OKLAHOMA BUDGET OVERVIEW

Trends and Outlook
FULLY UPDATED June 17, 2010

David Blatt Oklahoma Policy Institute
dblatt@okpolicy.org - (918) 794-3944

Oklahoma‟s Path to Prosperity

OUR STARTING POINT
Government is among our means of achieving our common goals as a state --- alongside private businesses, non-profit organizations, faith groups and families.

Oklahoma‟s Path to Prosperity

OUR STARTING POINT
 Without a strong and effective public sector, our families, communities and businesses cannot thrive
 We depend on our state and local governments to help:
 Educate our children and train our workforce;  Protect our streets and investigate crimes;  Maintain and upgrade our roads and bridges;  Pay for much of the medical care provided by private doctors, nurses, therapists, home health aides, etc.  Inspect our water supply;  Support our farmers, investors, and manufacturers;  Take care of those at risk of harm and abuse.

Oklahoma‟s Path to Prosperity
We Already Lag Behind
 Oklahoma already underfunds most of our public
structures and falls short of many of our common goals as a state. For example:
 Our teacher pay is among the lowest in the nation;

 We have among the highest rates of heart disease, obesity, smoking, and uninsured;
 Our community-based social service providers have gone years without rate increases;  Our correctional facilities are overcrowded and understaffed.

 The ongoing state budget crisis risks a serious and long-term corrosion of our public structures that will weaken our prosperity, security and well-being.

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;  80 percent of new dollars went to six core agencies. 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 and tax breaks multiplied, 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 for FY ‘09  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 – FY „11

Budget Trends: FY „10 – FY „11
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 reach $600 billion

Source: Center on Budget and Policy Priorities

Budget Trends: FY „10 – FY „11
The Recession Hit Oklahoma Late 2008
Monthly Oil and Gas Prices, 1986 - 2010
$12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $Jan-1986 Jan-1987 Jan-1988 Jan-1989 Jan-1990 Jan-1991 Jan-1992 Jan-1993 Jan-1994 Jan-1995 Jan-1996 Jan-1997 Jan-1998 Jan-1999 Jan-2000 Jan-2001 Jan-2002 Jan-2003 Jan-2004 Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Jan-2010 $160.00

$140.00 $120.00
$100.00 $80.00 $60.00 $40.00 $20.00 $-

U.S. Natural Gas Wellhead Price (Dollars per Thousand Cubic Feet) Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

Budget Trends: FY „10 – FY „11
The Recession Hit Oklahoma Late 2008
Oklahoma Monthly Unemployment Rate (Seasonally-Adjusted), 1980-2010
10.0 9.0 8.0 % Unemployed 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 May-82 Jul-83 May-89 Jul-90 May-96 Jul-97 May-03

Apr 2010: 6.6%

Mar-95

Sep-98

Mar-81

Sep-84

Mar-88

Sep-91

Mar-02

Jul-04

Sep-05

Nov-85

Nov-92

Nov-99

Nov-06

See OK Policy, “Numbers You Need”, at: http://okpolicy.org/numbers-you-need-key-oklahomaeconomic-and-budget-trends

Mar-09

Jan-80

Jan-87

Jan-94

Jan-01

Jan-08

Budget Trends: FY „10 – FY „11
The Recession Hit Oklahoma Late 2008
% Change from Prior Quarter

Quarterly Change in Personal Income, Oklahoma and National, 4th Quarter 2007 to 4th Quarter 2009

5.0% 3.0% 1.0% -1.0% -3.0% -5.0%
2007.4 2008.1 2008.2 2008.3 2008.4 U.S. 2009.1 2009.2 2009.3 2009.4

Oklahoma

Budget Trends: FY „10 – FY „11
It’s A Revenue Problem
 Jan 2009 – Feb 2010: Revenues fell by a monthly average of 23.1 percent compared to the same month for the prior year  Finally seeing clear signs that the downturn has hit bottom and revenues are starting to climb back
Change in Monthly General Revenue Collections, Compared to Same Month Prior Year, July '08 - May '10
20.0%
11.1% 10.8%

10.4%
1.3%

12.8% 7.1% 1.6% -0.2% 6.0%

10.0% 0.0% -10.0% -20.0% -30.0% -40.0%

-8.5% -19.1% -21.1% -21.5% -23.7% -26.3% -27.7% -30.1% -30.1% -30.5% -31.6% -16.7% -29.1%

-7.3%

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

Budget Trends: FY „10 – FY „11
It’s a Revenue Problem
 For most of FY ‘10, monthly revenue collections have been 15 to 25 percent their 5-year historical average for the same month  Collections are recovering but remain below their predownturn levels
Monthly Total General Revenue Collections as % of Prior Five-Year Same-Month Average, July 2008 - May 2010
130% 120% 110% 100% 90% 80% 70% 60% Dec '08 Dec '09

