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8/14/2019 Oklahoma Budget Outlook
1/55
OK LAHOMAS FISCAL OUTLOOK
Fac ing t he Chal lenges t o
---revised March 2009--
av aOklahoma Policy Institute
dblatt ok olic .or - 918 382-3228
8/14/2019 Oklahoma Budget Outlook
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Ok lahom as Pat h t o Prosper i t y
OUR STARTING POINT
We investinvest our tax o ars inour public structurespublic structures to support
our common goalscommon goals as a state.
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Def in ing Our Com m on Goals
1) EDUCATION: Ensure that all children receive a qualityeducation and that affordable and accessible higher education isavailable to all who are eligible.
---schools, colleges, universities
Universal four-year old program and full-day kindergarten
Nationally certified teachers
OHLAP scholarship program
But w e sti ll have a long way to go:
Student Test Scores below expectations
Teacher Pay among nations lowest
College Graduation Rates trailing the national average
Cost of higher education rising more quickly than family incomes
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Def in ing Our Com m on Goals
2) HEALTH & SOCIAL SERVICES: Ensure thatvulnerable individuals and families can meet their basic needs,including food, shelter, medical care, and protection from violence.
---public, non-profit and for-profit agencies and institutions
Increased child health insurance coverage
Quality-based child care reimbursement system
Statewide nurse home visitation program
But w e sti ll have a long way to go:
Overall poverty and child poverty rates
Health Status of residents
Drug Abuse & Addiction
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Def in ing Our Com m on Goals
3) TRANSPORTATION &
infrastructure allows for the safe and well-functioning movement of goods and people.
roads, bridges, ports, communications grids
Areas of Successful Investment:
$300 million bond package
But w e sti ll have a long way to go:
Roads deficient
Bridges crumbling
a er as ew a er ys ems a ng
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Def in ing Our Com m on Goals
4) PUBLIC SAFETY: Ensure that families,neighborhoods and communities are protected from threats totheir physical safety and well-being.
corrections facilities, law enforcement, emergencyresponders, courts
Areas of Successful Investment: Drug courts
Decrease in methamphetamine raids
But w e sti ll have a long way to go:
Crime Rates high
Prisons overcrowded and understaffed
Juvenile justice system under federal review
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Def in ing Our Com m on Goals
5) REGULATION & CONSUMER
safely
product safety, environmental quality, labor, banking
6) ECONOMIC DEVELOPMENT: Ensure thatbusinesses receive opportunities and support needed to operateand compete effectively
commerce, tourism, agriculture departments
7) Public Administration: Ensure that governmentoperates in a democratic, accountable, and efficient manner
eg s ature, execut ve, centra serv ces, treasurer, au tor, taxcommission
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Def in ing Our Com m on Goals
CONCLUSIONS
In all these vital areas, we have madeimportant progress in recent years, but
Oklahoma continues to fall short of its
goals.
We need renewed investment in our
ublic structures to meet our common
goals as a state.
8/14/2019 Oklahoma Budget Outlook
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Funding Publ ic Serv ic es
How much do we invest to meet our goals?
Oklahoma ranks 46
th
in per capita state andlocal government spending (2006)
OKLAHOMA : $5,841 per capita direct general expenditures
NATIONAL AVERAGE : $7,124 per capita direct general expenditures
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Funding Publ ic Serv ic es
I dont want to be the highest taxed state, but Im not sure I
want to be the lowest either. I know that the things that I want
will need to be aid for and robabl with taxes As a
Republican, I like lower taxes and smaller government. But I
also like my city to be safe, clean and progressive and to have
good streets.
- arry oc a-Chairman and CEO, Air Power Systems, former head of State Chamber of Commerce
Tulsa World, October 7, 2007
When I pay my taxes I dont feel conservative or liberal. I feel
patriotic and lucky.
-Wayne Greene, ,
Taxes are the price we pay for civilization
-
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Funding Publ ic Serv ic es
OK LAHOMA IS A LOW TAX STATE Oklahomans a amon the least amount of state
and local taxes in the nation;A dime (10.1 cents) of every dollar earned by
Oklahomans oes to fund state and local services.
