanced FMAP is in effect.  One recent estimate, from the Federal Funds Information for the States, estimates that Oklahoma will draw some $950 million in additional federal Medicaid funds, but legislative staff projects that the total will be closer to $800 million.

The budget agreement allocates stimulus funds as follows:

• State Fiscal Stabilization Fund – Education: $236.4 million
  • Common education – $167.6 million
  • Higher education – $68.8 million

• State Fiscal Stabilization Fund – General Purpose: $10.0 million
  • Oklahoma Health Care Authority – $10.0 million

• Enhanced FMAP – $424.7 million
  • Oklahoma Health Care Authority –  $316.5 million for FY ’10 plus $30.0 million for FY ’09 (HB 1198);
  • Department of Human Services – $71.3 million
  • Department of Mental Health and Substance Abuse Services – $3.7 million
  • Health Department – $1.3 million
  • Office of Juvenile Affairs – $0.7 million
  • Physician Manpower Training Commission – $0.4 million
  • J.D. McCarty Center – $0.4 million

A few points are worth making. The budget allocates 50 percent of the total Education funds from the SFSF for FY ’10, and divides them between common education and higher education proportionate to their FY ’09 appropriation. The general purpose state fiscal stabilization funds, which are considered to be up to the Governor’s discretion, were apparently left untouched, except for a $10 million appropriation to the Health Care Authority. The enhanced FMAP funds were allocated to those agencies that provide the state share for Medicaid services. The enhanced FMAP rates will be in effect for 27 months, beginning back in October 2008 and continuing through December 2010; in most cases, the Legislature authorized agencies to spend an amount of enhanced Medicaid funds in FY ’10 corresponding to half of the entire 27-month amount.

The explicit intent of providing states with billions of dollars in fiscal stabilization and enhanced Medicaid funds was to help them avoid or minimize cutbacks of vital public services, layoffs, tuition hikes, and tax increases.  By using its federal stimulus dollars to plug the shortfalls caused by failing state revenues in the FY ’10 budget, Oklahoma at least stands a fighting chance of averting the worst of those outcomes during this economic downturn.