92.0%

Feb '10

Mar '09

Mar '10

May '09

May-10

Sep '08

Feb '09

Sep '09

Oct '08

Oct '09

Jan '09

Aug '08

Jun '09

Aug '09

Apr '09

Jan '10

Jul '08

Nov '08

Nov '09

Apr '10

Jul '09

Budget Trends: FY „10 – FY „11
It’s a Revenue Problem
 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 (Q3)
9.9% -8.3% -12.1% -29.5% 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 Q3 FY '10

40.0% 20.0% 0.0% -20.0% -40.0%

Budget Trends: FY „10 – FY „11
It’s a Revenue Problem
 FY ‘10 General Revenue projected to be 25 percent below predownturn (FY ‘08) levels;  FY ‘10 GR collections less than FY ’01 – without adjusting for inflation or population growth
General Revenue Collections, FY '01 - FY '10 (in $millions)
$6,000 $5,701 $5,500 $4,966 $4,717 $4,408 $4,174 $4,000 FY '01 FY '02 FY '03 FY '04 FY '05 FY '06 FY '07 FY '08 FY '09 FY '10 (proj.) $4,616 $5,518 $5,935 $5,953

$5,000

$4,500

$4,475

Budget Trends: FY „10 – FY „11
It’s a Revenue Problem
 Between FY ‘08 and FY ‘10, GR Collections expected to fall by:  Gross production tax : -53 percent  Corporate income tax : -45 percent  Personal income tax : -26 percent

 Sales tax : -8 percent
$2,500 $2,000 $1,500 $1,000 $500 $FY'06 Sales Tax FY'07 FY'08 Motor Vehicle FY'09 FY'10(Proj.) FY'11(Est.) Personal Income Tax Corporate Income Tax Gross Production

Oklahoma General Revenue Collections by Major Tax, FY '06 - FY '11 (in $ millions)

Budget Trends: FY „10 – FY „11
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 Feb. 2010 certification)
7,000 6,000 5,000 4,000 3,000 2,000 1,000 -

1990

2007

1982

1983

1984

1985

1986

1987

1988

1989

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2008

2009

2010

2011

Budget Trends: FY „10 – FY „11
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 „11
FY ‘10 Initial 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 „11
FY ‘10 Initial 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 „11
FY ‘10 : Off to a Very Rough Start
 Collections through January were $864 million – 24.9 percent below the estimate.  After seven months of significant shortfalls, collections starting in February have come close to or exceeded the estimate.
General Revenue Collections compared to Estimate, by Tax, FY '10 thru Jan (in $millions)
$0 -$11 -$200 -$400 -$401 -$600 -$800 -$1,000
Net Income Gross Sales Tax Tax Production Motor Vehicle Other Sources

General Revenue Collections compared to Estimate, by Tax, FY '10 thru May (in $millions)
$0 -$26 -$236 -$420 -$2 -$98

-$72 -$200 -$400 -$600 -$800 -$864
Total Gen. Revenue

-$180

-$200

-$781
Net Income Gross Sales Tax Tax Production Motor Vehicle Other Sources Total Gen. Revenue

-$1,000

Budget Trends: FY „10 – FY „11
FY ‘10 : How Large a Shortfall?
 February certification projected a $669 million (13.0 percent) shortfall in FY ’10 GR collections.  $109 million projected shortfall in HB 1017 Fund as well  Total mid-year shortfall of $778 million FY '10 General Revenues - Original vs. Revised Projections
$5,500 $5,000 $4,500 $5,415 $5,145

$669 million
$4,476

$4,000
100% Estimate - June Appropriation (95%) February Projection

Budget Trends: FY „10 – FY „11
FY ‘10 : What Response?
 OSF cut agencies’ GR allocations by 5 percent beginning in August and by 10 percent beginning in December  Cuts were 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, ARRA), agencies are not all affected equally  Cuts limited to less than shortfall through by borrowing from cash reserves of various funds that must be repaid  $320.9 million borrowed in first 7 months of the year  Fully repaid by May

Budget Trends: FY „10 – FY „11
FY ‘10 : What Response?
 Rainy Day Fund was 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 Trends: FY „10 – FY „11
FY ‘10 : What Response?
 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 Trends: FY „10 – FY „11
FY ‘10 Mid-Year Budget Agreement
 Agreements announced by Governor, Speaker and President Pro Tem in January and February
 Continued 10 percent monthly cuts to GR for rest of year  Averages out to 7.5 percent of GR for full year  Supplemental funding to various agencies to offset part of GR and HB 1017 shortfalls (Common Ed, Higher Ed, OHCA, Corrections, others)  After supplementals, mid-year cuts equaled $272 million (3.8 percent)  Additional revenues needed to balance:  $223.7 million of Rainy Day Fund (3/8th), $151 million more stimulus money, plus additional gross production tax revenues and other sources