State & Localaxes as a % of
State & LocalTaxes
Income (2006) per Capita (2006)
National Average 11.2% $4,001
Oklahoma 10.1% $3,147
Where Oklahoma RANKS 42rd 42nd
Source: Center on Budget and Policy Prioritiesanalysis of U.S. Census Bureau data
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Funding Publ ic Ser v ic es
Major St at e Tax es , 1982-2006$3,000,000
Ind . Incom e$2,500,000
(In $ Thousands)
Gen. Sales
$1,500,000
$2,000,000
Severance$1,000,000
Motor Veh ic le
Motor Fuels
Corp. Incom e
$0
$500,000
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: U.S. Census Bureau
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Funding Publ ic Ser v ic es
40%
Major Taxes as % of Total State Taxes, 1982-2006
30%
35%Ind . Incom e
25%
Gen. Sales
15% Severance
5%
10%
Motor Veh ic le
Motor Fuels
Corp. Income
0%
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: U.S. Census Bureau
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Funding Publ ic Serv ic es
FY 09 State A ro riations
How much do we invest to meet our goals?
10 Largest Agencies: $6.3 billion (88%)
All Other Agencies (75 agencies): $829 million (12%)
Transportation, 3%
Corrections, 7%DHS, 8%
OHCA (Medicaid), 12%Mental Health, 3%
Career Tech, 2%Juv. Affairs, 2%Public Safety, 1%Higher Ed, 15%,
Common Ed, 36%
All OtherAgencies,
12%
Total Appropriations:
$7,089.3 million
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Funding Publ ic Ser v ic es
FY 09 Appropriations by Legislative Subcommittee
Total Appropriations: $7,089.3 million
State AppropriationsState Appropriations AmountAmount($ Million)($ Million)
a ura
Resources
2%
Government
Operations5%
Other
0%
, ., .
Health & SocialHealth & SocialServicesServices
$1,214.7$1,214.7HumanServices
10%
u c a e yu c a e y ..
Human ServicesHuman Services $7005.4$7005.4
GovernmentGovernment
Education
54%
Public Safety
11%
Health &
OperationsOperations
..
Natural ResourcesNatural Resources $160.0$160.0
OtherOther $30.5$30.5
SocialServices
17%
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Budget Trends & Out look
State budget suffered steep downturn, deep cuts, 02 - 04
Recovery allowed for spending increases, 06 08
Annual Appropriat ions Totals ($ millions), FY 00FY 09
(Includes Supplementals through FY 08 and R ainy Day spillover Funds for
Recurring Agency Expenditures) - in $millions
$6,217
$6,760$7,043 $7,089
$6,500
$7,000
,
$4,981
$5,389 $5,491
$5,191 $5,145
$5,459
$5,000
$5,500
,
$4,000
,
FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 FY'09
(initial)
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Budget Trends & Out look
St ate spend ing has been grow ing lessrap idly over t im e t han the s ta t e economy
FY 02 FY 08
5.4 percent: Personal Income average annual growth
4.1 ercent: State S endin avera e annual rowth
6.4%
6.8%
State Spending as a Share of Personal Income, 1998 through 2008
6.3%.
6.2% 6.2%6.1%
5.7% 5.7%5.6%
5.9%
6.2%
.
25-year average (1982-2007): 5.9%
5.4%5.3%
5.5%
5.0%
5.3%
5.6%
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Budget Trends & Out look
Where did the growth revenue go?
, ,
FY 06 FY 08
De t. of Educat ion: 453M Human Services: $129M Teacher and support staff pay increases Health insurance coverage Full-day kindergarten
Child care subsidy payments Replace lost federal rate Salary increases
ea are u or y: Provider reimbursement rate increases Replace lost federal match Enrollment and utilization increases
Operating costs Salary increases
Higher Education: $271M Operating expenses of institutions Scholarships and loans
. Road and bridge maintenance [ROADSfund]
*ODOT received $25 million one-time funding in
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Budget Trends & Out look
Tax Cuts 2004-06
Tax cuts were stretched out over several years; full impact willnot be felt until FY 11
Lost Rev enues from Se lect Tax Cuts Enacted 2004 - 2006
FY'05 through FY'10 (in $ m illions)
$776.9
$333.3
$561.8.
