Oklahoma Budget Trends and Outlook (Feb 2010)
Content
OKLAHOMA BUDGET OVERVIEW
Trends and Outlook
REVISED February 4, 2010
David Blatt Oklahoma Policy Institute
[email protected] - (918) 794-3944
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
We Already Lag Behind
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.
Budget Trends: FY „02 – FY „09
FY ‘02 – FY ‘08: Bust and 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
(Includes Supplementals thru FY ‗08 and Rainy Day spillover Funds for Recurring Agency Expenditures) - in $millions $7,500 $7,000 $6,500 $6,000 $5,500 $5,000 $4,500 $4,000 FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 $5,389 $4,981 $5,491 $5,191 $5,145 $5,459 $6,217 $6,760 $7,043
Annual Appropriations Totals,FY ‗00—FY ‗08
Budget Trends: FY „02 – FY „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 ’06 – FY ’08
Dept. of Education: $453M Human Services: $129M
Health Care Authority: $289M Corrections: $80M Higher Education: $271M Transportation: $72.5M*
Budget Trends: FY „02 – FY „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 from Select Tax Cuts Enacted 2004 - 2006 FY'05 through FY'10 (in $ millions) $800.0 $600.0 $400.0 $200.0 $0.0 $18.7 FY'05 $144.8 $333.3 $561.8 $776.9 $651.1
FY'06
FY'07
FY'08
FY'09
FY'10
sour c e : Ok l a homa Ta x C ommi ssi on
Budget Trends: FY ‟02 - FY ‟09
FY‘07 – FY’08: Revenue Slowdown
As tax cuts kicked in, 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% 15.0%
10.6%
14.8%
10.0% 5.0% 0.0% -5.0% -10.0%
-6.6% -5.3%
7.6%
4.0%
0.9%
FY '02
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 Are Tough All Over
All but two states are experiencing the state fiscal crisis
Combined state budget gaps for FY ‘09 – FY ‗12 estimated to total more than $465 billion
Source: Center on Budget and Policy Priorities
Budget Trends: FY „10
This is As Bad as It’s Ever Been
Annual General Revenue Collections, in $ millions, FY '82 - FY '11 (FY '10 & FY'11 based on Dec. 2009 certification)
7,000 6,000 5,000
4,000
3,000 2,000 1,000 -
1995
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Budget Trends: FY „10
The Recession Hit Oklahoma Late
Monthly Unemployment Rate, National and Oklahoma, Oct. 2007 to Oct. 2009
11.5
Unemployment Rate (%)
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
Oklahoma
Oct-08
National
Apr-09
Oct-09
See OK Policy, “Numbers You Need”, at: http://okpolicy.org/numbers-you-need-key-oklahomaeconomic-and-budget-trends
Budget Trends: FY „10
The Recession Hit Oklahoma Late
% Change from Prior Quarter
Quarterly Change in Personal Income, Oklahoma and National, 3rd Quarter 2007 to 3rd Quarter 2009
5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% 2007.3 2007.4 2008.1 2008.2 2008.3 2008.4 2009.1 2009.2 2009.3
U.S.
