Why total spending has gone up as budgets are cut

OK Policy has spent a lot of time focusing on the real and continuing damage caused by repeated state budget cuts over the past three years, as well as the fact that state tax collections are at historic lows. Meanwhile, the folks at the Oklahoma Council on Public Affairs have chosen to emphasize that total state expenditures continue to increase each year.

How can both be true? Here’s how:

Above you can see Oklahoma state government revenue from taxes and federal grants since FY 2001. Together these make up around 90 percent of the dollars the state brings in each year. The rest comes from fees, interest on investments, sales, and bond payments. In FY 2011, revenue was comprised of $7.53 billion from taxes, $7.49 billion from federal grants, and $2.22 billion from other sources.

As the chart shows, federal grants have come to comprise a much larger share of the state’s revenues in recent years. The most dramatic shift was in FY 2010, when the Great Recession hit hardest in Oklahoma and federal stimulus money filled what would have otherwise been a devastating hole in the budget. In that year, state taxes dropped from 53.9 percent to 40.7 percent of all the funds Oklahoma brought in, while federal grants jumped from 36.4 percent to 46.5 percent.

In addition to the stimulus, spending on programs like Medicaid, SNAP (food stamps), and unemployment benefits automatically increased during the recession to meet growing needs. Funding for each of these programs comes mostly or entirely from federal dollars. We can see the effects illustrated in the below chart, which shows total state expenditures by category since 2005:

The largest share of new dollars by far went to health services, which reflects both higher enrollment in Medicaid and the national trend of rising health care costs. Spending on social services also saw a significant increase in recent years as the recession took hold. However, the categories primarily funded at the state level, such as common and higher education, general government, and public safety, saw only gradual increases up to 2009, followed by flat funding or decreases through 2011. The increase in the “Other” category is due almost entirely to higher capital outlay for infrastructure and equipment purchases funded by bonds.

The boost in federal funding helped Oklahoma and other states get through the worst of the recession, but it’s already losing steam. The end of the stimulus has resulted in a sharp drop in combined federal, state, and local government spending across the nation, and more federal budget cuts are set to take effect in 2013. State tax revenues improved somewhat in FY 2011, but collections through March remain about $265 million, or 6.3 percent, below pre-downturn levels.

The story in a nutshell: Total state expenditures have increased because more federal dollars were passed through the state for safety net programs in response to the recession. Areas that are not heavily supplemented with federal money, like education and public safety, are experiencing flat or declining funding.

ABOUT THE AUTHOR

Gene Perry joined OK Policy in January 2011. He is a native Oklahoman and a citizen of the Cherokee Nation. He graduated from the University of Oklahoma with a B.A. in history and an M.A. in journalism. Gene also serves on the board of the Oklahoma Sustainability Network, is a trustee of the Oklahoma Foundation for Excellence, is a member of Investigative Reporters and Editors, and has chaired the communications advisory committee for the State Priorities Partnership, a nationwide network of state fiscal policy think tanks. He lives in Tulsa with his wife Kara Joy McKee, who is a Tulsa City Councilor.

2 thoughts on “Why total spending has gone up as budgets are cut

  1. OKC Gazette
    D.W. Tiffee June 13th, 2012
    I have to give it up to Gov. Mary Fallin and the Republican leadership for agreeing May 18 to a tax “cut” scam that actually raised taxes for a quarter of Oklahoma taxpayers, including families with children.
    They have finally proven that Republicans in this state are even dumber and more useless than the Democrats.
    According to The Oklahoman, 40 percent of taxpayers making under $25,000 a year would have seen their taxes go up under the Fallin scheme (typical class-warfare by the GOP) but the real “WTF?” head-shaker was that many families (with several children) making $70,000-$80,000 would pay an extra $100-$200 a year, and lose their deductions for church tithes. It’s ironic, says The Oklahoman, “that some of the Republican Party’s strongest supporters may face a tax increase under Republican control of state government.”
    Just 54 percent would receive a tax cut averaging $60 a year — a lousy $5 a month to make life miserable for families with children and the poor. Republican leadership? Larry, Moe and Curly Mary.
    Fallin blames “special interests” for torpedoing this criminally stupid fiasco, but it looks to me like House leaders sobered up just enough to stagger away from a really dumb idea.
    The conservative notion that Oklahoma spends too much on government is just breathtakingly dimwitted.
    The Oklahoma Council of Pubic Affairs (which advocates slashing higher education spending by 25 percent) whimpers that state spending is the highest in history at $16.64 billion (up $2.5 billion since 2007), but avoids the inconvenient fact that this is entirely due to large increases in federal grants (also up $2.5 billion since 2007 to $8 billion), most of it welfare-associated.
    We would have to increase state and local spending $6.5 billion to reach the national per capita average.
    This stunning shortfall in spending compared to other states has dreadful consequences: worst roads in the nation, teacher pay at the bottom of the barrel, health statistics that resemble Third World cesspools, and children dying of abuse in unsafe homes. You get what you pay for.
    I have some advice for Gov. Fallin:
    Rather than fly off — one month into the legislative session for a week-long vacation at a posh resort in Puerto Rico (oops, missed the president), how ‘bout sticking around at work? Ya might just learn how to do the job you’re paid to do.
    —D.W. “Bill” Tiffee, Norman

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