$400.0
$600.0
.
$18.7.
$0.0
$200.0
FY'05 FY'06 FY'07 FY'08 FY'09 FY'10
sour c e: a oma a x omm ss on
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Budget Trends & Out look
Tax Cuts 2004-06 Revenue losses from tax cuts already nearly double the
additional revenue from sin taxes approved by voters in 2004
(lottery, gaming, tobacco).
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Budget Trends & Out look
Revenue Impact of Tax Cuts 2004-06Individual income tax collections are normally among the states fastest
row n revenues sources, row n muc as er an sa es axes.
However, for the two years of FY 07 and FY 08, while the income tax cutshave taken effect, sales tax collections rose at an annual average rate of
7.2 percent, while individual income tax collections increased by just 0.4
percent annually.
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Budget Trends & Out look
FY07 FY08: Revenue Slowdown Revenue collections slowed considerabl
General Revenue collections were below prior year for firstthree quarters of FY 08 before recovering in the 4th quarter.
Quart erly Change in Oklahoma General Revenue
Collect ion s Compared t o Same Quarter, Prior Year,
FY '05 - FY '08
-0.0%5.0%
10.0%15.0%20.0%25.0%
-10.0%
.
FY
'05
FY
'05
FY
'05
FY
'05
FY
'06
FY
'06
FY
'06
FY
'06
FY
'07
FY
'07
FY
'07
FY
'07
FY
'08
FY
'08
FY
'08
FY
'08
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
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Budget Trends & Out look
FY07 FY08: Revenue Slowdown General Revenue collections were almost flat in FY 08 compared to
FY 07 (+0.9 percent, $54 million).
Increased gross production tax (+$205.7 million) and sales tax
(+$80.6 million) revenues helped make up for falling personal and
- . .
20.0%
Annual % Change in General Revenue Collections, FY '03 - FY '09
10.6%7.6%
.
4.0%0.9%
0.0%
5.0%
10.0%
15.0%
-6.6% -5.3%-4.5%
-10.0%
-5.0%
FY '02 FY '03 FY '04 FY '05 FY '06 FY '07 FY '08 FY '09 (est.-2/9)
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Budget Trends & Out look
FY 09 Budget: Tightening the Screws FY 09 appropriations of $7.068 billion increase of $47 million (0.7%)
State Appropr ia t ions His tory , F Y '00 - FY '09, in $ mi l l i ons( inc ludes suppleme nta ls , exc ludes one- t imes from Ra iny Day
spi l lover funds)
$5,389 $5,491 $5,191 $5,145 $5,459
$6,217$6,760
$7,043 $7,089
$4,981$6,000
$8,000
$2,000
$4,000
$0
FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 FY'09
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Budget Trends & Out look
FY 09 Budget: Tightening the Screws
FY 09 a ro riations of 7.089 billion increase of 47
million (0.7 percent)
$281 million in additional revenues was made available through
Most agency appropriations frozen from FY 08
Additional dollars to ensure maintenance-of-effort in Medicaid
$475 million bond package for roads and bridges ($300 million),
university endowed chairs ($100 million), capital projects
No funding for teacher salary increases, state employee raises
No funding to agencies for rising fixed costs or mandatedretirement and health care benefit increases
See FY 09 Budget Review and FY 09 Budget Basics at:
http://okpolicy.org/fy-09-budget-review-may-2008
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Budget Trends & Out look
FY 09 Budget: Feeling the Crunch
Spending-down of carryover and reserves
, -
tightening
Hiring freezes and unfilled vacancies
Cutbacks in services
Tuition increases and increased user fees
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Budget Trends & Ou t l ook
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Budget Trends & Out look
Things Are Tough All Over
,
FY 11 estimated to total more than $350 billion
Source: CBPP, State Budget Troubles Worsen, updated Feb 10, 2009 at:
http://www.cbpp.org/9-8-08sfp.htm
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Budget Trends & Out look
Rough Patch Ahead
General Revenue Col lec t ions
5,981.1 5,946.45,902.76,000
,
FY '06 Actua l - FY '10 Est im ated ( in $mi l l ion)
5,407.2
5,649.25,710.0
5,356.65,500
5,000
FY '06 Fy '07 FY '08 FY '09 FY '09 FY '09 FY '10
Ac t ual Ac t ual Ac t ua l J une Dec em ber February Feburary
$240 million drop in FY 09 projections compared to initialestimate
FY 10 revenues estimated to come in >$600 million below
FY 08
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Budget Trends & Out look
Rough Patch AheadThe forecast is bad but its far from a worst-case
Change in General Revenue Col lec t ions by
Major Tax , FY '08 Act ual t o FY '10 Est im ate
scenario.
