ok budget outlook nov09
TRANSCRIPT
OKLAHOMA BUDGET OVERVIEW
Trends and Outlook
REVISED NOVEMBER, 2009
David Blatt
Oklahoma Policy [email protected] - (918) 859-8747
Oklahoma‟s Path to Prosperity
OUR STARTING POINT
We invest our tax dollars in
our public structures to support
our common goals as a state
Oklahoma‟s Path to Prosperity
We Already Lag Behind
Oklahoma already underfunds most of our public structures and falls short of our common goals as a state
We rank 50th among the states in per capita expenditures on state and local government
We need renewed investment in our public structures to meet our common goals as a state.
Budget Trends: FY „02 – FY „09
Annual Appropriations Totals,FY ‗00—FY ‗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 state appropriations 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
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
Lost Revenues from Select Tax Cuts Enacted 2004 - 2006
FY'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'10sour c e : Ok l a homa Ta x Commi ssi on
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
Budget Trends: FY „02 – FY „09
Budget Trends: FY ‟02 - FY ‟09
FY‘07 – FY’08: Revenue Slowdown
General Revenue collections were almost flat in FY ‘08 compared 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
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
FY „09 excludes supplementals and mid-year budget cut
Budget Trends: FY „10
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 FY ‘09 – FY ‗12 estimated to total more than $465 billion
Budget Trends: FY „10
6.7%
9.8%
2.5
3.5
4.5
5.5
6.5
7.5
8.5
9.5
10.5
Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
Un
em
plo
ym
en
t R
ate
(%
)Monthly Unemployment Rate,
National and Oklahoma, Sep. 2007 to Sep. 2009
Oklahoma National
The Recession Hit Oklahoma Late
See OK Policy, “Numbers You Need”, at:
http://okpolicy.org/numbers-you-need-key-oklahoma-
economic-and-budget-trends
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 from
Prior Quarter
Quarterly Change in Personal Income,
Oklahoma and National,
2nd Quarter 2007 to 2nd Quarter 2009
U.S. Oklahoma
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
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
Budget Trends: FY „10
FY ’10 Budget: Revenues on the Skids
5,407.2
5,649.2
5,981.15,946.4
5,902.7
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, FY ‗10 revenues estimated to come in >$600 million below FY ‘08 ;
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
$641 ARRA
$7,095 State
$6,590State
State Appropriations History, FY '00 - FY '10 in $millions)
(includes supplementals, excludes one-times from Rainy Day Spillover funds)
FY ’10 State Appropriations
10 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
$503.0
7%
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 Other
Agencies,
$779.4 ,
11%
Total
Appropriations:
$7,231.2 million
Includes
American
Recovery and
Reinvestment
Act (ARRA)
Total Ten
Largest: $6,451.8,
89.2 %
Budget Trends: FY „09 – FY „10
FY ‘10 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 „09 – FY „10
FY ‘10 : Off to a Very Rough Start
July-Oct revenue collections down 28.1 percent from FY ‘09
October better than previous months
Not clear whether we‘ve hit bottom or how long it will take to 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%
-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
Change in Monthly General Revenue Collections, Compared to Same Month Prior Year, July '08 - Oct. '09
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 the last 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
Budget Trends: FY „09 – FY „10
FY ’10 : Off to a Very Rough Start
1st quarter revenues lower than 9 years ago – without adjusting 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)
Budget Trends: FY „09 – FY „10
FY ‘10 : Off to a Very Rough Start
Collections through October are $471.7 million – 24.2 percent - below the estimate
OSF has cut agencies GR allocations by 5 percent
Cuts limited to 5 percent ($21.9 million) of GRF each month through transfers of cash reserves
-$141-$172
-$113
-$14 -$31
-$472-$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 October (in $millions)
Budget Trends: FY „09 – FY „10
FY ‘10 : How Large a Shortfall?
Based on first quarter revenues, our best estimate of the 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 OK
Policy Forecasts (GR Fund Only)
See “State Budget Shortfalls, FY „10 & Beyond”
at http://okpolicy.org/fy-10-budget-information
Budget Outlook: What Response?
Shortfall Options Rainy Day Fund is filled to maximum amount of $597
million
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)
Budget Outlook: What Response?
Shortfall Options
Up to $375 million 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)
Current
Year
Shortfall,
37.5%
Next Year
Shortfall,
37.5%
Emergency,
25.0%
Uses of Constitutional
Reserve Fund
Budget Outlook: What Response?
Shortfall Options
Middle estimate of $706 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
Budget Outlook: What Response?
Budget Outlook
What‘s the plan???
Seems to involve:
Keep cutting agency budgets 5 percent every month
Keep borrowing from any and all available reserves to make up the difference
No Special Session
Tap the Rainy Day Fund to fill the gap
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)
Budget Outlook: What Response?
Budget Outlook: Other Revenues
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 revenues;
Budget Outlook: Beyond FY „10
Budget Outlook Revenues unlikely to recover to pre-downturn nominal levels prior to FY ‗12 or 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.)
Reve
nu
e in
$
millio
ns
Fiscal Year
Figure 4
Historical and Projected Revenue, FY'07-FY'13
General Revenue Fund
Low Middle High
Estimates by OK
Policy
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 create significant problems for FY ‗12
Budget Outlook : Beyond FY „10
Short-Term Recommendations
1. Develop and share greater information about projected shortfalls, impact of actual and potential cuts, possible solutions
• 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 to allow for larger reserves
5. Consider new revenue streams for the Medicaid program
6. Develop meaningful multi-year forecasting
• 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 – like most states and the federal government – faces a looming structural budget deficit
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 2035Year
Millio
n $
20
05
Before Tax Cut s
Aft er Tax Cut s
Oklahoma’s Structural Deficit
Source: Projections conducted in 2007 by Dr. Kent Olson, Professor of
Economics, Oklahoma State University
Long-Term Recommendations
1. Modernize the Tax System
2. Preserve a Balanced Tax Structure
3. Scrutinize our programs and spending commitments
4. Make the tax system fairer
Long-Term Fiscal Outlook
For More Information
• Oklahoma Policy Institute’s Online Budget Guide
www.okpolicy.org/online-budget-guide
Contact Information
Oklahoma Policy Institute
228 Robert S. Kerr, Suite 750
Oklahoma 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