Oklahoma Budget Trends and Outlook (December 2009)
Content
OKLAHOMA BUDGET OVERVIEW Trends and Outlook REVISED December 21, 2009 (includes December certificat certification) ion)
David Blatt Oklahoma Policy Institute [email protected] - (918) 85 859-8747
Oklahoma‟s Path to Prosperity
OUR STARTING POINT We invest our tax dollars in our public structures to support our common goals as a state
Oklahoma‟s Path to Prosperity Oklahoma already underfunds most of our public structures and falls short of our common goals as a state
We rank 50th among the states in per capita expenditures on state and local government
We need renewed investment in our public structures to meet our common goals as a state.
Budg Bu dget et Tren rends ds:: FY „0 „02 2 – FY „09 FY ‘02 ‘02 – FY ‘08: ‘08: Bus Bustt and and Boom Boom State
budget suffered steep downturn, deep cuts, ‘02 - ‘04
Strong economy led to robust revenue growth and increased state appropriations between FY ‗06 and FY ‗08
Annual Appropriations Totals,FY ‗00—FY ‗08 (Includes Supplementals thru FY ‗08 and Rainy Day spillover Funds for Recurring Agency Expenditures) - in $millions
$7,500 $6,760
$7,000 $6,217
$6,500 $6,000 $5,500
$7,043
$5,389
$5,491
FY'01
FY'02
$4,981
$5,459 $5,191
$5,145
FY'03
FY'04
$5,000 $4,500 $4,000 FY'00
FY'05
FY'06
FY'07
FY'08
Budg Bu dget et Tre Trend nds: s: FY FY „02 „02 – FY „09 „09 Where did the growth revenue go? Covering rising costs of basic services and supporting targeted investments for shared goals Increased State Appropriations, Selected Agencies, FY ’0 ’06 6 – FY ’0 ’08 8
Dept. of Education: $453M
Human Services: $129M
Health Care Authority: $289M Corrections: $80M Higher Education: $271M
Transportation: $72.5M*
Budg Bu dget et Tre Trend nds: s: FY FY „02 „02 – FY „09 „09 Tax Cuts had a long-term impact
Most of the cuts were to the personal income tax Tax cuts were stretched out over several years; full impact will not be felt until FY ‗11 Lost Revenues Rev enues from Select Tax Cuts Enacte Enacted d 2004 - 2006 2006 FY'05 through FY FY'10 '10 (in $ mill m illions) ions) $776.9
$800.0 $561.8
$600.0 $333.3
$400.0 $200.0
$651.1
$144.8 $18.7
$0.0 FY'05
FY'06
so u r c e : O k l a h o m a T a x C o m m i ss ss i o n
FY'07
FY'08
FY'09
FY'10
Budget Trends: FY ‟02 - FY ‟09 FY‘07 FY‘0 7 – FY’0 FY’08: 8: Reve Revenue nue Slowdo Slowdown wn General
Revenue collections were almost flat in FY ‘08 compared to FY ‘07 (+%0.9, $54 million) Annual % Change in General Revenue Collections, FY '03 - FY '08 20.0% 14.8%
15.0% 10.6%
10.0%
7.6% 4.0%
5.0%
0.9%
0.0% -5.0% -10.0%
-6.6%
FY '02
-5.3%
FY '03
FY '04
FY '05
FY '06
FY '07
FY '08
Budget Trends: FY ‟02 - FY ‟09 FY ’09 Budget: Tightening the Screws
Most agencies appropriations frozen from FY ‘08
No funding for benefit cost increases teacher salary increases, state employee raises
FY „09 excludes supplementals and mid -year budget cut
Budget Trends: FY „10
Budget Trends: FY „10 Things Thing s Are Toug Tough h All Over All
but two states are experiencing the state fiscal crisis
Combined state budget gaps for FY ‘09 FY ‘09 – FY ‗12 ‗12 estima estimated ted to total more than $465 billion
Source: Center on Budget Budget and Policy Priorities
Budget Trends: FY „10 The Recession Hit Oklahoma Late Monthly Unemployment Rate, National and Oklahoma, Oct. 2007 to Oct. 2009 ) % ( e t a R t n e m y o l p m e n U
11.5
10.2%
10.5 9.5 8.5
7.1%
7.5 6.5 5.5 4.5 3.5 2.5 Oct-07
Apr-08
Oct-08 Oklahoma
See OK Policy, “Numbers You Need”, at: http://okpolicy.org/numbers-you-need-key-oklahoma-
Apr-09 National
Oct-09
Budget Trends: FY „10 The Recession Hit Oklahoma Late
3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% 2007.2
2007.3
2007.4
2008.1
2008.2
U.S.