Budget Trends: FY „10 – FY „11
FY ‘10 Mid-Year Budget Agreement
 Total revised budget was $272 million (3.8%) less than initial; $165 million (2.4%) less than FY ’09;  Almost $1.5billion (21%) of revised FY ‘10 budget made up of non-recurring money
State Appropriations, FY '09 - FY '10, Total and by Funding Source (in $millions)
$7,500

Total= $7,124 million $301 $30

Total= $7,231 million $641 $371

$7,000
$6,500 $6,000 $5,500 $5,000 $4,500 $4,000

Total= $6,959 million $224 $838 $435

$6,793

$6,220

$5,462

FY '09 State Recurring Cash

FY '10 - Initial Stimulus (ARRA)

FY '10 - Revised Rainy Day Fund

Budget Trends: FY „10 – FY „11
FY ‘10 Mid-Year Budget Agreement
 Agencies funded in whole or in part with non-GR funds and those receiving supplementals absorbed less than full 7.5 percent cut
FY '10 Budget Cuts: 12 Largest Agencies, Total Budget FY '09 (Final) FY '10 (Initial) Agency FY '10 (Final) FY '10 (Final) Mental Health -10.0% -7.2% District Courts -9.6% -2.8% Health Department -8.2% -7.4% Public Safety -8.1% -4.3% Career Tech -7.6% -7.3% Juvenile Affairs -7.2% -7.3% Transportation -7.0% -7.5% Human Services -6.6% -5.7% Corrections -5.3% -5.3% Common Education -3.4% -4.9% ALL AGENCIES -2.8% -4.2% Higher Education -0.2% -3.1% Health Care Authority 12.4% 0.1%

Budget Trends: FY „10 – FY „11
FY ‘10: Impact of Cuts
 Even with all the additional revenue to reduce the size of cuts , the toll on services and programs has been significant:
 Department of Mental Health and Substance Abuse Services reduced beds and closed centers for children’s mental health and adult substance abuse, cut contracts to all providers;  OJA cancelled youth detention and gang prevention programs, cut providers 5 percent, authorized 22 furlough days;  OHCA cut some Medicaid benefits and reduced all provider rates by 3.5 percent;

 Health Department eliminated 17 child guidance centers serving preschool children with developmental delays
 Department of Corrections cut contracts, eliminated programs, reduced staffing to under 75 percent of authorized levels;  School districts eliminating programs, some going to 4-day weeks;

 DA offices prosecuting fewer criminals;
 Most agencies leaving positions unfilled, offering buy-outs; many imposing furloughs.

Budget Trends: FY „10 – FY „11
FY ’11 Budget: The Challenge Escalates
 FY ‘11 revenue collections projected to grow only slightly from FY ’10 and to remain almost 25 percent below pre-downturn (FY ‘08) levels
General Revenue Collections, FY '06 Actual - FY '11 Estimated (in $ millions)
$6,000 $5,928 $5,714 $5,519 $5,415 $5,981

$5,500

$5,000 $ 4,475 $4,579

$4,500

$4,000
FY '06 Actual FY '07 Actual FY '08 Actual FY '09 Actual FY '10 (June estimated) FY '10 (Feb projected) FY '11 (Feb estimated)

Budget Trends: FY „10 – FY „11
FY ’11 Budget: The Challenge Escalates
 Final FY ‘11 certification provided $1.8 billion less revenue for next year than FY ‘10 initial budget , $1.5 billion less than final FY ‘10 budget
State Appropriations, FY'08-FY '11
$8,000 $7,043

(includes all revenues and supplementals; in $ millions)
$7,124
$7,231 $6,452 $6,959 $6,797

$7,000

$6,000

$5,294
$5,000

$5,415

$4,000 FY'08 FY'09 FY'10 initial budget FY '10 projected revenues (Feb) FY '10 Revised FY '11 Certified State $ (Dec) FY '11 Certified State $ (Feb) FY '11 Gov Budget

Budget Trends: FY „10 – FY „11
FY ’11 Budget: The Challenge Escalates
 To budget the balance, Gov. Henry proposed:  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 Trends: FY „10 – FY „11
FY ’11 Budget: The Challenge Escalates
 2010 Session focused on which, if any, revenue measures would be adopted to bridge the budget gap.  Assuming maintenance of FY „10 budget cuts, the use of all remaining stimulus funds and 3/8ths of Rainy Day Fund, FY „11 budget gap exceeded $800 million.