Oklahoma
Budget Trends: FY „10
FY ’09: A Tale of Two Half-Years
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% 10.0% 5.0% 0.0%
1.3% 11.1% 10.8% 10.4% 12.8% 7.1%
-5.0%
-10.0% -15.0% -20.0% -25.0% -30.0% -35.0% July Aug Sept Oct Nov Dec Jan Feb Mar Apr May
-21.5% -19.1% -21.1% -27.7% -30.1% -8.5%
June
Budget Trends: FY „10
FY ’10 Budget: Revenues on the Skids
In February, FY ‗10 revenues estimated to come in >$600 million below FY ‘09 ;
6,500
General Revenue Collections, FY '06 Actual - FY '10 Estimated (in $million)
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 Actual FY '08 Actual FY '09 June FY '09 December FY '09 February FY '10 Feburary
Budget Trends: FY „10
FY ‘10 Budget
$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
State Appropriations History, FY '00 - FY '10 in $millions) (includes supplementals, excludes one-times from Rainy Day Spillover funds)
7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 State Appropriations ARRA FY'07 FY'08 FY'09 FY'10
$4,981 $5,389 $5,491 $5,191 $5,459 $6,217 $7,043 $6,760
$7,125 $30
ARRA
$7,231
$641
$7,095
State
ARRA
$5,145
$6,590
State
NOTE: FY „09 totals do not include June budget cuts
Budget Trends: FY „10
FY ’10 State Appropriations
Total $503.0 $208.7 , 3% Appropriations: Agencies (75 agencies): $829 million (12%) Mental Health, 7% $7,231.2 million OHCA (Medicaid), $203.3 , 3% Includes $979.8 , 13% American Career Tech, Recovery and $157.8 , 2% Reinvestment Higher Ed., Juv. Affairs, Act (ARRA)
$1,070.7 , 15% $112.4 , 1%
10 Largest Agencies: $6.3 billion (88%)Transportation, $550.7 , 8% Corrections
DHS,
Total Ten Largest: $6,451.8, 89.2 %
Common Ed., $2,572.0 , 36%
All Other Agencies, $779.4 , 11%
Public Safety, $93.3 , 1%
Budget Trends: FY „10
FY ‘10 Budget
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
Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
July-Dec revenue collections down 28.6 percent from FY ‘09 October better than previous months but November and December back down
Not clear when we‘ll hit bottom or how long it will take to recover
Change in Monthly General Revenue Collections, Compared to Same Month Prior Year, July '08 - Dec. '09
20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June July
-21.5% -8.5% 11.1% 10.8% 1.3% 10.4% 12.8% 7.1%
-19.1%
-21.1% -27.7% -30.1%
-26.3% -31.6%
-23.7% -30.1% -30.5%
-29.1%
Aug Sept. Oct
Nov
Dec
Budget Trends: FY „10
FY ’10 : Off to a Very Rough Start
Four consecutive quarters of worsening collections Revenue drops more than twice as steep as during the last downturn
Quarterly Year-over-Year Change in GR Collections, Oklahoma, FY '02 - FY'10
40.0% 20.0% 0.0% -20.0% -40.0% Q1 FY '02
9.9%
-12.1% -29.5% 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
Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
Collections through December are $756.1 million – 25.6 percent - below the estimate
General Revenue Collections compared to Estimate, by Tax, FY '10 thru December (in $millions)
$0 -$100 -$200 -$300 -$400 -$500 -$600 -$700 -$800 Net Income Tax Gross Production Sales Tax Motor Vehicle Other Sources -$756 Total Gen. Revenue -$173 -$202 -$8 -$56
-$319
Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
OSF cut agencies GR allocations by 5 percent through November and by 10 percent in December and January. Cuts are across-the-board based on GR allocations Since some agencies are partly or fully appropriated from other funds (i.e. 1017 Fund, State Transportation Fund, Lottery, ARRA), agencies are not all affected equally Cuts limited to less than shortfall through transfers of cash reserves ($233.8 million since start of year) that must be repaid
Budget Trends: FY „10
Budget Outlook
Gov. Henry: ―Unfortunately, the cuts we have been forced to implement to date are already taking their toll on state programs and services‖ (Nov. 10, 2009) Even at 5-10 percent monthly cut level, the toll is growing:
DHS has cut senior nutrition services by $7.2 million; OJA has cancelled youth detention and gang prevention programs, cut providers 5 percent, authorized 22 furlough days; OHCA has cut some Medicaid benefits and reduced provider rates by an initial 2.5 percent Department of Mental Health and Substance Abuse Services has announced closure of children‘s behavioral health center in Norman, lay-offs cuts in contracts to providers; School districts eliminating programs, some going to 4-day weeks
Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
HB 1017 collections also 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
FY '10 Dept. of Education Funding by Revenue Source
Lottery *Other 3% 1%
HB 1017 25% Stimulus (ARRA) 6%
Total Appropriations= $2,572.1 million
General Revenue 65%
*Other includes Prior Year GR, Gross Production Tax, Mineral Leasing Fund
Budget Trends: FY „10
FY ‘10 : How Large a Shortfall?
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 FY '10 General Revenues - Original vs. Revised Projections
$5,600 $5,400 $5,200 $5,000 $4,800 $4,600 $4,400 $4,200 $4,000 100% Estimate - June Appropriation (95%) December Projection $4,415 $5,415 $5,145
$729 million
Budget Outlook: What Response?