2008.3
2008.4
Oklahoma
2009.1
2009.2
Budget Trends: FY „10 The Recession Hit Oklahoma Late Monthly Month ly Oil and and Gas Prices, Prices, 1986 1986 - 2009 $12.00
$160.00 $140.00
$10.00
$120.00 $8.00
$100.00
$6.00
$80.00 $60.00
$4.00
$40.00 $2.00
$20.00
$-
$ 6 6 7 8 9 0 1 2 3 4 5 6 7 7 8 9 0 1 2 3 4 5 6 7 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 - 1 - 1 - 1 - l - 1 - 1 - 1 - 2 - 2 - 2 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 2 - 2 - 2 - 2 - 2 - 2 - 2 y r r b n c v t p g l y r r b n c n c v t p g n n u u a e o c e u J u a p a e a e o c e u J u a p a e a e J D N O S A J M A M F J D N O S A J M A M F J D
U.S. Natural Gas Wellhead Price (Dollars per Thousand Cubic Feet) Cushing, OK WTI Spot Price FOB (Dollars per Barrel)
Budget Trends: FY „10
FY ‗09 revenue collections went from $224.8 million above estimate (July-Dec) to $672.0 million below estimate (Jan-Jun)
Change in Monthly General Revenue Collections, FY '09 Compared to Same Month, FY '08 15.0%
11.1%
10.8%
10.4%
12.8%
10.0%
7.1%
5.0%
1.3%
0.0%
-5.0% -10.0%
-8.5%
-15.0% -20.0% -21.5%
-25.0%
-19.1%
-21.1%
-30.0%
-27.7%
-35.0% July
Aug
Se p t
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
-30.1%
June
Budget Trends: FY „10
In February, FY ‗10 ‗10 revenues estimated to come in >$600 million below FY ‘08 ;
6,500
5,981.1
6,000
5,946.4
5,902.7 5,710.0
5,649.2 5,500
5,407.2
5,356.6
5,000 FY '06 Actual Fy '07 Ac Actual FY '08 Actual
FY '09 June
FY '09 December
FY '09 February
FY '10 Feburary
Budget Trends: FY „10
$7,231.2 million total, including $641 million ARRA (stimulus)
Increase in total appropriations of $106 million (1.5 percent) compared to FY ‗09
State dollars only: $500 million less than in FY ‘09
(includes supplementals, excludes one-times from Rainy Day Spillover Spillover funds) 7,500 $7,043
7,000
$6,760
6,500
$7,231
$30 ARRA
$6,217
$641
6,000
ARRA
$5,389
5,500 5,000
$7,125
$5,491
$5,459 $5,191
$4,981
$7,095 State
$6,590
$5,145
State
4,500 4,000 FY'00
FY'01
FY'02
FY'03 FY'04 FY'05 FY'06 State tate Appro ppropr priiati ations ons ARRA ARRA
NOTE: FY „09 totals do not include June budget cuts
FY'07
FY'08
FY'09
FY'10
Budg Bu dget et Tren Trends ds:: FY „0 „09 9 – FY „10 „10
10 Largest Agencies: $6.3 billion (88%) Total Appropriations: Agencies (75 agencies): $829 million (12%) $7,231.2 million Includes American Recovery and Reinvestment Act (ARRA)
Total Ten Largest: $6,451.8, 89.2 %
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10
Stimulus funds made it possible to minimize cuts or provide small increases to ten largest state agencies and some smaller ones
Funding for 10 largest agencies up $161 million, 2.6 percent
Most smaller agencies took cuts of 5 to 7 percent
No funding to address rising employee benefit costs or inflation (e.g. utilities, transportation, food)
Demands for some state services increase due to the downturn
See: OK Policy FY ‟10 Budget Review at: http://okpolicy.org/fy-10-budget-information
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10 July-Nov revenue collections down 28.5 percent from FY ‘09 FY ‘09
October better than previous months but November back down
Not clear when we‘ll hit bottom or how long it will take to recover
Change in Monthly General Revenue Collecti Collections, ons, Compared to Same Month Prior Year Year,, July '08 '08 - Nov Nov.. '09 20.0%
11.1% 10.8%
10.0%
10.4%
12.8% 7.1%
1.3%
0.0% -10.0%
-8.5%
-20.0% -21.5%
-30.0%
-19.1%
-21.1% -27.7%
-30.1%
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
-30.1%
-30.5%
-31.6%
-40.0% July
-23.7%
-26.3%
July
Aug
Sept.