10.2% 8.8%
0.0%
10.0%
20.0%( in $mi l l ions)
-10.4% -10.5%
-30.0%
-20.0%
-10.0%
-37.6%
-50.3%-60.0%
-50.0%
-40.0%
Gr o ss I n c om e I n c om e M ot o r V e hi c l e Sa l es T ax T ot a l Ge n er a l
Product ion
Tax-Gas
Tax -Personal Tax -Corporat e Tax Revenue
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8/14/2019 Oklahoma Budget Outlook
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Budget Trends & Out look
How to Deal with Budget Shortfalls? Last budget downturn: cumulative budget shortfall of $1.2 billion
Significant and painful cuts to education, Medicaid, social
services, state parks, etc. A budget downturn comparable in magnitude to the last one would
.
F ig . 1 : A n n u a l a n d C u m u l a tiv e S h o r t fa l l in G e n e r a l
R e v e n u e a n d H B 1 0 1 7 F u n d C o lle c t io n s C o m p a r e d t o
F Y ' 0 1 B a s e l in e ( in $ m illio n s )$ 1 , 4 0 0 . 0
$ 3 0 1 . 8
$ 5 1 3 . 5
$ 3 7 7 . 5
$ 8 1 5 . 3
$ 1 , 1 9 2 . 9
$ 3 0 1 . 8$ 4 0 0 . 0
$ 6 0 0 . 0
$ 8 0 0 . 0
$ 1 , 0 0 0 . 0
$ 1 , 2 0 0 . 0
$ 0 . 0$ 2 0 0 . 0
F Y '0 2 A c tu a l F Y ' 0 3 A c tu a l F Y '0 4 E s t im a te
A n n u a l Sh o r tf a l l c om p a r e d t o F Y '0 1 C u m u l a ti v e S h o r t f a l l c om p a r e d to F Y '0 1
See: Options for Addressing Budget Shortfalls
http://www.okpolicy.org/files/shortfalls_brief_Fin.pdf
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Budget Trends & Out look
How to Deal with Budget Shortfalls?
1 . Do w e c u t b u dg et s ?
Governor Henrys FY 10 Executive Budget proposed $37.6 millionin budget cuts
.
From 1 percent to 10 percent, most 5 percent
24 agencies exempted from budget cuts
epresent 93 percent o tota state appropr at ons
10 percent travel budget cut to most agencies totaling $8.9
million
See Budget Brief: Governor Henrys FY 10 Executive Budget Proposal at :- - - -.
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Budget Trends & Out look
How to Deal with Budget Shortfalls?
1 . Do w e c u t b u dg et s ?
Vital state services and programs are chronically underfunded;
Agencies are already struggling to absorb rising costs, newmandates and the effects of the last budget cuts;
It is difficult to protect key agencies and services, such as
education, health care, and public safety, when there are seriousand extended budget shortfalls;
Cutting budgets is economically harmful in a downturn, evencompared to raising taxes; and
Economic downturns create increased demands for health andsocial services to assist vulnerable Oklahomans.
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Budget Trends & Out look
How to Deal with Budget Shortfalls?
a e em p oyee ea c are c os s ave r p e
sinc e FY 01.