Shortfall Options
Rainy Day Fund is filled to maximum amount of $597 million Left untouched for initial FY ‗10 budget
Rainy Day Fund Balances, FY '01 - FY '09 (opening balance in $ millions) $596.6 $571.6 $461.3 $340.9 $217.5 $157.5 $72.3 $0.1
2001 2002 2003 2004 2005 2006 2007 2008 2009
$700 $600 $500 $400 $300 $200 $100
$496.7
$0
Budget Outlook: What Response?
Shortfall Options
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 Constitutional Reserve Fund
Emergency, 25.0% - $149M
Current Year Revenue Failure, 37.5% $224M
Forthcoming Year Shortfall, 37.5% - $224M
Budget Outlook: What Response?
FY ‘10 Shortfall Agreement
Agreement announced by Governor, Speaker and President Pro Tem in late January
Main components: Continued 10 percent monthly cuts to GR for rest of year Averages out to 7.5 percent full year across-the-board cuts Supplemental funding to Common Ed of $104 million to offset part of GR and 1017 shortfalls $25.6 M to Higher Ed; $33M to OHCA; $7.2M to Corrections; $1.2M to Rehab Services and $10M unspecified Agreement requires $545 million in additional revenue to balance. No formal agreement on revenues Gov‘s budget allocates $485.6M from RDF, unspecified amounts from agency funds and surplus oil funds
Budget Outlook: FY „11
FY ‘11: More of the Same
FY ‗11 revenue collections projected to remain almost unchanged from FY ‘10 and over 25 percent below pre-downturn (FY ‗08) levels
General Revenue Collections, FY '06 Actual - FY '11 Estimated (in $ millions)
$6,000 $5,500 $5,000 $4,500 $4,000
FY '06 Actual FY '07 Actual FY '08 Actual FY '09 Actual FY '10 June (estimated) FY '10 Dec (projected) FY '11 Dec (estimated)
$5,928 $5,714
$5,981
$5,519
$5,415
$ 4,415
$4,449
Budget Outlook: FY „11
FY ‘11: More of the Same
Initial FY ‗11 certification provides nearly $2 billion less revenue for next year than this year‘s initial budget
State Appropriations, FY'08- FY '11
$8,000
(includes all revenues; includes FY '08- FY '09 supplementals; in $millions)
$7,043
$7,124 $7,231 $6,422 $6,967 $6,797
$7,000
$6,000 $5,294 $5,000
$4,000 FY'08 FY'09 FY'10 initial budget FY '10 projected shortfall FY '10 Leadership agreement FY '11 - FY '11 - Gov Certified Budget State $ (Dec)
Budget Outlook: FY „11
FY ‘11: More of the Same
To budget the balance, Gov. Henry proposes: Annualizing and increasing FY„10 cuts by an additional 0.5 percent to 3 percent for all agencies. Using remaining stimulus funds and a portion of remaining Rainy Day Funds. Savings from consolidating agencies and IT services. New bond issues. Enhanced tax collection proposals, particularly increased sales tax collections on Internet sales and automated enforcement of vehicle insurance; Eliminating and suspending various tax credits;
Increases in fees and permits.
Budget Outlook: FY „11
FY ‘11: More of the Same
Many of the revenue enhancements and savings in the Governor‘s budget proposal are unlikely to gain legislative approval or have the full estimated fiscal impact . Even under the Governor‘s proposals, the cuts to agency programs and services would be deep and widespread Most agencies face FY ’11 funding 10 to 17 percent below their budgets for FY ’09. Even those core agencies in education, health, human services, and public safety that are partially protected will take cuts in FY ’10 and FY ’11 and are not funded in FY ’11 to deal with rising operating costs and caseloads. Shortfalls may be less severe if February recertification projects stronger revenue recovery over next 16 months
Budget Outlook: Looking Ahead
Budget Outlook: No Quick Recovery
Time-released tax cuts still kicking in Top rate will fall from 5.5% to 5.25% as soon as revenues are projected to grow 4%... Even if revenues remain below pre-downturn levels Additional revenues automatically allocated for ROADS and OHLAP Use of one-time funds in FY ‗10 and FY ‗11 creates significant problems for FY ‗12
Budget Outlook: Looking Ahead
Budget Outlook: No Quick Recovery
Revenues unlikely to recover to pre-downturn nominal levels prior to FY ‗13
Historical and Projected Revenue, FY'07-FY'13 General Revenue Fund
$6,500
Revenue in $millions
$6,000 $5,500 $5,000 $4,500 $4,000
$5,928
$5,981 $5,544 $5,945
Estimates by OK Policy - not based on Dec. 2009 certification
$5,275
$4,735 $4,439
FY 07 (act.)FY 08 (act.)FY 09 (act.)FY 10 (est.)FY 11 (est.)FY 12 (est.)FY 13 (est.)