Oct
Nov
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10
Three consecutive quarters of worsening collections
Revenue drops more than twice as steep as during the last downturn
30.0% 20.0%
9.9%
10.0% 0.0% -10.0% -20.0%
-15.3%
-12.1%
-26.3%
-30.0%
-29.5%
-40.0% Q1 FY '02
Q3 FY '02
Q1 FY '03
Q3 FY '03
Q1 FY '04
Q3 FY '04
Q1 FY '05
Q3 FY '05
Q1 FY '06
Q3 FY '06
Q1 FY '07
Q3 FY '07
Q1 FY '08
Q3 FY '08
Q1 FY '09
Q3 FY '09
Q1 FY '10
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10 1st quarter revenues lower than 9 years ago – ago – without adjusting for inflation or economic growth
$1,700 $1,567.8
$1,600 $1,500 $1,400 $1,300 $1,200
$1,136.3
$1,100
$1,105.9
$1,000
$995.3
$900 FY'01
FY'02
FY'03
FY'04
FY'05
FY'06
FY'07
FY'08
FY'09
FY'10
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10 Collections through November November are $577.5 million – million – 24.3 percent percent - below the estimat estimate e
OSF cut agencies GR allocations by 5 percent through November and by 10 percent in December
Cuts limited to less than shortfall through transfers of cash reserves ($233.8 ($233.8 million since start start of year) that must be repaid
$0
General Revenue Collections compared to Estimate, by Tax, FY '10 thru November (in $millions) -$11
-$100 -$200
-$300
-$181
-$187
-$49
-$150
-$400 -$500 -$600
-$577
-$700 Net In Inco come me Ta Taxx
Gros Gr osss Pro rodu duct ctio ion n
Sale Sa less Ta Taxx
Moto Mo torr Ve Veh hic icle le
Oth Ot her So Sour urce cess
Totall Ge Tota Gen n. Revenue
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10 HB 1017 collections also failing – failing – 14.9 percent shortfall ($41 million) through November.
Dept. of Education cut November disbursements by 7.1 percent
Agreement
in December to use cash reserves to fund 1017
shortfall Lottery *Other 3% 1%
Total Appropriations= $2,572.1 million
HB 1017 25% Stimulus (ARRA) 6%
General Revenue 65%
*Other includes Prior Year GR, Gross Production Tax, Mineral Leasing Leas ing Fund
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10 December certification projects a $729 million (14.2 percent) shortfall in FY ‘10 GR collections.
$80 million shortfall in HB 1017 Fund as well
Total mid-year shortfall of $809 million
$5,600
$5,415
$5,400 $5,145
$5,200 $5,000 $4,800 $4,600
$729 million
$4,400 $4,200
$4,415
$4,000 100% Estimate - June
Appropriation (95%)
December Projection
Budget Outlook: What W hat Response? Response? Rainy Day Fund is filled to maximum amount of $597 million
Left untouched for initial FY ‗10 budget
$700
$596.6 $571.6
$600
$461.3
$500 $400
$340.9
$300 $200
$496.7
$217.5 $157.5 $72.3
$100
$0.1
$0 2001
2002
2003
2004
2005
2006
2007
2008
2009
Budget Outlook: What W hat Response? Response?
Full RDF potentially available for shortfalls in FY ‗10
Rainy Day Fund can be accessed as follows:
3/8th for a mid-year shortfall in GR collections; ($224M)
3/8th for a projected decline in GR collections for the coming year compared to the current year ($224M);
1/4th upon declaration of an emergency and legislative approval ($149M)
Uses of Constituti onal onal Reserve Fund Emergency, 25.0% - $149M
Forthcoming Year Shortfall, 37.5% - $224M
Current Year Revenue Failure, 37.5% $224M
Budget Outlook: What W hat Response? Response?
Projected shortfall of $809 million shortfall could be filled by:
RDF shortfall shortfall funds funds (3/8ths) (3/8ths) - $224 million million +
RDF emergency emergency funds funds (1/4) - $149 million million
Full year across-the-board cuts of 7.5 percent
+
FY ‘10 Forecast Shortfalls and Rainy Day Fund Impacts ($ in millions) Fore Fo reccas astt App ppro ropr pria iatted Amount (GR+1017)
FY ‘10
General
Projected
Revenue +
% Shortfall % Shortfall % Shortfall % Shortfall % Shortfall with no
Revenue 1017Shortfall Rainy Day Fund
December projections
$
5,777
$4,968 $ $4
809
14.0%
with 3/8ths with 5/8ths with 3/4 of wit withh all of
of RDF
of RDF
RDF
RDF
($224M)
($373M)
($448M)
($597M)
10.1%
7.5%
6.2%
3.7%
Budget Outlook: What W hat Response? Response? FY ‗11 revenue collections projected to remain almost unchanged from FY ‘10 and over 25 percent below pre-downturn pre-downturn (FY ‗08) levels
$5,981
$6,000 $5,649 $5,500
$5,407
$5,519
$5,415
$5,000
$4,500
4,415
4,449
FY '10 Dec (projected)
FY '11 Dec (estimated)
$4,000 FY '06 ActualFY ActualFY '07 ActualFY ActualFY '08 ActualFY '09 Actual Actual FY '10 June June (estimated)
Budget Outlook: What W hat Response? Response?
