The FY '12 budget agreement: Playing your best hand with only half your cards

On Tuesday, Governor Fallin and the Republican leadership of the House and Senate announced an agreement on the FY ’12 budget. Total state appropriations for next year will be $6.511 billion, which is $254 million, or 3.8 percent less than this year’s final budget.

To make the budget balance and limit the magnitude of cuts, the agreement includes some $370 million more revenue than what was certified as available for appropriation by the Board of Equalization in February. Although full details have not been spelled out, the main revenue enhancements appear to be: $120 million in cash balances that have accumulated this year; some $100 million from the final round of federal stimulus money approved by Congress last summer; and a $100 million transfer from the State Transportation Fund that will be partly made up for by a $70 million bond issue for the Department of Transportation. Additional revenues include transfers from the Unclaimed Property Fund and agency reserve funds, increased tax compliance efforts, and diversion of tax revenues slated for the ROADS program to the General Revenue fund.

Of the ten largest state agencies, Transportation (-7 percent), Higher Education (-6.7 percent) and Career and Technology Education (-6.5 percent)  will receive the largest cuts. Funding cuts were more modest for key agencies in health, human services, public safety, and to a lesser extent, common education. Many other agencies will absorb cuts of 7 to 10 percent in FY ’12 (See our spreadsheet of agency-level appropriations for FY ’09 – FY ’12).

As we talked to agency leaders and advocates at the Capitol yesterday, many expressed relief that the cuts were less than was feared.  We are grateful that leadership heeded the calls of advocates to protect our most vulnerable populations by targeting available funds for Medicaid, human services, mental health, and rehabilitative services, as well as ensuring that education and public safety were spared the full brunt of cuts. The agreement shows that legislative leaders and the Governor worked to minimize the damage, especially where cuts in state funding would have entailed a corresponding loss of federal matching funds. Some agency heads expressed optimism that they would be able to make it through next year without substantial reductions in staffing and services to the public.

However, this agreement is not cause for celebration. State agencies are now facing a third consecutive year of funding reductions and budget cuts, which will continue to corrode their ability to perform their core missions. Overall, next year’s budget is slated to be $622 million, or 8.7 percent, less than FY ’09. Almost all agencies will have seen their funding cut by over 10 percent in this period, and many by over 20 percent, including the Department of Agriculture (-25.9 percent), Arts Council (-22.1 percent), Military Department (-22.0 percent) and Council on Law Enforcement Education and Training (-20.2), among others.

Since FY ’09, no agencies have received funding to address increased employee health care and retirement costs, general inflation, or, in most cases, caseload growth. For example, public school enrollment rose by 15,000 students between 2008 and 2010, yet next year’s appropriation to Common Education will be 10 percent less than in FY ’09. This will again mean fewer teachers and support staff, and larger class sizes.  The Department of Corrections will continue to struggle to stay at even 70 percent of staffing capacity, putting stress on the safety of officers, inmates and communities.  The Health Department, which faces additional cuts of over 4 percent, will have to continue to cut back on services that maintain the state’s public health infrastructure and protect vulnerable families.

This outcome was not inevitable. Those who negotiated the budget will say they played the best hand possible given the cards they were dealt. However, we must recognize that a choice was made not to play with all the cards in the deck. Their decisions not to put serious revenue options on the table and to allow a cut in the top income tax rate to take effect seriously constrained what could be done to limit the magnitude of funding cuts.  It also meant that the revenue enhancements that were adopted were once again primarily one-time fixes that won’t do anything to address the ongoing budget gap and will in fact complicate the budget outlook in subsequent years.

As resources dwindle across state government,  we will continue to fall short of what is needed to provide our children a quality education, protect the public health and environment, assist our most vulnerable families, seniors, and persons with disabilities, and administer justice. Yes, it could have been worse. Yes, we can and must do better.