 Equivalent to an additional 12 percent cuts to all agencies of state government beyond the cuts already enacted.
 Agency scenarios of how to absorb cuts of an additional 7.5 percent to 15 percent in FY „11 left no doubt of the grave threats that would be posed to the state economy and to the health and security of Oklahomans.  Many cuts would be multiplied by loss of federal matching funds.
See OK Policy, “Bridging the Budget Gap,” : http://okpolicy.org/files/bridgingthegap_1pg.pdf

Budget Trends: FY „10 – FY „11
FY ’11 Budget Agreement
 Total appropriations for FY ’11 = $6.714 billion.

 7.2 percent decrease (-$517.5 million) from the initial FY ‘10 budget and 3.5 percent decrease (-$245.4 million) from the final FY ‘10 budget after mid-year cuts
FIG. 1: State Appropriations History, FY '00 - FY 11
$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 FY'09 FY'10 - FY '10 FY '11 Initial - Final State Revenues Federal Relief Rainy Day Fund
$75 $5,389 $4,906 $79 $269 $5,412 $4,922 $5,073 $72 $5,240 $6,760 $6,217 $7,043 $7,095 $6,590 $5,897

(in $millions; FY '00-FY'10 includes supplementals, excludes one-times from Rainy Day Spillover Funds )
$30 $641 $224 $373 $838

$539

$219

$5,802

Budget Trends: FY „10 – FY „11
FY ’11 Budget Agreement
 Appropriated over $1.35 billion in additional revenues on top of those certified in February. These included:  $539 million from the 2009 stimulus bill  Remaining $373 from the Rainy Day Fund

 $450 million from assorted revenue enhancements
 Suspending and deferring payment of tax credits  Issuing and refinancing bonds

 Fee and permit increases
 Transfers of cash balances  About $225 million of the total $1.35 billion in additional revenue is recurring; the rest is one-time

Budget Trends: FY „10 – FY „11
FY ’11 Budget Agreement
Agency Appropriations – 10 Largest, Others, Total
Total Appropriations: $6,713.7 million Includes stimulus, Rainy Day Fund
Corrections, $462.1 , 7% DHS, $543.1 , 8% OHCA (Medicaid), $993.0 , 15% Transportation, $114.8 , 2% Mental Health, $187.7 , 3% Career Tech, $142.0 , 2% Juv. Affairs, $99.2 , 1% Public Safety, $88.4 , 1%

Total Ten Largest: $6,009.4, 89.5%

Higher Ed., $1,003.5 , 15% All Other Agencies, $704.3 , 11%

Notes: Transportation also received $65 from bond issue; OHCA includes $30m transfer from Insure Oklahoma Fund; excludes Health Carrier Access

Common Ed., $2,375.6 , 35%

Budget Trends: FY „10 – FY „11
FY ’11 Budget Agreement
 Funding cuts limited to under 10 percent for most of the largest state agencies;  However, over half of all appropriated agencies will absorb cuts of at least 15 percent for FY „11 compared to FY ‟09.  In some cases, appropriations cuts have been partly offset by fee increases. In addition, the Legislature has approved measures to promote savings and efficiencies and give agencies and school districts greater flexibility  For most agencies and school districts, no additional funding to cover increased employee health care costs, general inflation or rising caseloads.  Cuts, furloughs, hiring freezes, layoffs will continue in FY „11
See OK Policy‟s FY „11 Budget Highlights at: http://okpolicy.org/fy-10-fy-11budgetinformation

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 Feb 2010 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: Looking Ahead
Budget Outlook: No Quick Recovery
 Substantial reliance in FY’10 –’11 on non-recurring revenue creates significant problems for FY ’12 and FY ‘13  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  Possible passage of SQ 744 (mandatory K-12 education funding increases) could throw everything into chaos

Budget Outlook: Looking Ahead
Short-Term Recommendations
1. Defer additional tax cuts until revenues fully recover 2. Serious review of tax credits and exemptions to determine which are needed and effective 3. Consider new revenue streams for the Medicaid program 4. Consolidation of functions and agencies where duplicative or unnecessary

5. Prioritize prevention, diversion and surveillance over detention
6. Prepare for next downturn by strengthening our reserve funds and improving our 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. Serious review of our tax system Scrutinize our programs and spending commitments Give control for making decisions about revenues and spending back to our elected representatives

3.

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 info@okpolicy.org

Better Information, Better Policy www.okpolicy.org
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