What‘s the plan? plan?
Seems to involve:
Keep cutting agency budgets every month month
Keep borrowing from any and all available reserves to make up the difference
Tap the Rainy Day Fund to fill part of the gap
Special Session in January?
Budget Outlook: What W hat Response? Response? Gov. Henry: ―Unfortunately, ―Unfortunately, the cuts we have been forced to implement to date are already taking their toll on state programs and services‖ services‖ (Nov. 10, 2009) 2009)
Even at 5 percent monthly cut level, the toll is growing:
DHS has cut senior nutrition services by $7.2 million;
OJA has cancelled youth detention program, cut providers 5 percent, authorized 22 furlough days;
Corrections has cut private contractors; 10-12 furloughs days between March - June (staffing already at historic low of 77 percent of authorized FTEs);
Department of Mental Health and Substance Abuse Services has announced closure of children‘s behavioral health center in Norman, cuts in contracts to providers;
School districts going to 4-day weeks, eliminating programs
Budget Outlook: What W hat Response? Response?
Stimulus Round II
About half of the State Fiscal Stabilization Fund and enhanced Medicaid funds remains available
Other Revenues?
SQ 640 requires a 3/4 th vote of both legislative chambers or vote of the people at time of next general election to raise taxes;
Continuing search for one-time revenues.
Budget Outlook: Beyond FY „10
Time-released tax cuts still kicking in
Additional
revenues automatically allocated for ROADS
and OHLAP Use of one-time one-time funds in FY ‗10 and FY ‗11 create significant problems for FY ‗12
Budget Outlook: Beyond FY „10
Revenues unlikely to recover to pre-downturn nominal levels prior to FY ‗13
$7,000 $6,000 $5,000 $4,000
$5,938
$5,953 $5,518 $5,275 $4,439
$5,945
$4,735
$3,000 $2,000 $1,000
Estimates by OK Policy (pre-December certification)
$FY 07 (act.) (act.) FY 08 (act.) (act.) FY 09 (act.) (act.) FY 10 (est.) (est.) FY 11 (est.) (est.) FY 12 (est.) (est.) FY 13 (est.) (est.)
Budget Outlook : Beyond FY „10 1. Develop and share greater information about projected shortfalls, impact of actual and potential cuts, possible solutions •
Revised forecasts, legislative hearings
2. Use the RDF to minimize the magnitude of budget cuts 3. Defer additional tax cuts until revenues fully recover 4. Change the RDF rules to allow reserve funds to be used any time revenues remain below their pre-downturn peak and to allow for larger reserves 5. Consider new revenue streams for the Medicaid program 6. Develop meaningful multi-year forecasting
Long-Term Fiscal Outlook Oklahoma – Oklahoma – like most states and the federal government – faces a looming structural budget deficit
•
Structural deficit :
A situation that occurs when a state‟s “normal growth of revenues is insufficient to finance the normal growth of expenditures year after year” (CBPP, “Faulty Foundations: State Structural Budget Problems”)
Long-Term Fiscal Outlook Oklahoma’s Structural Deficit Projected Annual Budget Surpluses and Deficits Before and and After 2004-2006 2004-200 6 Tax Cut Cutss (200 (20077 to 2035 2035) ) 1,000 500 0 (500) (1,000) (1,500) (2,000) (2,500) 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035
Source: Projections conducted in 2007 by Dr. Kent Olson, Professor of Economics, Oklahoma State University
Long-Ter Long-T erm m Fiscal Outlook
1.
Modernize the Tax System
2.
Preserve a Balanced Tax Structure
3.
Scrutinize our programs and spending commitments
4.