Fiscal Year
Budget Outlook : Beyond FY „10
Short-Term Recommendations
1. Develop and share greater information about impact of actual and potential cuts, possible solutions 2. Use the RDF to minimize the magnitude of budget cuts 3. Defer additional tax cuts until revenues fully recover 4. Suspend and cap some tax breaks and incentives 5. 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 6. Consider new revenue streams for the Medicaid program 7. Expand and improve forecasting capacities
Long-Term Fiscal Outlook
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
1,000 500
M i l l i o n $2005
Projected Annual Budget Surpluses and Deficits Before and After 2004-2006 Tax Cuts (2007 to 2035)
0 (500) (1,000) (1,500) (2,000) (2,500) Before Tax Cuts After Tax Cuts
2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 Year Source: Projections conducted in 2007 by Dr. Kent Olson, Professor of Economics, Oklahoma State University
Long-Term Fiscal Outlook
Long-Term Recommendations
1. 2. 3. Modernize the Tax System Preserve a Balanced Tax Structure Scrutinize our programs and spending commitments
4.
Make the tax system fairer
For More Information
• Updated Budget Information: okpolicy.org/fy-10-fy11budget-information • Oklahoma Policy Institute’s Online Budget Guide www.okpolicy.org/onlinebudget-guide
Contact Information
Oklahoma Policy Institute
P.O. Box 14347 Tulsa, OK 74159-1437 (918) 794-3944 [email protected]
Oklahoma Policy Institute provides timely and credible analysis of state policy issues
Better Information, Better Policy www.okpolicy.org
Trends and Outlook
REVISED February 4, 2010
David Blatt Oklahoma Policy Institute
[email protected] - (918) 794-3944
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
We Already Lag Behind
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.
Budget Trends: FY „02 – FY „09
FY ‘02 – FY ‘08: Bust and 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
(Includes Supplementals thru FY ‗08 and Rainy Day spillover Funds for Recurring Agency Expenditures) - in $millions $7,500 $7,000 $6,500 $6,000 $5,500 $5,000 $4,500 $4,000 FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 $5,389 $4,981 $5,491 $5,191 $5,145 $5,459 $6,217 $6,760 $7,043
Annual Appropriations Totals,FY ‗00—FY ‗08
Budget Trends: FY „02 – FY „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 ’06 – FY ’08
Dept. of Education: $453M Human Services: $129M
Health Care Authority: $289M Corrections: $80M Higher Education: $271M Transportation: $72.5M*
Budget Trends: FY „02 – FY „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 from Select Tax Cuts Enacted 2004 - 2006 FY'05 through FY'10 (in $ millions) $800.0 $600.0 $400.0 $200.0 $0.0 $18.7 FY'05 $144.8 $333.3 $561.8 $776.9 $651.1
FY'06
FY'07
FY'08
FY'09
FY'10
sour c e : Ok l a homa Ta x C ommi ssi on
Budget Trends: FY ‟02 - FY ‟09
FY‘07 – FY’08: Revenue Slowdown
As tax cuts kicked in, 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% 15.0%
10.6%
14.8%
10.0% 5.0% 0.0% -5.0% -10.0%
-6.6% -5.3%
7.6%
4.0%
0.9%
FY '02
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 Are Tough All Over
All but two states are experiencing the state fiscal crisis
Combined state budget gaps for FY ‘09 – FY ‗12 estimated to total more than $465 billion
Source: Center on Budget and Policy Priorities
Budget Trends: FY „10
This is As Bad as It’s Ever Been
Annual General Revenue Collections, in $ millions, FY '82 - FY '11 (FY '10 & FY'11 based on Dec. 2009 certification)
7,000 6,000 5,000
4,000
3,000 2,000 1,000 -
1995
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Budget Trends: FY „10
The Recession Hit Oklahoma Late
Monthly Unemployment Rate, National and Oklahoma, Oct. 2007 to Oct. 2009
11.5
Unemployment Rate (%)
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
Oklahoma
Oct-08
National
Apr-09
Oct-09
See OK Policy, “Numbers You Need”, at: http://okpolicy.org/numbers-you-need-key-oklahomaeconomic-and-budget-trends
Budget Trends: FY „10
The Recession Hit Oklahoma Late
% Change from Prior Quarter
Quarterly Change in Personal Income, Oklahoma and National, 3rd Quarter 2007 to 3rd Quarter 2009
5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% 2007.3 2007.4 2008.1 2008.2 2008.3 2008.4 2009.1 2009.2 2009.3
U.S.