C o s t o f S t a t e E m p l o y ee H e a l t h C o v e ra g eo s t o f S t a t e E m p l o y ee H e a l t h C o v e r ag e ,i n $ m i l l i o n s , F Y ' 0 1 - F Y '0 8 ( p r o j e c t e d )
$357.1
$393.6
$400
$450
$163.7$186.0
$217.6$244.5
$293.1
$200
$250
$300
$350
.
$100
$150
2001 2002 2003 2004 2005 2006 2007 2008
proj.
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Budget Trends & Out look
How to Deal with Budget Shortfalls?
Pe nsion c o nt r ibut i ons fo r s t at e em lo ee s
Contr ibu tions to Ok lahoma Pub lic Employees Ret i rem entSys tem F Y '0 4 F Y '0 9 (in $ m i l li on )
have inc reased over $90 mi l l ion in f ive years.
System, FY '04 - FY '09 ( in $ mi l l ion )
$198.5$200
$225
$141.2
$162.4
.
$150
$175
$105.6
$114.3
$100
$125
FY '04 FY 05 FY 06 FY 07 FY 08
(projected)
FY 09
(estimated)
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Budget Trends & Out look
How to Deal with Budget Shortfalls?
Appropriations for Selected Agencies, FY 01 vs FY 09
FY '01 FY '09 Change
Water Resources Board $9,418,598 $6,801,524 -27.8%
Insurance Commissioner $2,965,978 $2,515,943 -15.2%
Treasurer $5,482,722 $4,668,763 -14.8%
Consumer Credit $774,670 $669,042 -13.6%
Human Rights Commission $816,753 $710,226 -13.0%
Personnel Management $5,617,759 $4,891,745 -12.9%
Tourism and Recreation $31,827,145 $28,041,991 -11.9%
Teacher Preparation, Comm issionon $2,330,425 $2,059,982 -11.6%
Indian Affairs Commission $287,843 $258,466 -10.2%
Council on Judicial Complaints $300,504 $283,729 -5.6%
Governor $2,772,408 $2,661,981 -4.0%
Alcoholic Beverage LawsEnforcement $4,084,576 $3,925,266 -3.9%
Labor $3,882,940 $3,760,284 -3.2%
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Budget Trends & Out look
How to Deal with Budget Shortfalls?
.
SQ 640 requires a vote of both legislativechambers or vote of the people at time of nex tgeneral election
States have devised various one-time and ongoing
Governors budget includes $20 million in feeincreases as well as other revenue-enhancingmeasures
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Budget Trends & Out look
3. Ta in t o Rain Da Fund?
How to Deal with Budget Shortfalls?
RDF revenues can be appropriated as follows:
Up to 1/ 4 of Fund upon declaration of emergency and legislative approval;
Up to 3/ 8 for a shortfall in current year GR collections; and
Rainy Day Balances, FY '01 to FY '08
(opening balances i n $ mil li ons)$596.6
.
$340.9
$461.3$496.7
$400.0
$500.0
.
$157.5
$72.3
$217.5
$100.0
$200.0
$300.0
$0.1$0.0
FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 FY '09
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Budget Trends & Out look
4. Federal Ass is t anc e
How to Deal with Budget Shortfalls?
Economic stimulus packages (American Recovery and
Reinvestment Act of 2009) includes significant aid for states.
. on o a oma, accor n o es ma es
Enhanced Federal Medicaid matching rate: $838 million
State fiscal stabilization fund: $578 million
way an r e cons ruc on: m on
IDEA Special education: $157 million
Title I education: $147 million
ona amoun s or e uca on, ea , uman serv ces,
energy, environment, law enforcement, employment, housing,
transportation.
See OK Policys summaries of the American Recovery and Reinvestment Act at:
http://okpolicy.org/federal-stimulus-funding-brief-and-press-release
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Budget Trends & Out look
4. Federal Ass is t anc e
How to Deal with Budget Shortfalls?
Lots of Outstanding Questions about ARRA: Allocation of funds between state and local
governments
Increased spending vs. filling in shortfalls
Use of one-time spending for ongoing obligations
Timing of spending
u c npu , accoun a y an overs g
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Budget Trends & Out look
How to Deal with Budget Shortfalls?
