oklahoma budget overview: trends and outlook (may 12, 2010)
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8/9/2019 Oklahoma Budget Overview: Trends and Outlook (May 12, 2010)
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OKLAHOMA BUDGET OVERVIEW
Trends and Outlook
REVISED May 12, 2010
David Blatt
Oklahoma Policy Institutedblatt@okpolicy.org - (918) 794-3944
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Oklahoma‟s 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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Oklahoma‟s Path to Prosperity
We Already Lag Behind
Oklahoma already underfunds most of our publicstructures and falls short of many common goals as astate
We rank 50th among the states in per capita
expenditures 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 ‗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 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 supportingtargeted 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
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
FY‘07 – FY’08: Revenue Slowdown
As tax cuts kicked in, General Revenue collections werealmost flat in FY ‘08 compared to FY ‘07 (+%0.9, $54million)
-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 for FY ‗09
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 FY ‘09 – FY ‗12 estimated toreach $600 billion
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Budget Trends: FY „10
This is As Bad as It’s Ever Been
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1 9 8 2
1 9 8 3
1 9 8 4
1 9 8 5
1 9 8 6
1 9 8 7
1 9 8 8
1 9 8 9
1 9 9 0
1 9 9 1
1 9 9 2
1 9 9 3
1 9 9 4
1 9 9 5
1 9 9 6
1 9 9 7
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
Annual General Revenue Collections, in $ millions,
FY '82 - FY '11 (FY '10 & FY'11 based on Feb. 2010 certification)
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Budget Trends: FY „10
The Recession Hit Oklahoma Late 2008
See OK Policy, “Numbers You Need”, at:
http://okpolicy.org/numbers-you-need-key-oklahoma-economic-and-budget-trends
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.08.0
9.0
10.0
J a n - 8 0
M a r - 8 1
M a y - 8 2
J u l - 8 3
S e p - 8 4
N o v - 8 5
J a n - 8 7
M a r - 8 8
M a y - 8 9
J u l - 9 0
S e p - 9 1
N o v - 9 2
J a n - 9 4
M a r - 9 5
M a y - 9 6
J u l - 9 7
S e p - 9 8
N o v - 9 9
J a n - 0 1
M a r - 0 2
M a y - 0 3
J u l - 0 4
S e p - 0 5
N o v - 0 6
J a n - 0 8
M a r - 0 9
% Umpo
Oklahoma Monthly Unemployment Rate
(Seasonally-Adjusted), 1980-2010
Mar 2010:
6.6%
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Budget Trends: FY „10
The Recession Hit Oklahoma Late 2008
-5.0%
-3.0%
-1.0%
1.0%
3.0%
5.0%
2007.4 2008.1 2008.2 2008.3 2008.4 2009.1 2009.2 2009.3 2009.4
% Change from Prior
Quarter
Quarterly Change in Personal Income,
Oklahoma and National,
4th Quarter 2007 to 4th Quarter 2009
U.S. Oklahoma
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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 aboveestimate (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, FY ‗10 revenues estimated to come in >$600million below FY ‘09 ;
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Budget Trends: FY „10
FY ‘10 Initial 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 Initial State Appropriations
10 Largest Agencies: $6.3 billion (88%)
Agencies (75 agencies): $829 million (12%)
Budget Trends: 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%
Total InitialAppropriations:$7,231.2 millionIncludesAmerican
Recovery andReinvestmentAct (ARRA)
Total TenLargest: $6,451.8,89.2 %
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Budget Trends: FY „10
FY ‘10 Initial 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 „10
FY ‘10 : Off to a Very Rough Start
July-Jan revenue collections down 27.0 percent from FY ‘09
Finally seeing clear signs that the downturn has hitbottom and revenues are starting to climb back
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%-29.1%
-16.7%
-7.3%
1.6%
-0.2%
-35.0%-30.0%-25.0%-20.0%-15.0%
-10.0%-5.0%0.0%5.0%
10.0%15.0%20.0%
July Sept Nov Jan Mar May July Sept. Nov Jan Mar
Change in Monthly General Revenue Collections, Compared to Same Month Prior Year, July
'08 - Apr '10
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Budget Trends: FY „10
FY ’10 : Off to a Very Rough Start
Four consecutive quarters of worsening collections
Revenue drops more than twice as steep as during thelast downturn
-12.1%
9.9%
-29.5%
-8.3%
-40.0%
-20.0%
0.0%
20.0%
40.0%
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
Q3
FY
'10
Quarterly Year-over-Year Change in GR Collections,
Oklahoma, FY '02 - FY'10 (Q3)
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Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
Collections through April are $808.5 million – 17.8 percent -below the estimate
After seven months of significant shortfalls, collections startingin February have come close to or exceeded the estimate
-$401
-$180 -$200
-$11-$72
-$864-$1,000
-$900
-$800-$700
-$600
-$500
-$400
-$300
-$200
-$100
$0
Net Income Tax Sales Tax Other Sources
General Revenue Collections compared toEstimate, by Tax, FY '10 thru Jan (in $millions)
-$398
-$70
-$236
-$1
-$104
-$809
-$1,000
-$800
-$600
-$400
-$200
$0
Net Income Tax Sales Tax Other Sources
General Revenue Collections compared to
Estimate, by Tax, FY '10 thru April (in $millions)
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Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
While collections are recovering, they remain substantiallybelow their pre-downturn levels
April revenues just 83 percent of average for the samemonth over the prior 5 years
82.8%83.0%
60%
70%
80%
90%
100%
110%
120%
130%
J u l ' 0 8
A u g ' 0 8
S e p ' 0 8
O c t ' 0 8
N o v ' 0 8
D e c ' 0 8
J a n ' 0 9
F e b ' 0 9
M a r ' 0 9
A p r ' 0 9
M a y ' 0 9
J u n ' 0 9
J u l ' 0 9
A u g ' 0 9
S e p ' 0 9
O c t ' 0 9
N o v ' 0 9
D e c ' 0 9
J a n ' 1 0
F e b ' 1 0
M a r ' 1 0
A p r ' 1 0
Monthly Total General Revenue Collections as % of Prior Five-YearSame-Month Average, July 2008 - April 2010
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Budget Trends: FY „10
FY ‘10 : Off to a Very Rough Start
OSF cut agencies GR allocations by 5 percent throughNovember and by 10 percent since December.