Oklahoma
Budget Trends: FY „10
FY ’09: A Tale of Two Half-Years
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% 10.0% 5.0% 0.0%
1.3% 11.1% 10.8% 10.4% 12.8% 7.1%
-5.0%
-10.0% -15.0% -20.0% -25.0% -30.0% -35.0% July Aug Sept Oct Nov Dec Jan Feb Mar Apr May
-21.5% -19.1% -21.1% -27.7% -30.1% -8.5%
June
Budget Trends: FY „10
FY ’10 Budget: Revenues on the Skids
In February, FY ‗10 revenues estimated to come in >$600 million below FY ‘09 ;
6,500
General Revenue Collections, FY '06 Actual - FY '10 Estimated (in $million)
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 Actual FY '08 Actual FY '09 June FY '09 December FY '09 February FY '10 Feburary
Budget Trends: FY „10
FY ‘10 Budget
$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
State Appropriations History, FY '00 - FY '10 in $millions) (includes supplementals, excludes one-times from Rainy Day Spillover funds)
7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 State Appropriations ARRA FY'07 FY'08 FY'09 FY'10
$4,981 $5,389 $5,491 $5,191 $5,459 $6,217 $7,043 $6,760
$7,125 $30
ARRA
$7,231
$641
$7,095
State
ARRA
$5,145
$6,590
State
NOTE: FY „09 totals do not include June budget cuts
Budget Trends: FY „10
FY ’10 State Appropriations
Total $503.0 $208.7 , 3% Appropriations: Agencies (75 agencies): $829 million (12%) Mental Health, 7% $7,231.2 million OHCA (Medicaid), $203.3 , 3% Includes $979.8 , 13% American Career Tech, Recovery and $157.8 , 2% Reinvestment Higher Ed., Juv. Affairs, Act (ARRA)
$1,070.7 , 15% $112.4 , 1%
10 Largest Agencies: $6.3 billion (88%)Transportation, $550.7 , 8% Corrections
DHS,
Total Ten Largest: $6,451.8, 89.2 %
Common Ed., $2,572.0 , 36%
All Other Agencies, $779.4 , 11%
Public Safety, $93.3 , 1%
Budget Trends: FY „10
FY ‘10 Budget
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
Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
July-Dec revenue collections down 28.6 percent from FY ‘09 October better than previous months but November and December back down
Not clear when we‘ll hit bottom or how long it will take to recover
Change in Monthly General Revenue Collections, Compared to Same Month Prior Year, July '08 - Dec. '09
20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June July
-21.5% -8.5% 11.1% 10.8% 1.3% 10.4% 12.8% 7.1%
-19.1%
-21.1% -27.7% -30.1%
-26.3% -31.6%
-23.7% -30.1% -30.5%
-29.1%
Aug Sept. Oct
Nov
Dec
Budget Trends: FY „10
FY ’10 : Off to a Very Rough Start
Four consecutive quarters of worsening collections Revenue drops more than twice as steep as during the last downturn
Quarterly Year-over-Year Change in GR Collections, Oklahoma, FY '02 - FY'10
40.0% 20.0% 0.0% -20.0% -40.0% Q1 FY '02
9.9%
-12.1% -29.5% 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
Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
Collections through December are $756.1 million – 25.6 percent - below the estimate
General Revenue Collections compared to Estimate, by Tax, FY '10 thru December (in $millions)
$0 -$100 -$200 -$300 -$400 -$500 -$600 -$700 -$800 Net Income Tax Gross Production Sales Tax Motor Vehicle Other Sources -$756 Total Gen. Revenue -$173 -$202 -$8 -$56
-$319
Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
OSF cut agencies GR allocations by 5 percent through November and by 10 percent in December and January. Cuts are across-the-board based on GR allocations Since some agencies are partly or fully appropriated from other funds (i.e. 1017 Fund, State Transportation Fund, Lottery, ARRA), agencies are not all affected equally Cuts limited to less than shortfall through transfers of cash reserves ($233.8 million since start of year) that must be repaid
Budget Trends: FY „10
Budget Outlook
Gov. Henry: ―Unfortunately, the cuts we have been forced to implement to date are already taking their toll on state programs and services‖ (Nov. 10, 2009) Even at 5-10 percent monthly cut level, the toll is growing:
DHS has cut senior nutrition services by $7.2 million; OJA has cancelled youth detention and gang prevention programs, cut providers 5 percent, authorized 22 furlough days; OHCA has cut some Medicaid benefits and reduced provider rates by an initial 2.5 percent Department of Mental Health and Substance Abuse Services has announced closure of children‘s behavioral health center in Norman, lay-offs cuts in contracts to providers; School districts eliminating programs, some going to 4-day weeks
Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
HB 1017 collections also 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
FY '10 Dept. of Education Funding by Revenue Source
Lottery *Other 3% 1%
HB 1017 25% Stimulus (ARRA) 6%
Total Appropriations= $2,572.1 million
General Revenue 65%
*Other includes Prior Year GR, Gross Production Tax, Mineral Leasing Fund
Budget Trends: FY „10
FY ‘10 : How Large a Shortfall?
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 FY '10 General Revenues - Original vs. Revised Projections
$5,600 $5,400 $5,200 $5,000 $4,800 $4,600 $4,400 $4,200 $4,000 100% Estimate - June Appropriation (95%) December Projection $4,415 $5,415 $5,145
$729 million
Budget Outlook: What Response?
Shortfall Options
Rainy Day Fund is filled to maximum amount of $597 million Left untouched for initial FY ‗10 budget
Rainy Day Fund Balances, FY '01 - FY '09 (opening balance in $ millions) $596.6 $571.6 $461.3 $340.9 $217.5 $157.5 $72.3 $0.1
2001 2002 2003 2004 2005 2006 2007 2008 2009
$700 $600 $500 $400 $300 $200 $100
$496.7
$0
Budget Outlook: What Response?
Shortfall Options
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 Constitutional Reserve Fund
Emergency, 25.0% - $149M
Current Year Revenue Failure, 37.5% $224M
Forthcoming Year Shortfall, 37.5% - $224M
Budget Outlook: What Response?
FY ‘10 Shortfall Agreement
Agreement announced by Governor, Speaker and President Pro Tem in late January
Main components: Continued 10 percent monthly cuts to GR for rest of year Averages out to 7.5 percent full year across-the-board cuts Supplemental funding to Common Ed of $104 million to offset part of GR and 1017 shortfalls $25.6 M to Higher Ed; $33M to OHCA; $7.2M to Corrections; $1.2M to Rehab Services and $10M unspecified Agreement requires $545 million in additional revenue to balance. No formal agreement on revenues Gov‘s budget allocates $485.6M from RDF, unspecified amounts from agency funds and surplus oil funds
Budget Outlook: FY „11
FY ‘11: More of the Same
FY ‗11 revenue collections projected to remain almost unchanged from FY ‘10 and over 25 percent below pre-downturn (FY ‗08) levels
General Revenue Collections, FY '06 Actual - FY '11 Estimated (in $ millions)
$6,000 $5,500 $5,000 $4,500 $4,000
FY '06 Actual FY '07 Actual FY '08 Actual FY '09 Actual FY '10 June (estimated) FY '10 Dec (projected) FY '11 Dec (estimated)
$5,928 $5,714
$5,981
$5,519
$5,415
$ 4,415
$4,449
Budget Outlook: FY „11
FY ‘11: More of the Same
Initial FY ‗11 certification provides nearly $2 billion less revenue for next year than this year‘s initial budget
State Appropriations, FY'08- FY '11
$8,000
(includes all revenues; includes FY '08- FY '09 supplementals; in $millions)
$7,043
$7,124 $7,231 $6,422 $6,967 $6,797
$7,000
$6,000 $5,294 $5,000
$4,000 FY'08 FY'09 FY'10 initial budget FY '10 projected shortfall FY '10 Leadership agreement FY '11 - FY '11 - Gov Certified Budget State $ (Dec)
Budget Outlook: FY „11
FY ‘11: More of the Same
To budget the balance, Gov. Henry proposes: Annualizing and increasing FY„10 cuts by an additional 0.5 percent to 3 percent for all agencies. Using remaining stimulus funds and a portion of remaining Rainy Day Funds. Savings from consolidating agencies and IT services. New bond issues. Enhanced tax collection proposals, particularly increased sales tax collections on Internet sales and automated enforcement of vehicle insurance; Eliminating and suspending various tax credits;
Increases in fees and permits.
