Oklahoma Budget Overview: Trends & Outlook

8/14/2019 Oklahoma Budget Overview: Trends & Outlook

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OKLAHOMA BUDGET OVERVIEW

Trends and Outlook

REVISED NOVEMBER, 2009

David Blatt

Oklahoma Policy [email protected] - (918) 859-8747
mailto:[email protected]:[email protected]


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Oklahomas Path to Prosperity

OUR STARTING POINTWe invest our tax dollars in

our public structures to support

our common goals as a state


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Oklahomas Path to Prosperity

We Already Lag Behind Oklahoma already underfunds most of our publicstructures and falls short of our common goals as a state

We rank 50th among the states in per capitaexpenditures on state and local government

We need renewed investment in our public structuresto meet our common goals as a state.


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Budget Trends: FY 02 FY 09

Annual Appropriations Totals,FY 00FY 08(Includes Supplementals thru FY 08 and Rainy Day spillover Funds for

Recurring Agency Expenditures) - in $millions

FY 02 FY 08: Bust and BoomState budget suffered steep downturn, deep cuts, 02 - 04

Strong economy led to robust revenue growth and increased stateappropriations between FY 06 and FY 08

$4,981

$5,389 $5,491$5,191 $5,145

$5,459

$6,217

$6,760$7,043

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

$7,500

FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08


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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

Health Care Authority: $289M

Higher Education: $271M

Human Services: $129M

Corrections: $80M

Transportation: $72.5M*



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Lost Revenues from Select Tax Cuts Enacted 2004 - 2006FY'05 through FY'10 (in $ millions)

$18.7$144.8

$333.3

$561.8$651.1

$776.9

$0.0

$200.0

$400.0

$600.0

$800.0

FY'05 FY'06 FY'07 FY'08 FY'09 FY'10source : Oklahoma Tax Commission

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 impactwill not be felt until FY 11



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Budget Trends: FY 02 - FY 09

FY07 FY08: Revenue Slowdown

General Revenue collections were almost flat in FY 08compared to FY 07 (+%0.9, $54 million)

-6.6%-5.3%

10.6%

7.6%

14.8%

4.0%

0.9%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

FY '02 FY '03 FY '04 FY '05 FY '06 FY '07 FY '08

Annual % Change in General Revenue Collections, FY '03 - FY '08


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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, stateemployee raises

FY 09 excludes supplementals and mid-year budget cut


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Budget Trends: FY 10


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Source: Center on Budget and Policy Priorities


Things Are Tough All Over

All but two states are experiencing the state fiscal crisis

Combined state budget gaps for FY09 FY 12 estimated tototal more than $465 billion


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The Recession Hit Oklahoma Late

See OK Policy, Numbers You Need, at:

http://okpolicy.org/numbers-you-need-key-oklahoma-economic-and-budget-trends

7.1%

10.2%

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

11.5

Oct-07 Apr-08 Oct-08 Apr-09 Oct-09

UnemploymentRate(%)

Monthly Unemployment Rate,National and Oklahoma, Oct. 2007 to Oct. 2009

Oklahoma National


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-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

2007.2 2007.3 2007.4 2008.1 2008.2 2008.3 2008.4 2009.1 2009.2

% Change fromPrior Quarter

Quarterly Change in Personal Income,Oklahoma and National,

2nd Quarter 2007 to 2nd Quarter 2009

U.S. Oklahoma


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$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

$-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

Jan-1986

Dec-1986

Nov-1987

Oct-1988

Sep-1989

Aug-1990

Jul-1991

Jun-1992

May-1993

Apr-1994

Mar-1995

Feb-1996

Jan-1997

Dec-1997

Nov-1998

Oct-1999

Sep-2000

Aug-2001

Jul-2002

Jun-2003

May-2004

Apr-2005

Mar-2006

Feb-2007

Jan-2008

Dec-2008

U.S. Natural Gas Wellhead Price (Dollars per Thousand Cubic Feet)

Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

Monthly Oil and Gas Prices, 1986 - 2009


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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)

11.1% 10.8%

1.3%

10.4% 12.8%

7.1%

-8.5%

-21.5%-19.1%

-21.1%

-27.7%-30.1%

-35.0%

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June

Change in Monthly General Revenue Collections,

FY '09 Compared to Same Month, FY '08


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FY 10 Budget: Revenues on the Skids

