Ok Budget Outlook Nov09

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Ok Budget Outlook Nov09

  1. 1. OKLAHOMA BUDGET OVERVIEW Trends and Outlook REVISED NOVEMBER, 2009 David Blatt Oklahoma Policy Institute dblatt@okpolicy.org - (918) 859-8747
  2. 2. 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
  3. 3. 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.
  4. 4. 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 Annual Appropriations Totals,FY ‗00—FY ‗08 (Includes Supplementals thru FY ‗08 and Rainy Day spillover Funds for Recurring Agency Expenditures) - in $millions $7,500 $7,043 $7,000 $6,760 $6,500 $6,217 $6,000 $5,389 $5,491 $5,459 $5,500 $5,191 $5,145 $4,981 $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. 5. 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 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*
  6. 6. 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) $776.9 $800.0 $651.1 $561.8 $600.0 $400.0 $333.3 $200.0 $144.8 $18.7 $0.0 FY'05 FY'06 FY'07 FY'08 FY'09 FY'10 sour c e : Ok l a homa Ta x C ommi ssi on
  7. 7. 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) Annual % Change in General Revenue Collections, FY '03 - FY '08 20.0% 14.8% 15.0% 10.6% 10.0% 7.6% 5.0% 4.0% 0.9% 0.0% -5.0% -5.3% -6.6% -10.0% FY '02 FY '03 FY '04 FY '05 FY '06 FY '07 FY '08
  8. 8. 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
  9. 9. Budget Trends: FY „10
  10. 10. 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 Source: Center on Budget and Policy Priorities
  11. 11. Budget Trends: FY „10 The Recession Hit Oklahoma Late Monthly Unemployment Rate, National and Oklahoma, Sep. 2007 to Sep. 2009 10.5 9.8% Unemployment Rate (%) 9.5 8.5 7.5 6.7% 6.5 5.5 4.5 3.5 2.5 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Oklahoma National See OK Policy, “Numbers You Need”, at: http://okpolicy.org/numbers-you-need-key-oklahoma- economic-and-budget-trends
  12. 12. Budget Trends: FY „10 The Recession Hit Oklahoma Late Quarterly Change in Personal Income, % Change from Prior Quarter Oklahoma and National, 2nd Quarter 2007 to 2nd Quarter 2009 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 U.S. Oklahoma
  13. 13. Budget Trends: FY „10 The Recession Hit Oklahoma Late Monthly Oil and Gas Prices, 1986 - 2009 $12.00 $160.00 $140.00 $10.00 $120.00 $8.00 $100.00 $6.00 $80.00 $60.00 $4.00 $40.00 $2.00 $20.00 $- $- Apr-1994 Apr-2005 Oct-1999 Dec-1986 Nov-1987 Oct-1988 Aug-1990 Mar-1995 Dec-1997 Nov-1998 Aug-2001 Mar-2006 Dec-2008 Jan-1986 Jul-1991 Jun-1992 Feb-1996 Jan-1997 Jul-2002 Jun-2003 Feb-2007 Jan-2008 Sep-1989 May-1993 Sep-2000 May-2004 U.S. Natural Gas Wellhead Price (Dollars per Thousand Cubic Feet) Cushing, OK WTI Spot Price FOB (Dollars per Barrel)
  14. 14. 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) Change in Monthly General Revenue Collections, FY '09 Compared to Same Month, FY '08 15.0% 12.8% 11.1% 10.8% 10.4% 10.0% 7.1% 5.0% 1.3% 0.0% -5.0% -10.0% -8.5% -15.0% -20.0% -19.1% -25.0% -21.5% -21.1% -30.0% -27.7% -30.1% -35.0% July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June
  15. 15. Budget Trends: FY „10 FY ’10 Budget: Revenues on the Skids  In February, FY ‗10 revenues estimated to come in >$600 million below FY ‘08 ; 6,500 General Revenue Collections, FY '06 Actual - FY '10 Estimated (in $million) 5,981.1 5,946.4 6,000 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 FY '09 FY '10 December February Feburary
  16. 16. Budget Trends: FY „10 FY ‘10 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 $7,043 $7,125 $7,231 7,000 $6,760 $30 6,500 $6,217 ARRA $641 6,000 ARRA $7,095 $5,389 $5,491 $5,459 State 5,500 $5,191 $6,590 $5,145 $4,981 State 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 State Appropriations ARRA NOTE: FY „09 totals do not include June budget cuts
  17. 17. Budget Trends: FY „09 – FY „10 FY ’10 State Appropriations DHS, Total 10 Largest Agencies: $6.3 billion (88%)Transportation, $550.7 , 8% Corrections $503.0 $208.7 , 3% Appropriations: Agencies (75 agencies): $829 million (12%) Mental Health, 7% $7,231.2 million OHCA (Medicaid), $203.3 , 3% Includes $979.8 , 13% American Career Tech, Recovery and $157.8 , 2% Reinvestment Act (ARRA) Higher Ed., Juv. Affairs, $1,070.7 , 15% $112.4 , 1% Public Safety, $93.3 , 1% All Other Agencies, Common Ed., $779.4 , Total Ten $2,572.0 , 36% 11% Largest: $6,451.8, 89.2 %
