Stop Flying Blind: Three sensible reforms to help us chart a stable fiscal course

Oklahoma is facing serious challenges when it comes to having the resources to provide the sorts of public services that help create jobs and build a strong economy.

Yet while the need to chart a sound, sustainable fiscal course is urgent, our policymakers too often are flying blind. Legislators routinely make spending and revenue decisions that will have long-term consequences without access to key information about the cost of funding existing obligations in the coming years.

Two recent reports from the Center on Budget and Policy Priorities (CBPP) suggest a pair of sensible budget management tools that Oklahoma should adopt .

• Current services budget: This tool would provide lawmakers and the public with the cost of maintaining today’s level of programs and benefits.
• State PAYGO requirement: It would require all new spending and tax cuts be fully paid for.

Together with a third reform –creation of multi-year revenue forecasts – these reforms would help policymakers make  better decisions.

These reforms are important in part because  the cost of providing services and varies from one year to the next even if the level of services stays the same or even goes down. Factors like inflation and demographic changes are the main reasons why.  Under a current services budget, the state would make it clear what it needs to spend on, for example, health care for low-income seniors, stipends for children in foster care, or higher education scholarships, in order to maintain them at the current level. As the CBPP’s Elizabeth McNichol explains in a blog post accompanying a recent  report, current services baselines provide a tool for understanding spending choices:

A current services baseline provides a reality check in the budget process.  It gives an honest assessment of the state’s overall fiscal health by enabling policymakers to see if the state will likely have enough resources to maintain services at current levels — or possibly expand them.

This tool helps legislators and the public understand whether a proposed funding level for a particular service would expand it, shrink it, or keep it at its current level.  This can improve government efficiency by providing a regular, thorough examination of each program’s costs. Currently, 21 states use this tool, and it’s time for Oklahoma to follow their lead.

A second tool Oklahoma should adopt is a “pay-as-you-go”(PAYGO) requirement. As the Center on Budget states in its report:

Today in most states, it is impossible for policymakers to know whether proposed program increases or tax cuts are affordable over the longer term. Nor do most states have appropriate mechanisms for considering and implementing tradeoffs among fiscal policy options. These problems impede decision-making and leave states vulnerable to serious long-term budget problems.

PAYGO would require policymakers to pay for the cost of any reduction in revenues or expansion of services.  Paying for these policy changes could take the form either of a revenue increase or cuts to other services. Regardless of how it is paid for, the goal is to maintain fiscal balance. The undesirable alternative is to promise tax cuts or increased services and then not be able to deliver because the money isn’t there.. Oklahoma’s law to prevent passage of unfunded public pension benefits could serve as a precedent for a comprehensive PAYGO requirement.

These two reforms would work best along with a third measure: multi-year revenue  forecasts created by an official body of economic and fiscal experts. Currently, policymakers make budget and tax decisions without access to any projections beyond the upcoming year. We’ve long advocated for better and longer-term forecasting. Legislation to create the Oklahoma Revenue Forecasting Board was introduced in 2010.

Better budgeting tools alone can never ensure that policymakers will make wise decisions. But taken together, multi-year revenue forecasting, a current services budget, and PAYGO requirements would provide clearer direction and sensible controls for the difficult journey ahead.