5,407.2

5,649.2

5,981.1 5,946.45,902.7

5,710.0

5,356.6

5,000

5,500

6,000

6,500

FY '06 Actual Fy '07 Actual FY '08 Actual FY '09 June FY '09

December

FY '09

February

FY '10

Feburary

General Revenue Collections,FY '06 Actual - FY '10 Estimated (in $million)

In February, FY10 revenues estimated to come in >$600million below FY 08 ;


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FY 10 Budget

NOTE: FY 09 totals do not include June budget cuts

$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

$4,981

$5,389$5,491

$5,191 $5,145

$5,459

$6,217

$6,760

$7,043

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 FY'09 FY'10State Appropriations ARRA

$30ARRA

$7,125 $7,231

$641ARRA

$7,095State

$6,590State

State Appropriations History, FY '00 - FY '10 in $millions)(includes supplementals, excludes one-times from Rainy Day Spillover funds)


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FY 10 State Appropriations10 Largest Agencies: $6.3 billion (88%)

Agencies (75 agencies): $829 million (12%)


Common Ed.,$2,572.0 , 36%

Higher Ed.,$1,070.7 , 15%

OHCA (Medicaid),$979.8 , 13%

DHS,$550.7 , 8% Corrections$503.07%Transportation,$208.7 , 3%

Mental Health,$203.3 , 3%Career Tech,$157.8 , 2%Juv. Affairs,$112.4 , 1%

Public Safety,$93.3 , 1%All OtherAgencies,$779.4 ,11%

TotalAppropriations:$7,231.2 millionIncludesAmerican

Recovery andReinvestmentAct (ARRA)

Total TenLargest: $6,451.8,89.2 %


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FY 10 : Off to a Very Rough Start July-Nov revenue collections down 28.5 percent fromFY09

October better than previous months but Novemberback down

Not clear when well hit bottom or how long it will taketo recover

11.1% 10.8%

1.3%

10.4%12.8%

7.1%

-8.5%

-21.5%-19.1%

-21.1%-27.7%

-30.1%-26.3%

-31.6%-30.1%

-23.7%

-30.5%-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept. Oct Nov

Change in Monthly General Revenue Collections, Compared to Same Month Prior Year,

July '08 - Nov. '09


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FY 10 : Off to a Very Rough Start Three consecutive quarters of worsening collections

Revenue drops more than twice as steep as during thelast downturn

-12.1%

9.9%

-15.3%

-26.3%-29.5%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

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

Quarterly Year-over-Year Change in GR Collections,Oklahoma, FY '02 - FY '10


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FY 10 : Off to a Very Rough Start 1st quarter revenues lower than 9 years ago withoutadjusting for inflation or economic growth

$1,136.3

$995.3

$1,567.8

$1,105.9

$900

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500

$1,600

$1,700

FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 FY'09 FY'10

1st Quarter General Revenue Collections,FY '01 - FY'10 (in millions)


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FY 10 : Off to a Very Rough Start Collections through November are $577.5 million 24.3percent - below the estimate

OSF cut agencies GR allocations by 5 percent throughNovember and by 10 percent in December

Cuts limited to less than shortfall through transfers of cashreserves ($233.8 million since start of year) that must be repaid

-$181 -$187-$150

-$11-$49

-$577-$700

-$600

-$500

-$400-$300

-$200

-$100

$0

Net Income Tax Gross Production Sales Tax Motor Vehicle Other Sources Total Gen.

Revenue

General Revenue Collections compared to Estimate, by Tax, FY '10 thru

November (in $millions)


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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 7.1percent

Agreement in December to use cash reserves to fund 1017shortfall

General

Revenue

65%Stimulus (ARRA)

6%

HB 101725%

Lottery

1%

*Other

3%

FY '10 Dept. of Education Funding by Revenue Source

Total

Appropriations=$2,572.1 million

*Other includes PriorYear GR, GrossProduction Tax, MineralLeasing Fund


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FY 10 : How Large a Shortfall? Based on first quarter revenues, our best estimate ofthe full year GR shortfall is about $700 million, or 13.7%,below the appropriated amount

$5,518$5,145

$3,933

$4,439

$5,293

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

100% Estimate Appropriated Low Middle High

Comparison of FY '10 Original Estimates and OKPolicy Forecasts (GR Fund Only)

See State Budget Shortfalls, FY 10 & Beyond

at http://okpolicy.org/fy-10-budget-information


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Budget Outlook: What Response?

