oklahoma budget trends and outlook (december 2009)
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OKLAHOMA BUDGET OVERVIEW
Trends and Outlook
REVISED December 21, 2009(includes December certification)
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*
Budget Trends: FY 02 FY 09
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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
Budget Trends: FY 02 FY 09
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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
Budget Trends: FY 10
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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Budget Trends: FY 10
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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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 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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Budget Trends: FY 10
The Recession Hit Oklahoma Late
$-
$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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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)
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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Budget Trends: FY 10
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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Budget Trends: FY 10
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%)
Budget Trends: FY 09 FY 10
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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Budget Trends: FY 09 FY 10
FY 10 Budget Stimulus funds made it possible to minimize cuts orprovide small increases to ten largest state agencies andsome 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 orinflation (e.g. utilities, transportation, food)
Demands for some state services increase due to thedownturn
See: OK Policy FY 10 Budget Review at:
http://okpolicy.org/fy-10-budget-information
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Budget Trends: FY 09 FY 10
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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Budget Trends: FY 09 FY 10
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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Budget Trends: FY 09 FY 10
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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Budget Trends: FY 09 FY 10
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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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 7.1percent
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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Budget Trends: FY 09 FY 10
FY 10 : How Large a Shortfall? December certification projects a $729 million (14.2percent) shortfall in FY 10 GR collections.
$80 million shortfall in HB 1017 Fund as well
Total mid-year shortfall of $809 million
$5,415
$5,145
$4,415
$4,000
$4,200
$4,400
$4,600$4,800
$5,000
$5,200
$5,400
$5,600
100% Estimate - June Appropriation (95%) December Projection
FY '10 General Revenues - Original vs.Revised Projections
$729million
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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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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 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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Budget Outlook: What Response?
Shortfall Options Projected shortfall of $809 million shortfall could be filledby:
RDF shortfall funds (3/8ths) - $224 million +
RDF emergency funds (1/4) - $149 million +
Full year across-the-board cuts of 7.5 percent
Forecast Appropriated
Amount
(GR+1017)
FY 10
Projected
Revenue
General
Revenue +
1017Shortfall
% Shortfall
with no
Rainy DayFund
% Shortfall
with 3/8ths
of RDF($224M)
% Shortfall
with 5/8ths
of RDF($373M)
% Shortfall
with 3/4 of
RDF($448M)
% Shortfall
with all of
RDF($597M)
December
projections
$ 5,777 $4,968 $ 809 14.0% 10.1% 7.5% 6.2% 3.7%
FY 10 Forecast Shortfalls and Rainy Day Fund Impacts ($ in millions)
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Budget Outlook: What Response?
FY 11: More of the Same?
$5,407
$5,649
$5,981
$5,519$5,415
4,4154,449
$4,000
$4,500
$5,000
$5,500
$6,000
FY '06 ActualFY '07 ActualFY '08 ActualFY '09 Actual FY '10 June
(estimated)
FY '10 Dec
(projected)
FY '11 Dec
(estimated)
General Revenue Collections,FY '06 Actual - FY '11 Estimated (in $ millions)
FY 11 revenue collections projected to remainalmost unchanged from FY 10 and over 25 percentbelow pre-downturn (FY 08) levels
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Budget Outlook: What Response?
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
Tap the Rainy Day Fund to fill part of the gap
Special Session in January?
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Budget Outlook: What Response?
Budget Outlook Gov. Henry: Unfortunately, the cuts we have been forcedto implement to date are already taking their toll on stateprograms and services (Nov. 10, 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 daysbetween March - June (staffing already at historic low of 77 percentof authorized FTEs);
Department of Mental Health and Substance Abuse Services hasannounced closure of childrens behavioral health center in Norman,cuts in contracts to providers;
School districts going to 4-day weeks, eliminating programs
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Budget Outlook: What Response?
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 3/4th 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 Time-released tax cuts still kicking in
Additional revenues automatically allocated for ROADSand OHLAP
Use of one-time funds in FY 10 and FY 11 createsignificant problems for FY 12
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Budget Outlook: Beyond FY 10
Budget Outlook: No Quick Recovery Revenues unlikely to recover to pre-downturn nominallevels prior to FY 13
$5,938 $5,953
$5,518
$4,439$4,735
$5,275$5,945
$-
$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 [OK Policy estimates]
Estimates by OK Policy(pre-Decembercertification)
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Budget Outlook : Beyond FY 10
Short-Term Recommendations1. Develop and share greater information about projectedshortfalls, impact of actual and potential cuts, possiblesolutions
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 toallow for larger reserves
5. Consider new revenue streams for the Medicaid program
6. Develop meaningful multi-year forecasting
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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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Long-Term Fiscal Outlook
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
Long-Term Fiscal Outlook
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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
Better Information, Better PolicyOklahoma Policy Institute provides timely and credible analysis of state policy issues
www.okpolicy.org
mailto:[email protected]:[email protected]