  18. 18. 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
  19. 19. 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 Change in Monthly General Revenue Collections, Compared to Same Month Prior Year, July '08 - Oct. '09 20.0% 12.8% 11.1% 10.8% 10.4% 10.0% 7.1% 1.3% 0.0% -10.0% -8.5% -20.0% -19.1% -21.5% -21.1% -23.7% -30.0% -27.7% -26.3% -30.1% -30.1% -31.6% -40.0% July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept. Oct
  20. 20. 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 Quarterly Year-over-Year Change in GR Collections, Oklahoma, FY '02 - FY '10 30.0% 20.0% 9.9% 10.0% 0.0% -10.0% -15.3% -20.0% -12.1% -26.3% -30.0% -29.5% -40.0% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY '02 '02 '03 '03 '04 '04 '05 '05 '06 '06 '07 '07 '08 '08 '09 '09 '10
  21. 21. 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 1st Quarter General Revenue Collections, FY '01 - FY'10 (in millions) $1,700 $1,600 $1,567.8 $1,500 $1,400 $1,300 $1,200 $1,136.3 $1,100 $1,105.9 $1,000 $995.3 $900 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 FY'09 FY'10
  22. 22. 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 General Revenue Collections compared to Estimate, by Tax, FY '10 thru October (in $millions) $0 -$14 -$31 -$100 -$113 -$200 -$141 -$172 -$300 -$400 -$500 -$472 Net Income Tax Gross Sales Tax Motor Vehicle Other Sources Total Gen. Production Revenue
  23. 23. 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 Comparison of FY '10 Original Estimates and OK Policy Forecasts (GR Fund Only) $6,000 $5,518 $5,145 $5,293 $5,000 $4,439 $3,933 $4,000 $3,000 $2,000 $1,000 $- 100% Estimate Appropriated Low Middle High See “State Budget Shortfalls, FY „10 & Beyond” at http://okpolicy.org/fy-10-budget-information
  24. 24. Budget Outlook: What Response? Shortfall Options  Rainy Day Fund is 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) $700 $596.6 $600 $571.6 $496.7 $500 $461.3 $400 $340.9 $300 $217.5 $200 $157.5 $100 $72.3 $0.1 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009
  25. 25. 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) Uses of Constitutional Reserve Fund Current Emergency, Year 25.0% Shortfall, 37.5% Next Year Shortfall, 37.5%
  26. 26. 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
  27. 27. 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)
  28. 28. 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;
  29. 29. Budget Outlook: Beyond FY „10 Budget Outlook  Revenues unlikely to recover to pre-downturn nominal levels prior to FY ‗12 or FY ‗13 Figure 4 Historical and Projected Revenue, FY'07-FY'13 General Revenue Fund $7,000 $6,451 $5,938 $5,953 Revenue in $millions $6,000 $5,518 $5,000 $5,945 $5,275 $4,439 $4,735 $4,000 $3,000 $3,870 $2,000 $1,000 $- FY 07 (act.) FY 08 (act.) FY 09 (act.) FY 10 (est.) FY 11 (est.) FY 12 (est.) FY 13 (est.) Fiscal Year Estimates by OK Low Middle High Policy
  30. 30. 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
  31. 31. 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
  32. 32. 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”)
  33. 33. Long-Term Fiscal Outlook Oklahoma’s Structural Deficit Projected Annual Budget Surpluses and Deficits Before and After 2004-2006 Tax Cuts (2007 to 2035) 1,000 500 0 M i l l i o n $2005 (500) Before Tax Cuts (1,000) After Tax Cuts (1,500) (2,000) (2,500) 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
  34. 34. Long-Term Fiscal Outlook 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
  35. 35. For More Information • Oklahoma Policy Institute’s Online Budget Guide www.okpolicy.org/online- budget-guide
  36. 36. Contact Information Oklahoma Policy Institute 228 Robert S. Kerr, Suite 750 Oklahoma City, OK 73102 ph: (405) 601-7692 info@okpolicy.org Better Information, Better Policy Oklahoma Policy Institute provides timely and credible analysis of state policy issues www.okpolicy.org

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