Make the tax system fairer
For More Information • Oklaho Oklahoma ma Pol Policy icy Ins Instit titute ute’s ’s Onl Online ine Budget Guide
www.okpolicy.org/onlinebudget-guide
Contact Information Oklahoma Policy Institute 228 Robert S. Kerr, Suite 750 Oklahoma City, OK 73102 ph: (405) 601-7692 [email protected]
Oklahoma Policy Institute provides timely and credible analysis of state policy issues
David Blatt Oklahoma Policy Institute [email protected] - (918) 85 859-8747
Oklahoma‟s Path to Prosperity
OUR STARTING POINT We invest our tax dollars in our public structures to support our common goals as a state
Oklahoma‟s Path to Prosperity Oklahoma already underfunds most of our public structures and falls short of our common goals as a state
We rank 50th among the states in per capita expenditures on state and local government
We need renewed investment in our public structures to meet our common goals as a state.
Budg Bu dget et Tren rends ds:: FY „0 „02 2 – FY „09 FY ‘02 ‘02 – FY ‘08: ‘08: Bus Bustt and and Boom Boom State
budget suffered steep downturn, deep cuts, ‘02 - ‘04
Strong economy led to robust revenue growth and increased state appropriations between FY ‗06 and FY ‗08
Annual Appropriations Totals,FY ‗00—FY ‗08 (Includes Supplementals thru FY ‗08 and Rainy Day spillover Funds for Recurring Agency Expenditures) - in $millions
$7,500 $6,760
$7,000 $6,217
$6,500 $6,000 $5,500
$7,043
$5,389
$5,491
FY'01
FY'02
$4,981
$5,459 $5,191
$5,145
FY'03
FY'04
$5,000 $4,500 $4,000 FY'00
FY'05
FY'06
FY'07
FY'08
Budg Bu dget et Tre Trend nds: s: FY FY „02 „02 – FY „09 „09 Where did the growth revenue go? Covering rising costs of basic services and supporting targeted investments for shared goals Increased State Appropriations, Selected Agencies, FY ’0 ’06 6 – FY ’0 ’08 8
Dept. of Education: $453M
Human Services: $129M
Health Care Authority: $289M Corrections: $80M Higher Education: $271M
Transportation: $72.5M*
Budg Bu dget et Tre Trend nds: s: FY FY „02 „02 – FY „09 „09 Tax Cuts had a long-term impact
Most of the cuts were to the personal income tax Tax cuts were stretched out over several years; full impact will not be felt until FY ‗11 Lost Revenues Rev enues from Select Tax Cuts Enacte Enacted d 2004 - 2006 2006 FY'05 through FY FY'10 '10 (in $ mill m illions) ions) $776.9
$800.0 $561.8
$600.0 $333.3
$400.0 $200.0
$651.1
$144.8 $18.7
$0.0 FY'05
FY'06
so u r c e : O k l a h o m a T a x C o m m i ss ss i o n
FY'07
FY'08
FY'09
FY'10
Budget Trends: FY ‟02 - FY ‟09 FY‘07 FY‘0 7 – FY’0 FY’08: 8: Reve Revenue nue Slowdo Slowdown wn General
Revenue collections were almost flat in FY ‘08 compared to FY ‘07 (+%0.9, $54 million) Annual % Change in General Revenue Collections, FY '03 - FY '08 20.0% 14.8%
15.0% 10.6%
10.0%
7.6% 4.0%
5.0%
0.9%
0.0% -5.0% -10.0%
-6.6%
FY '02
-5.3%
FY '03
FY '04
FY '05
FY '06
FY '07
FY '08
Budget Trends: FY ‟02 - FY ‟09 FY ’09 Budget: Tightening the Screws
Most agencies appropriations frozen from FY ‘08
No funding for benefit cost increases teacher salary increases, state employee raises
FY „09 excludes supplementals and mid -year budget cut
Budget Trends: FY „10
Budget Trends: FY „10 Things Thing s Are Toug Tough h All Over All
but two states are experiencing the state fiscal crisis
Combined state budget gaps for FY ‘09 FY ‘09 – FY ‗12 ‗12 estima estimated ted to total more than $465 billion
Source: Center on Budget Budget and Policy Priorities
Budget Trends: FY „10 The Recession Hit Oklahoma Late Monthly Unemployment Rate, National and Oklahoma, Oct. 2007 to Oct. 2009 ) % ( e t a R t n e m y o l p m e n U
11.5
10.2%
10.5 9.5 8.5
7.1%
7.5 6.5 5.5 4.5 3.5 2.5 Oct-07
Apr-08
Oct-08 Oklahoma
See OK Policy, “Numbers You Need”, at: http://okpolicy.org/numbers-you-need-key-oklahoma-
Apr-09 National
Oct-09
Budget Trends: FY „10 The Recession Hit Oklahoma Late
3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% 2007.2
2007.3
2007.4
2008.1
2008.2
U.S.
