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Oklahoma Budget Trends and Outlook (Rev. Jan 13, 2010)
Oklahoma Budget Trends and Outlook (Rev. Jan 13, 2010)
Oklahoma Budget Trends and Outlook (Rev. Jan 13, 2010)
David Blatt
Oklahoma Policy Institute
dblatt@okpolicy.org - (918) 859-8747
Oklahoma‟s Path to Prosperity
$7,500
$7,043
$7,000 $6,760
$6,500 $6,217
$6,000
$5,389 $5,491 $5,459
$5,500 $5,191 $5,145
$4,981
$5,000
$4,500
$4,000
FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08
Budget Trends: FY „02 – FY „09
$776.9
$800.0 $651.1
$561.8
$600.0
$400.0 $333.3
$200.0 $144.8
$18.7
$0.0
FY'05 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%
14.8%
15.0%
10.6%
10.0% 7.6%
5.0% 4.0%
0.9%
0.0%
-5.0%
-5.3%
-6.6%
-10.0%
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
6,000
5,000
4,000
3,000
2,000
1,000
-
1990
2008
1982
1983
1984
1985
1986
1987
1988
1989
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2009
2010
2011
Budget Trends: FY „10
11.5 10.2%
Unemployment Rate (%)
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 Apr-09 Oct-09
Oklahoma National
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)
-30.0% -27.7%
-30.1%
-35.0%
July Aug Sept Oct Nov Dec Jan Feb Mar Apr May 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 5,946.4
6,000 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 FY '09 FY '10
December February 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
4,500
4,000
FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 FY'09 FY'10
State Appropriations ARRA
20.0% 9.9%
0.0%
-20.0% -12.1%
-29.5%
-40.0%
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY
'02 '02 '03 '03 '04 '04 '05 '05 '06 '06 '07 '07 '08 '08 '09 '09 '10
Budget Trends: FY „09 – FY „10
FY ‘10 : Off to a Very Rough Start
Collections through December are $756.1 million – 25.6
percent - below the estimate
-$500
-$600
-$700
-$800 -$756
Net Income Tax Gross Production Sales Tax Motor Vehicle Other Sources Total Gen.
Revenue
Budget Trends: FY „09 – 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
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 „09 – 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
1% 3%
Total
HB 1017 Appropriations=
25% $2,572.1 million
General
*Other includes Prior
Stimulus (ARRA) Revenue Year GR, Gross
6% 65% Production Tax, Mineral
Leasing Fund
Budget Trends: FY „09 – 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 $5,415
$5,400
$5,145
$5,200
$5,000
$4,800
$4,600 $4,415
$4,400 $729
million
$4,200
$4,000
100% Estimate - June Appropriation (95%) December Projection
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)
$700
$596.6
$600 $571.6
$496.7
$500 $461.3
$400 $340.9
$300
$217.5
$200 $157.5
$100 $72.3
$0.1
$0
2001 2002 2003 2004 2005 2006 2007 2008 2009
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?
Shortfall Options
Projected shortfall of $809 million shortfall could be filled
by:
RDF shortfall funds (3/8ths) - $224 million +
RDF emergency funds (1/4) - $149 million +
Full year across-the-board cuts of 7.5 percent
FY ‘10 Forecast Shortfalls and Rainy Day Fund Impacts ($ in millions)
Forecast Appropriated FY ‘10 General % Shortfall % Shortfall % Shortfall % Shortfall % Shortfall
Amount Projected Revenue + with no with 3/8ths with 5/8ths with 3/4 of with all of
(GR+1017) Revenue 1017Shortfall Rainy Day of RDF of RDF RDF RDF
Fund ($224M) ($373M) ($448M) ($597M)
December $ 5,777 $4,968 $ 809 14.0% 10.1% 7.5% 6.2% 3.7%
projections
Budget Outlook: What Response?
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
$5,000
$ 4,415 $4,449
$4,500
$4,000
FY '06 Actual FY '07 Actual FY '08 Actual FY '09 Actual FY '10 June FY '10 Dec FY '11 Dec
(estimated) (projected) (estimated)
Budget Outlook: What Response?
Budget Outlook
What‘s the plan for FY ‗10?
Seems to involve:
Continue across-the-board agency budgets cuts every
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
Budget Outlook: What Response?
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:
Stimulus Round II
About half of the State Fiscal Stabilization Fund and enhanced
Medicaid funds remains available
Other Revenues?
SQ 640 requires a 3/4th vote of both legislative chambers or
vote of the people at time of next general election to raise taxes;
Continuing search for one-time or ongoing ―revenue
enhancements‖
Budget Outlook: Beyond FY „10
Budget Outlook
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: Beyond FY „10
Budget Outlook: No Quick Recovery
Revenues unlikely to recover to pre-downturn nominal
levels prior to FY ‗13
$5,928 $5,981
$6,000
$5,945
$5,500 $5,544
Estimates by OK
Policy - not based on $5,275
$5,000 Dec. 2009
certification
$4,500 $4,735
$4,439
$4,000
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
• 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 After 2004-2006 Tax Cuts (2007 to 2035)
1,000
500
0
M i l l i o n $2005
(1,000)
After Tax Cuts
(1,500)
(2,000)
(2,500)
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
www.okpolicy.org