Cuts are across-the-board based on GR allocations
Since some agencies are partly or fully appropriated fromother funds (i.e. 1017 Fund, State Transportation Fund,Lottery, ARRA), agencies are not all affected equally
Cuts limited to less than shortfall through transfers of cashreserves that must be repaid
$314.6 million since start of year
$44 million remained to be repaid after April collections
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Budget Trends: FY „10
Impact of Cuts
Even at 5-10 percent monthly cut levels, the toll onservices and programs has been significant:
DHS cut senior nutrition services by $7.2 million;
OJA cancelled youth detention and gang prevention programs, cut
providers 5 percent, authorized 22 furlough days; OHCA cut some Medicaid benefits and reduced provider rates by 3.5
percent;
Department of Mental Health and Substance Abuse Services reducedbeds and closed centers for children‘s mental health and adultsubstance abuse, cut contracts to all providers;
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;
Most agencies leaving positions unfilled, offering buy-outs; manyimposing furloughs.
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Budget Trends: What Response?
FY ‘10 : How Large a Shortfall?
February certification projected a $669 million (13.0percent) shortfall in FY ‘10 GR collections.
$109 million projected shortfall in HB 1017 Fund as well
Total mid-year shortfall of $778 million
$5,415
$5,145
$4,476
$4,000
$4,500
$5,000
$5,500
100% Estimate - June Appropriation (95%) February Projection
FY '10 General Revenues - Original vs.
Revised Projections
$669million
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Budget Outlook: What Response?
Shortfall Options Rainy Day Fund was 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
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
RevenueFailure, 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?
FY ‘10 Mid-Year Budget Agreement
Agreements announced by Governor, Speaker andPresident 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 Common Ed of $157 million to offsetpart of GR and 1017 shortfalls; $25.6 M to Higher Ed; $33M toOHCA; $15M to Governor‘s Emergency Fund; $7.2M toCorrections; $3 million to Public Safety, smaller amounts toRehab Services , Central Services, other agencies
No additional funds for Human Services, Mental Health
Use of $223.7 million of Rainy Day Fund (3/8th), $151 millionmore stimulus money, plus additional gross production taxrevenues and other sources
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Budget Outlook: What Response?
FY ‘10 Mid-Year Budget Agreement
Total revised budget is $251 million (3.5%) less thaninitial; $143 million (2.0%) less than FY ‘09;
Almost $1.5billion (21%) of revised FY ‗10 budget madeup of non-recurring money
$6,793 $6,220
$5,484
$301
$371
$435
$30$641
$838
$224
$4,000
$4,500
$5,000
$5,500
$6,000
$6,500
$7,000
$7,500
FY '09 FY '10 - Initial FY '10 - Revised
State Recurring Cash Stimulus (ARRA) Rainy Day Fund
State Appropriations, FY '09 - FY '10,Total and by Funding Source (in $millions)
Total= $7.124 billion Total= $7.231 billionTotal= $6.981 billion
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Budget Outlook: What Response?