2008.3
2008.4
Oklahoma
2009.1
2009.2
Budget Trends: FY „10 The Recession Hit Oklahoma Late Monthly Month ly Oil and and Gas Prices, Prices, 1986 1986 - 2009 $12.00
$160.00 $140.00
$10.00
$120.00 $8.00
$100.00
$6.00
$80.00 $60.00
$4.00
$40.00 $2.00
$20.00
$-
$ 6 6 7 8 9 0 1 2 3 4 5 6 7 7 8 9 0 1 2 3 4 5 6 7 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 - 1 - 1 - 1 - l - 1 - 1 - 1 - 2 - 2 - 2 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 2 - 2 - 2 - 2 - 2 - 2 - 2 y r r b n c v t p g l y r r b n c n c v t p g n n u u a e o c e u J u a p a e a e o c e u J u a p a e a e J D N O S A J M A M F J D N O S A J M A M F J D
U.S. Natural Gas Wellhead Price (Dollars per Thousand Cubic Feet) Cushing, OK WTI Spot Price FOB (Dollars per Barrel)
Budget Trends: FY „10
FY ‗09 revenue collections went from $224.8 million above estimate (July-Dec) to $672.0 million below estimate (Jan-Jun)
Change in Monthly General Revenue Collections, FY '09 Compared to Same Month, FY '08 15.0%
11.1%
10.8%
10.4%
12.8%
10.0%
7.1%
5.0%
1.3%
0.0%
-5.0% -10.0%
-8.5%
-15.0% -20.0% -21.5%
-25.0%
-19.1%
-21.1%
-30.0%
-27.7%
-35.0% July
Aug
Se p t
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
-30.1%
June
Budget Trends: FY „10
In February, FY ‗10 ‗10 revenues estimated to come in >$600 million below FY ‘08 ;
6,500
5,981.1
6,000
5,946.4
5,902.7 5,710.0
5,649.2 5,500
5,407.2
5,356.6
5,000 FY '06 Actual Fy '07 Ac Actual FY '08 Actual
FY '09 June
FY '09 December
FY '09 February
FY '10 Feburary
Budget Trends: FY „10
$7,231.2 million total, including $641 million ARRA (stimulus)
Increase in total appropriations of $106 million (1.5 percent) compared to FY ‗09
State dollars only: $500 million less than in FY ‘09
(includes supplementals, excludes one-times from Rainy Day Spillover Spillover funds) 7,500 $7,043
7,000
$6,760
6,500
$7,231
$30 ARRA
$6,217
$641
6,000
ARRA
$5,389
5,500 5,000
$7,125
$5,491
$5,459 $5,191
$4,981
$7,095 State
$6,590
$5,145
State
4,500 4,000 FY'00
FY'01
FY'02
FY'03 FY'04 FY'05 FY'06 State tate Appro ppropr priiati ations ons ARRA ARRA
NOTE: FY „09 totals do not include June budget cuts
FY'07
FY'08
FY'09
FY'10
Budg Bu dget et Tren Trends ds:: FY „0 „09 9 – FY „10 „10
10 Largest Agencies: $6.3 billion (88%) Total Appropriations: Agencies (75 agencies): $829 million (12%) $7,231.2 million Includes American Recovery and Reinvestment Act (ARRA)
Total Ten Largest: $6,451.8, 89.2 %
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10
Stimulus funds made it possible to minimize cuts or provide small increases to ten largest state agencies and some smaller ones
Funding for 10 largest agencies up $161 million, 2.6 percent
Most smaller agencies took cuts of 5 to 7 percent
No funding to address rising employee benefit costs or inflation (e.g. utilities, transportation, food)
Demands for some state services increase due to the downturn
See: OK Policy FY ‟10 Budget Review at: http://okpolicy.org/fy-10-budget-information
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10 July-Nov revenue collections down 28.5 percent from FY ‘09 FY ‘09
October better than previous months but November back down
Not clear when we‘ll hit bottom or how long it will take to recover
Change in Monthly General Revenue Collecti Collections, ons, Compared to Same Month Prior Year Year,, July '08 '08 - Nov Nov.. '09 20.0%
11.1% 10.8%
10.0%
10.4%
12.8% 7.1%
1.3%
0.0% -10.0%
-8.5%
-20.0% -21.5%
-30.0%
-19.1%
-21.1% -27.7%
-30.1%
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
-30.1%
-30.5%
-31.6%
-40.0% July
-23.7%
-26.3%
July
Aug
Sept.