Shortfall Options Rainy Day Fund is filled to maximum amount of $597million

Left untouched for initial FY 10 budget

$157.5

$340.9

$72.3

$0.1

$217.5

$461.3$496.7

$571.6$596.6

$0

$100

$200

$300

$400

$500

$600

$700

2001 2002 2003 2004 2005 2006 2007 2008 2009

Rainy Day Fund Balances, FY '01 - FY '09(opening balance in $ millions)


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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 thecoming year compared to the current year ($224M);

1/4th upon declaration of an emergency and legislativeapproval ($149M)

Current Year

Revenue

Failure, 37.5% -

$224M

Forthcoming

Year Shortfall,

37.5% - $224M

Emergency,

25.0% - $149M

Uses of Constitutional

Reserve Fund


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Shortfall Options Middle estimate of $704 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 6.4 percent

Forecast Appropriated

Amount (GR)

FY 10

Forecast

Revenue

General

Revenue

(GR)

Shortfall

% GR

Shortfall

with no

Rainy DayFund

% GR

Shortfall

with 3/8ths

of RDF($224M)

% GR

Shortfall

with 5/8ths

of RDF($373M)

% GR

Shortfall

with 3/4 of

RDF($448M)

% GR

Shortfall

with all of

RDF($597M)

OK Policy

"Middle"

Forecast

$ 5,143 $4,439 $704 13.7% 9.4% 6.4% 5.0% 2.1%

FY 10 Forecast Shortfalls and Rainy Day Fund Impacts ($ in millions)


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Budget Outlook Whats the plan???

Seems to involve:

Keep cutting agency budgets every month

Keep borrowing from any and all available reserves to makeup the difference

Wait on December revenue projections for FY 10 and 11

Special Session in January

Tap the Rainy Day Fund to fill the gap

Gov. Henry: Unfortunately, the cuts we have been forced toimplement to date are already taking their toll on state programs andservices (Nov. 10, 2009)


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Budget Outlook: Other Revenues Stimulus Round II

About half of the State Fiscal Stabilization Fund and enhancedMedicaid funds remains available

Other Revenues?

SQ 640 requires a 3/4

th

vote of both legislative chambers orvote of the people at time of next general election to raise taxes;

Continuing search for one-time revenues;


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Budget Outlook: Beyond FY 10

Budget Outlook Revenues unlikely to recover to pre-downturn nominallevels prior to FY 13

$3,870

$4,439 $4,735$5,275

$5,945

$5,938 $5,953

$5,518

$6,451

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

FY 07 (act.) FY 08 (act.) FY 09 (act.) FY 10 (est.) FY 11 (est.) FY 12 (est.) FY 13 (est.)

R

n$mio

Fiscal Year

Historical and Projected Revenue, FY'07-FY'13General Revenue Fund

Low Middle High

Estimates by OKPolicy


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Budget Outlook: Beyond FY 10

Budget Outlook Time-released tax cuts still kicking in

Use of one-time funds in FY 10 and FY 11 createsignificant problems for FY 12


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Structural deficit: Asituation that occurswhen a states normal

growth of revenues isinsufficient to financethe normal growth ofexpenditures year afteryear

(CBPP, Faulty Foundations: State Structural

Budget Problems)

Long-Term Fiscal Outlook

Oklahoma like most states and the federal government faces a looming structural budget deficit


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Projected Annual Budget Surpluses and Deficits

Before and After 2004-2006 Tax Cuts (2007 to 2035)

(2,500)

(2,000)

(1,500)

(1,000)

(500)

0

500

1,000

2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035Y e a r

Mion$2005

B e f o r e T a x C u t s

A f t e r T a x C u t s

Oklahomas Structural Deficit

Source: Projections conducted in 2007 by Dr. Kent Olson, Professor ofEconomics, Oklahoma State University


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Long-Term Recommendations1. Modernize the Tax System

2. Preserve a Balanced Tax Structure

3. Scrutinize our programs and spendingcommitments

4. Make the tax system fairer



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For More Information

Oklahoma Policy Institutes OnlineBudget Guide

www.okpolicy.org/online-

budget-guide
http://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guidehttp://www.okpolicy.org/online-budget-guide


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Contact Information

Oklahoma Policy Institute228 Robert S. Kerr, Suite 750Oklahoma City, OK 73102

ph: (405) 601-7692

[email protected]

Better Information, Better PolicyOklahoma Policy Institute provides timely and credible analysis of state policy issues

www.okpolicy.org
mailto:[email protected]:[email protected]

Documents

Oklahoma Budget Overview: Trends & Outlook