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.