The relentless underfundin of ublic structures leads to :
threats to public safety and well-being;
decline in performance;
decline in public confidence and growing cynicism; and
youre on your own attitude among advocates.
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Long-Term Fisc al Out look
Oklahoma like most states and the federal government
faces a loomingstructural budget deficit
s i tua t ion tha t oc c ursw hen a s ta te s no rma lgrow t h o f revenues isinsuf f i c ien t t o f inancethe norma l g row t h o f
expend i tu res year a f te r year
(CBPP, Faul ty Foundat ions: Stat e St ruc tural
Budget Prob lems )
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8/14/2019 Oklahoma Budget Outlook
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Long-Term Fisc al Out look
Contributors to Oklahomas Structural Deficit
PRESSURE ON STATES
Unfunded mandates (NCLB, IDEA, Real ID)
Declining Medicaid assistance
Frozen block grant allocations
Is the stimulus bill an aberration or the start ofa new era?
Situation, at http://okpolicy.org/passing-the-buck
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Long-Term Fisc al Out look
State and local tax systems are not well designed to
Contributors to Oklahomas Structural Deficit
keep pace with economic and social change.
Goods are taxed, services are not
E-commerce
Internet tax moratorium
Corporate income tax avoidance
26%
34%
26%
tofconsumptio
Services Goods
Perce
19601960 20072007
usuall exem t from usuall sub ect to sales taxsales tax
Source: Center on Budget and Policy Priorities
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Long-Term Fisc al Out look
Oklahomas Structural Deficit
Before and After 200 4-2006 Tax Cuts (200 7 to 203 5)
500
1,000
(500)
0
n$2005
B e f o r e T a x C u t s
2 000
(1,500)
(1,000)
Mion
A f t e r T a x C u t s
(2,500)
2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035Y e a r
. ,Economics, Oklahoma State University
P i i l f R D i i
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Pr inc ip les for Revenue Dec is ions
I think we ou ht to have a moratorium on tax reductions
1. Take a breather from further tax cuts
right now. Were bumping the limits and I think we
certainly dont need to proceed down that path. I thinkwhat people really want is excellence.
- av orenPresident, University of Oklahoma, Sept. 17, 2007
We are not advocating any more tax cuts right now. Wee eve we s ou wa an see w a mpac e a rea y
passed tax cuts have.
-Roy Williams,
House Economic Development Committee, Nov 1, 2007
*** Final phases of income tax cuts are set to be implemented in
2009 and 2010. Should these be re-examined?
P i i l f R D i i
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Princ ip les for Revenue Dec is ions
2. Align Revenues and Expenditures
- -
Pay-go legislation?
Keep focused on the longterm picture
Princ ip les for Revenue Dec is ions
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Princ ip les for Revenue Dec is ions
3. Modernize the Tax System
Broaden the sales tax base
(combined reporting)
Review incentives and exemptions
Revisit SQ 640?
Prevents over-reliance on any single revenuestream
Income tax is most vibrant tax source kee s
pace w ith economic growth Non-income tax states face even worse
immediate challenges and structural deficits
Princ ip les for Revenue Dec is ions
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Princ ip les for Revenue Dec is ions
5. Make the Tax System Fairer
Low- and moderate-income Oklahomans pay a greater share
- .
Progressive effects of the income tax are more than offset by the
regressive effect of sales and property taxes.
By Incom e Group, Oklahoma 2003 [source: Instit ute for Taxation and Economic Pol icy)
12
14
sbyIncome
6
8
10
StateandLocalTax
Level
Sales
Property
Income
0
2
4
tofIncomePa
idin
Lowest
20%
Second
20%
Middle
20%
Fourth
20%
Next
15%
Next 4% Top 1%
Perce
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8/14/2019 Oklahoma Budget Outlook
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Cont ac t In form at ion
8/14/2019 Oklahoma Budget Outlook
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Cont ac t In form at ion
David Blatt, Director of Policy
4606 South Garnett, Suite 100 |Tulsa, Oklahoma 74146
ph: (918) 382-3228
Better Information, Better Policy
Oklahoma Policy Institute provides timely and credibleanalysis of state policy issues.
www.okpolicy.org