If state fiscal conditions can be likened to the weather, it’s been apparent for many months that Oklahoma is in the midst of a toad strangler of a rain, to borrow the Tulsa World’s colorful characterization. Going into the current fiscal year, the state faced projected revenue shortfalls of over $600 million. While most agencies had their budgets cut by 5-7 percent, the use of some $640 million of federal stimulus dollars allowed the largest core agencies to receive smaller cuts or small increases, while the Rainy Day Fund was left intact. This year’s revenue collections, however, are coming in nearly 25 percent below the certified estimate. Agency budgets have been cut 5 percent each month, which has forced a growing number of agencies and school districts to reduce staff and scale back or eliminate core programs. However, these five percent cuts are far less than what will be needed to balance the state budget over the course of the full year, as is constitutionally required. Governor Brad Henry, House Speaker Chris Benge, and Senate President Pro Tem Glenn Coffee have all acknowledged that the Rainy Day Fund will be needed to help bring this year’s budget into balance while minimizing the severity of cuts to public services. What is unclear at this point is how much of shortfall can and should be filled by the Rainy Day Fund, and when.
There is currently $597 million in the Rainy Day Fund. Since adoption of a constitutional amendment in 2004, the RDF can be accessed as follows:
- Up to 3/8ths of the Fund, or $224 million of the current amount, may be appropriated to make up for a shortfall in the current year’s collections upon declaration of a revenue failure by the Board of Equalization.
- Up to 3/8ths of the Fund, or $224 million, may be appropriated in the budget for the forthcoming year if General Revenue collections are forecast to be less than the amount originally projected for the current year. A letter [PDF] from the Attorney General’s office indicates that this portion of the RDF can still be appropriated by the Legislature for FY ’10. (Earlier OK Policy materials assumed this money was no longer available for FY ’10.) It is likely that conditions for using this money will also be met for FY ’11.
- Up to 1/4 of the Fund, or $149 million, may be appropriated upon the declaration of an emergency. This requires either an emergency declaration by the Governor with 2/3rds approval of both Chambers, or 3/4ths approval by both chambers without the Governor.
The unfortunate reality is that even using the maximum available amount from the Rainy Day Fund is unlikely to make up for revenue shortfalls without cuts and/or other new revenues. OK Policy has forecast that current year GR collections are likely to come in around $700 million below appropriations. In total, using the full 3/8ths “revenue failure money” and 3/8ths “forthcoming year money” could provide up to just under $450 million from the Rainy Day Fund for the current year. The $250 million difference between the estimated shortfall and this draw from the RDF would be equivalent to full-year across-the-board cuts of 5.0 percent, unless additional revenues can be identified. If only 3/8ths of the Rainy Day Fund is used this year, our projected shortfall would be $476 million, equivalent to full-year across-the-board cuts of 9.4 percent in the absence of other revenue. Other scenarios are equally possible, but all will involve a trade-off between using more RDF revenues to help fill this year’s shortfalls versus saving more for what is certain to be a long and slow fiscal recovery.
The Governor’s strategy is to hold off making any decisions about how to fill the budget gap until the Board of Equalization meets on December 21st to certify a formal estimate of revenue collections for this year and next, with a special legislative session to follow in January. In this, he seems to be supported by Speaker Benge. Senate Republicans, however, are calling for a Special Session in December.
The bottom line is that if economic conditions look to be improving, it may be possible to use most of the RDF this year to minimize the severity of budget cuts, with a combination of remaining RDF and stimulus dollars used to avert deeper cuts next year. That’s the optimistic “we-get-wet-but-only-catch-a-minor-cold” scenario – although one that still involves painful cuts and that creates the prospect of enormous revenue holes for FY ‘12 once stimulus and reserve fund dollars expire. If, however, the projections are for a much slower and weaker revenue recovery over the next 18 months, nothing short of new revenue streams is going to keep public services, and the Oklahoma citizens who depend on them, from being exposed to the full wrath of a hard, hard rain.