Oct
Nov
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10
Three consecutive quarters of worsening collections
Revenue drops more than twice as steep as during the last downturn
30.0% 20.0%
9.9%
10.0% 0.0% -10.0% -20.0%
-15.3%
-12.1%
-26.3%
-30.0%
-29.5%
-40.0% Q1 FY '02
Q3 FY '02
Q1 FY '03
Q3 FY '03
Q1 FY '04
Q3 FY '04
Q1 FY '05
Q3 FY '05
Q1 FY '06
Q3 FY '06
Q1 FY '07
Q3 FY '07
Q1 FY '08
Q3 FY '08
Q1 FY '09
Q3 FY '09
Q1 FY '10
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10 1st quarter revenues lower than 9 years ago – ago – without adjusting for inflation or economic growth
$1,700 $1,567.8
$1,600 $1,500 $1,400 $1,300 $1,200
$1,136.3
$1,100
$1,105.9
$1,000
$995.3
$900 FY'01
FY'02
FY'03
FY'04
FY'05
FY'06
FY'07
FY'08
FY'09
FY'10
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10 Collections through November November are $577.5 million – million – 24.3 percent percent - below the estimat estimate e
OSF cut agencies GR allocations by 5 percent through November and by 10 percent in December
Cuts limited to less than shortfall through transfers of cash reserves ($233.8 ($233.8 million since start start of year) that must be repaid
$0
General Revenue Collections compared to Estimate, by Tax, FY '10 thru November (in $millions) -$11
-$100 -$200
-$300
-$181
-$187
-$49
-$150
-$400 -$500 -$600
-$577
-$700 Net In Inco come me Ta Taxx
Gros Gr osss Pro rodu duct ctio ion n
Sale Sa less Ta Taxx
Moto Mo torr Ve Veh hic icle le
Oth Ot her So Sour urce cess
Totall Ge Tota Gen n. Revenue
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10 HB 1017 collections also failing – failing – 14.9 percent shortfall ($41 million) through November.
Dept. of Education cut November disbursements by 7.1 percent
Agreement
in December to use cash reserves to fund 1017
shortfall Lottery *Other 3% 1%
Total Appropriations= $2,572.1 million
HB 1017 25% Stimulus (ARRA) 6%
General Revenue 65%
*Other includes Prior Year GR, Gross Production Tax, Mineral Leasing Leas ing Fund
Budg Bu dget et Tren Trends ds:: FY „09 „09 – FY „10 „10 December certification projects a $729 million (14.2 percent) shortfall in FY ‘10 GR collections.
$80 million shortfall in HB 1017 Fund as well
Total mid-year shortfall of $809 million
$5,600
$5,415
$5,400 $5,145
$5,200 $5,000 $4,800 $4,600
$729 million
$4,400 $4,200
$4,415
$4,000 100% Estimate - June
Appropriation (95%)
December Projection
Budget Outlook: What W hat Response? Response? Rainy Day Fund is filled to maximum amount of $597 million
Left untouched for initial FY ‗10 budget
$700
$596.6 $571.6
$600
$461.3
$500 $400
$340.9
$300 $200
$496.7
$217.5 $157.5 $72.3
$100
$0.1
$0 2001
2002
2003
2004
2005
2006
2007
2008
2009
Budget Outlook: What W hat Response? Response?
Full RDF potentially available for shortfalls in FY ‗10
Rainy Day Fund can be accessed as follows:
3/8th for a mid-year shortfall in GR collections; ($224M)
3/8th for a projected decline in GR collections for the coming year compared to the current year ($224M);
1/4th upon declaration of an emergency and legislative approval ($149M)
Uses of Constituti onal onal Reserve Fund Emergency, 25.0% - $149M
Forthcoming Year Shortfall, 37.5% - $224M
Current Year Revenue Failure, 37.5% $224M
Budget Outlook: What W hat Response? Response?
Projected shortfall of $809 million shortfall could be filled by:
RDF shortfall shortfall funds funds (3/8ths) (3/8ths) - $224 million million +
RDF emergency emergency funds funds (1/4) - $149 million million
Full year across-the-board cuts of 7.5 percent
+
FY ‘10 Forecast Shortfalls and Rainy Day Fund Impacts ($ in millions) Fore Fo reccas astt App ppro ropr pria iatted Amount (GR+1017)
FY ‘10
General
Projected
Revenue +
% Shortfall % Shortfall % Shortfall % Shortfall % Shortfall with no
Revenue 1017Shortfall Rainy Day Fund
December projections
$
5,777
$4,968 $ $4
809
14.0%
with 3/8ths with 5/8ths with 3/4 of wit withh all of
of RDF
of RDF
RDF
RDF
($224M)
($373M)
($448M)
($597M)
10.1%
7.5%
6.2%
3.7%
Budget Outlook: What W hat Response? Response? FY ‗11 revenue collections projected to remain almost unchanged from FY ‘10 and over 25 percent below pre-downturn pre-downturn (FY ‗08) levels
$5,981
$6,000 $5,649 $5,500
$5,407
$5,519
$5,415
$5,000
$4,500
4,415
4,449
FY '10 Dec (projected)
FY '11 Dec (estimated)
$4,000 FY '06 ActualFY ActualFY '07 ActualFY ActualFY '08 ActualFY '09 Actual Actual FY '10 June June (estimated)
Budget Outlook: What W hat Response? Response?