FY ‘10 Mid-Year Budget Agreement Agencies funded in whole or in part with non-GR fundsand those receiving supplementals absorbed less than full 7.5percent cut
-2.0%
-7.6%
-1.7%
-5.3%
-9.6%
11.1%
-8.2%
-0.2%
-7.1% -7.2%
-10.0%
-8.1%-7.4%
-3.5%
-7.3%
-3.2%
-5.3%
-2.8%
0.1%
-7.4%
-3.1%
-5.7%
-7.3% -7.2%
-4.3%
-7.5%
-12.0%
-7.0%
-2.0%
3.0%
8.0%
Funding Changes for Largest State Agencies, FY '09 - FY '10 (Final)
& FY '10 (Initial) - FY '10 (Final)
FY '09 (Final) - FY '10 (Final) FY '10 (Initial) - FY '10 (Final)
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Budget Outlook: FY „11
FY ‘11: More of the Same
FY ‗11 revenue collections projected to grow onlyslightly from FY ‘10 and to remain almost 25 percentbelow pre-downturn (FY ‗08) levels
$5,714
$5,928 $5,981
$5,519$5,415
$ 4,475
$4,579
$4,000
$4,500
$5,000
$5,500
$6,000
FY '06 Actual FY '07 Actual FY '08 Actual FY '09 Actual FY '10 (June
estimated)
FY '10 (Feb
projected)
FY '11 (Feb
estimated)
General Revenue Collections,
FY '06 Actual - FY '11 Estimated (in $ millions)
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Budget Outlook: FY „11
FY ‘11: The Challenge Escalates
Final FY ‗11 certification provides $1.8 billion lessrevenue for next year than this year‘s initial budget
$7,043 $7,124 $7,231
$6,452
$6,959
$5,294 $5,415
$6,797
$4,000
$5,000
$6,000
$7,000
$8,000
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
State Appropriations, FY'08-FY '11(includes all revenues; includes FY '08-FY '09 supplementals;
in $ millions)
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Budget Outlook: FY „11
FY ‘11: The Challenge Escalates
Assuming maintenance of this year‘s budget cuts and theuse of remaining stimulus funds and 3/8ths of Rainy DayFund, next year‘s budget gap exceeds $800 million.
Equivalent to an additional 12 percent cuts to allagencies of state government beyond the cuts already
enacted.
Federal extension of enhanced FMAP would reduce thisgap by some $300 million and use of remaining ―emergency‖ Rainy Day Funds by an additional $149million.
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Budget Outlook: FY „11
FY ‘11: The Challenge Escalates
Agency scenarios of how to absorb cuts of an additional 7.5percent to 15 percent in FY ‗11 leave no doubt of the real threatsthat will be posed to the healthy, security and well-being of Oklahomans
Medicaid program could eliminate optional benefits for
adults such as prescription drugs, diabetes supplies andkidney dialysis treatment, and cut provider rates by 10 to 20percent;
Major cuts to community-based services for the elderly,mentally ill, juvenile offenders, people with disabilities, andothers.
Widespread teacher layoffs and loss of school programs;
Possible loss of hundreds of correctional officers
Corrosion of all the structures that deliver public services
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Budget Outlook: FY „11
FY ‘11: 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 salestax collections on Internet sales and automated enforcement of
vehicle insurance;
Eliminating and suspending various tax credits;
Increases in fees and permits.
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Budget Outlook: FY „11
FY ‘11: The Challenge Escalates
Some of the revenue enhancements and savings in theGovernor‘s budget proposal are receiving seriousconsideration, as are other revenue ideas.
Even under the Governor‘s proposals, the cuts to agencyprograms and services would be deep and widespread
Even those core agencies in education, health, human services,and public safety that are partially protected will take cuts in FY ’10 and FY ’11 and are not funded in FY ’11 to deal with risingoperating costs and caseloads.
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Budget Outlook: Looking Ahead
Budget Outlook: No Quick Recovery
Revenues unlikely to recover to pre-downturn nominallevels prior to FY ‗13
$5,928 $5,981
$5,544
$4,439
$4,735
$5,275
$5,945
$4,000
$4,500
$5,000
$5,500
$6,000
$6,500
FY 07 (act.)FY 08 (act.)FY 09 (act.)FY 10 (est.)FY 11 (est.)FY 12 (est.)FY 13 (est.)
R
n$mio
Fiscal Year
Historical and Projected Revenue, FY'07-FY'13
General Revenue Fund
Estimates by OKPolicy - not based onFeb 2010
certification
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Budget Outlook: Looking Ahead
Budget Outlook: No Quick Recovery
Substantial reliance in FY‘10 –‘11 on non-recurringrevenue creates significant problems for FY ‗12
Time-released tax cuts still kicking in
Top rate will fall from 5.5% to 5.25% as soon asrevenues are projected to grow 4%... even if revenuesremain below pre-downturn levels
Additional revenues automatically allocated for ROADSand OHLAP
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Budget Outlook : Beyond FY „10
Short-Term Recommendations1. Defer additional tax cuts until revenues fully recover
2. Suspend and cap some tax deductions, credits andincentives
3. Consider new revenue streams for the Medicaid program
4. Expand and improve forecasting capacities
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• Structural deficit : Asituation that occurswhen a state‟s “normal
growth of revenues isinsufficient to financethe 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
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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
Oklahoma’s Structural Deficit
Source: Projections conducted in 2007 by Dr. Kent Olson, Professor ofEconomics, Oklahoma State University
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Long-Term Recommendations
1. 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
• Updated Budget Information:okpolicy.org/fy-10-fy-
11budget-information
• Oklahoma Policy Institute’s OnlineBudget Guide
www.okpolicy.org/online-
budget-guide
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Contact Information
Oklahoma Policy InstituteP.O. Box 14347
Tulsa, OK 74159-1437
(918) 794-3944
info@okpolicy.org
Oklahoma Policy Institute provides timely and credible analysis of state policy issues
Better Information, Better Policy
www.okpolicy.org
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