Budget Outlook: FY „11
FY ‘11: More of the Same
Many of the revenue enhancements and savings in the Governor‘s budget proposal are unlikely to gain legislative approval or have the full estimated fiscal impact . Even under the Governor‘s proposals, the cuts to agency programs and services would be deep and widespread Most agencies face FY ’11 funding 10 to 17 percent below their budgets for FY ’09. Even those core agencies in education, health, human services, and public safety that are partially protected will take cuts in FY ’10 and FY ’11 and are not funded in FY ’11 to deal with rising operating costs and caseloads. Shortfalls may be less severe if February recertification projects stronger revenue recovery over next 16 months
Budget Outlook: Looking Ahead
Budget Outlook: No Quick Recovery
Time-released tax cuts still kicking in Top rate will fall from 5.5% to 5.25% as soon as revenues are projected to grow 4%... Even if revenues remain below pre-downturn levels Additional revenues automatically allocated for ROADS and OHLAP Use of one-time funds in FY ‗10 and FY ‗11 creates significant problems for FY ‗12
Budget Outlook: Looking Ahead
Budget Outlook: No Quick Recovery
Revenues unlikely to recover to pre-downturn nominal levels prior to FY ‗13
Historical and Projected Revenue, FY'07-FY'13 General Revenue Fund
$6,500
Revenue in $millions
$6,000 $5,500 $5,000 $4,500 $4,000
$5,928
$5,981 $5,544 $5,945
Estimates by OK Policy - not based on Dec. 2009 certification
$5,275
$4,735 $4,439
FY 07 (act.)FY 08 (act.)FY 09 (act.)FY 10 (est.)FY 11 (est.)FY 12 (est.)FY 13 (est.)
Fiscal Year
Budget Outlook : Beyond FY „10
Short-Term Recommendations
1. Develop and share greater information about impact of actual and potential cuts, possible solutions 2. Use the RDF to minimize the magnitude of budget cuts 3. Defer additional tax cuts until revenues fully recover 4. Suspend and cap some tax breaks and incentives 5. 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 6. Consider new revenue streams for the Medicaid program 7. Expand and improve forecasting capacities
Long-Term Fiscal Outlook
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
1,000 500
M i l l i o n $2005
Projected Annual Budget Surpluses and Deficits Before and After 2004-2006 Tax Cuts (2007 to 2035)
0 (500) (1,000) (1,500) (2,000) (2,500) Before Tax Cuts After Tax Cuts
2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 Year Source: Projections conducted in 2007 by Dr. Kent Olson, Professor of Economics, Oklahoma State University
Long-Term Fiscal Outlook
Long-Term Recommendations
1. 2. 3. Modernize the Tax System Preserve a Balanced Tax Structure Scrutinize our programs and spending commitments
4.
Make the tax system fairer
For More Information
• Updated Budget Information: okpolicy.org/fy-10-fy11budget-information • Oklahoma Policy Institute’s Online Budget Guide www.okpolicy.org/onlinebudget-guide
Contact Information
Oklahoma Policy Institute
P.O. Box 14347 Tulsa, OK 74159-1437 (918) 794-3944 [email protected]
Oklahoma Policy Institute provides timely and credible analysis of state policy issues
Better Information, Better Policy www.okpolicy.org