What‘s the plan? plan?
Seems to involve:
Keep cutting agency budgets every month month
Keep borrowing from any and all available reserves to make up the difference
Tap the Rainy Day Fund to fill part of the gap
Special Session in January?
Budget Outlook: What W hat Response? Response? Gov. Henry: ―Unfortunately, ―Unfortunately, the cuts we have been forced to implement to date are already taking their toll on state programs and services‖ services‖ (Nov. 10, 2009) 2009)
Even at 5 percent monthly cut level, the toll is growing:
DHS has cut senior nutrition services by $7.2 million;
OJA has cancelled youth detention program, cut providers 5 percent, authorized 22 furlough days;
Corrections has cut private contractors; 10-12 furloughs days between March - June (staffing already at historic low of 77 percent of authorized FTEs);
Department of Mental Health and Substance Abuse Services has announced closure of children‘s behavioral health center in Norman, cuts in contracts to providers;
School districts going to 4-day weeks, eliminating programs
Budget Outlook: What W hat Response? Response?
Stimulus Round II
About half of the State Fiscal Stabilization Fund and enhanced Medicaid funds remains available
Other Revenues?
SQ 640 requires a 3/4 th vote of both legislative chambers or vote of the people at time of next general election to raise taxes;
Continuing search for one-time revenues.
Budget Outlook: Beyond FY „10
Time-released tax cuts still kicking in
Additional
revenues automatically allocated for ROADS
and OHLAP Use of one-time one-time funds in FY ‗10 and FY ‗11 create significant problems for FY ‗12
Budget Outlook: Beyond FY „10
Revenues unlikely to recover to pre-downturn nominal levels prior to FY ‗13
$7,000 $6,000 $5,000 $4,000
$5,938
$5,953 $5,518 $5,275 $4,439
$5,945
$4,735
$3,000 $2,000 $1,000
Estimates by OK Policy (pre-December certification)
$FY 07 (act.) (act.) FY 08 (act.) (act.) FY 09 (act.) (act.) FY 10 (est.) (est.) FY 11 (est.) (est.) FY 12 (est.) (est.) FY 13 (est.) (est.)
Budget Outlook : Beyond FY „10 1. Develop and share greater information about projected shortfalls, impact of actual and potential cuts, possible solutions •
Revised forecasts, legislative hearings
2. Use the RDF to minimize the magnitude of budget cuts 3. Defer additional tax cuts until revenues fully recover 4. Change the RDF rules to allow reserve funds to be used any time revenues remain below their pre-downturn peak and to allow for larger reserves 5. Consider new revenue streams for the Medicaid program 6. Develop meaningful multi-year forecasting
Long-Term Fiscal Outlook Oklahoma – Oklahoma – like most states and the federal government – faces a looming structural budget deficit
•
Structural deficit :
A situation that occurs when a state‟s “normal growth of revenues is insufficient to finance the normal growth of expenditures year after year” (CBPP, “Faulty Foundations: State Structural Budget Problems”)
Long-Term Fiscal Outlook Oklahoma’s Structural Deficit Projected Annual Budget Surpluses and Deficits Before and and After 2004-2006 2004-200 6 Tax Cut Cutss (200 (20077 to 2035 2035) ) 1,000 500 0 (500) (1,000) (1,500) (2,000) (2,500) 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035
Source: Projections conducted in 2007 by Dr. Kent Olson, Professor of Economics, Oklahoma State University
Long-Ter Long-T erm m Fiscal Outlook
1.
Modernize the Tax System
2.
Preserve a Balanced Tax Structure
3.
Scrutinize our programs and spending commitments
4.
Make the tax system fairer
For More Information • Oklaho Oklahoma ma Pol Policy icy Ins Instit titute ute’s ’s Onl Online ine Budget Guide
www.okpolicy.org/onlinebudget-guide
Contact Information Oklahoma Policy Institute 228 Robert S. Kerr, Suite 750 Oklahoma City, OK 73102 ph: (405) 601-7692 [email protected]
Oklahoma Policy Institute provides timely and credible analysis of state policy issues
