OKPOLICY.ORG
This week OK Policy distributed a 4-page memo on the state budget to all candidates for state offices, which we have now released to a broader audience. The memo is intended to offer policymakers a clearer understanding of the budget situation they will face following the November election, while suggesting some guiding principles and specific recommendations for addressing the challenges that lie ahead. Here are some of the highlights of the memo: (Much of the information is contained in our most recent 2-page Budget Trends and Highlights fact sheet).
We begin by stating that:
The state budget crisis of the past two years has put great strains on the public structures and institutions that Oklahoma families, businesses, and communities count on to help us meet our common goals as a state. Whoever wins the elections in November will face difficult choices in filling large budget holes and balancing the budget over the next two to three years.
Our overview of the past two years emphasizes the historic drop in state revenue collections and the importance that non-recurring revenues from the federal Recovery Act, state Rainy Day Fund, and other sources have had in mitigating the magnitude of budget shortfalls. However:
Even with these funds… this year’s appropriations of $6.714 billion represent an overall cut of 7.2 percent from FY ’09. Over half of all appropriated state agencies have absorbed funding cuts of at least 15 percent, and some cuts have been multiplied by the loss of matching federal dollars. These cuts have weakened the ability of state agencies and schools to fulfill their core missions and have contributed to a corrosion of the public structures and institutions that Oklahoma rely on to promote our well-being and invest in our future. Across state government, shortfalls have forced agencies to serve fewer Oklahomans in need, eliminate programs, reduce hours of operation to the public, cut payments to private providers, and lay off or furlough employees.
Looking at the short-term budget outlook, we note that $1.1 billion, or 17 percent, of this year’s state appropriated budget consists of non-recurring revenues:
This amounts to a major hole in the budget for the coming years and virtually ensures that a serious budget crunch will continue into FY ’12 and likely FY ’13, even assuming healthy growth in the state economy.
Of course, if voters approve SQ 744, which would require that funding just for common education increase by an estimated $1.7 billion over the next three years, the budget outlook over the coming years becomes exponentially more difficult.
So how should our incoming elected leaders navigate the perilous fiscal straights over the next few years? We write that:
After two years of successive and significant budget cuts, most agencies have already pared services and programs to the marrow. Additional deep cuts put at risk the security, health and well-being of many of our families, businesses and communities. We therefore urge you to consider a balanced approach to bridging the budget gap.
The specific recommendations for a balanced approach that we suggest would be to:
- Defer additional tax cuts until revenues recover;
- Seriously review tax credits, deductions and exemptions;
- Consider new revenue streams for the Medicaid program;
- Consolidate agencies and functions where duplicative or unnecessary; and
- Prioritize prevention, diversion and surveillance over detention.
At the same time as short-term challenges demand immediate attention, the memo urges policymakers to be aware of a longer-term horizon marked by a growing misalignment, or fiscal gap, between the cost of providing core public services and the revenues generated by our tax system. We recognize that:
There is no single or simple answer to our long-term budget challenges. But we must at least begin to engage in serious and honest thinking about how to align our revenue system with our funding commitments not just for next year or the year after, but for ten and twenty years down the road.
Components of this structural realignment should include:
- A serious review of our tax system;
- Expanded use of budget and revenue forecasting;
- Mechanisms along the lines of federal pay-go rules;
- A plan to shore up the state’s pension systems;
- Greater emphasis on program review and evaluation;
- Restoring full authority and accountability to our elected officials for decisions on revenue and spending.
Click here to download the full memo. We’d love to hear your thoughts on the analysis and recommendations we’ve set out here – please post a comment below, or consider a guest blog laying out your best ideas. For all our resources and information on the state’s budget situation, check out the current budget information page of our website.
