Ortega said that lawmakers must grapple with addressing a shortfall in the current fiscal year budget and develop a plan for next year’s budget with less cash on hand. Collections for the FY10 budget (passed last May) have fallen $729 million short of estimates. Previously implemented spending cuts have reduced that budget hole to $530 million. Revenue projections for FY11 indicate there will be $1.3 billion less than the amount approved in the initial FY10 budget.
“Lawmakers have roughly $600 million in Rainy Day funds and about $700 million in federal stimulus dollars that could help address the shortfalls,” Ortega said. “Along with some other cash sources that may be available. But the stimulus funds also create a problem down the road – since those funds will not be replaced, the use of that money effectively creates a $600 million hole in the FY12 budget.”
The same thing holds true for Rainy Day money used in the budget this year. As a result, legislators have to make spending decisions looking at a three-year window that involves shortfalls of $530 million this year, $1.3 billion next year, and at least $600 million (with the potential to be as much as $1 billion or so) the year after that – unless the economy recovers dramatically, which is not expected by most forecasters.
Gov. Brad Henry has called for immediately spending all but $43 million of the “Rainy Day” Fund. However, that plan would leave the next governor facing a potential $600 million to $1 billion shortfall in FY12 with no state savings fund. Legislative leaders believe the “Rainy Day” money should be carefully parceled out to avoid enormous cuts in a single budget year.
An FY10 budget agreement endorsed by legislative leaders would utilize both targeted spending cuts and state savings. To balance the fiscal year 2010 budget, legislative leaders have called for annualizing a 7.5 percent cut for most agencies. For many agencies who received a 7 percent cut built into the original FY10 budget, this will mean a total 14.5 percent cut from FY09 to FY10 – including the Oklahoma House of Representatives.
However, some key areas would be spared cuts of that magnitude through the use of Rainy Day money and stimulus funds. Due to increased demand on safety net services, a $33 million dollar supplemental would go to the Health Care Authority, which administers Medicaid A $7.2 million dollar supplemental would be provided to the Corrections Department to address inmate growth and prevent furloughs of corrections officers.
More importantly, our local schools would benefit from a new infusion of cash. Common Education and Higher Education would be held to a smaller 4 percent total cut, made possible with an $80 million supplemental.
The plan endorsed by legislative leaders would spend 3/8 of the Rainy Day Fund, or $223 million, to address the FY10 shortfall. Unfortunately, officials have reason to carefully dole out Rainy Day money. Based on current estimates for FY11, even if lawmakers use all remaining reserves, it will still require an additional across-the-board cut of 10 percent to balance the FY11 budget. And then the FY12 potential shortfall looms.
The plan endorsed by legislative leaders would spread the reserves out in a fiscally responsible way, while finding savings and efficiencies in government where possible. The end result will hopefully be a softer landing for 2012.
The governor’s budget plan for FY11 would spend $6.9 billion even though current projections indicate the state will have just $5.3 billion available. How does he come up with the extra $1.6 billion? Through stimulus funds, Rainy Day funds and other cash reserves, new bonds, revenue enhancements, and compliance initiatives. However, many of the governor’s “revenue enhancements” and “compliance initiatives” could be unpopular. For example, the governor has called for taxing Internet purchases, predicting it would generate $95 million. However, that measure would effectively raise taxes on working families that buy something on Amazon.com or other online retailers.
Another of the governor’s proposals calls for installing a statewide automated enforcement system to increase driver compliance with auto insurance laws, saying the proposal would generate another $95 million. However, it is not known if it is truly feasible to install cameras along all Oklahoma roads to “read” license plates and collect insurance data, and many citizens may object to such a “government tracking” measure.
The governor has also called for elimination of the Rural Economic Action Plan, which pays for projects in rural communities such as street repairs, infrastructure improvements, and rural fire departments. That proposal has already generated significant opposition from rural lawmakers. The governor has also called for consolidating more than 30 of the state’s 180 agencies. However, some of those consolidations could be difficult to implement. For example, combing the Alcoholic Beverage Laws Enforcement Commission with the Department of Public Safety would require a constitutional amendment approved by a vote of the people. (ABLE was established as an independent agency through a previous constitutional amendment.) The governor’s budget includes only $100-million in cuts.
The days ahead will be spent hammering out a compromise between the Legislature and the governor on these important budget issues. In addition to budget challenges, lawmakers also face their normal workload on the policy front, which is expected to include a focus on workers compensation and education reform, in particular. Committee work is underway, with 1,153 bills and 31 joint resolutions filed in the Oklahoma House of Representatives. In addition, another 901 House bills carried over from the 2009 session and could receive a vote this year, as could 48 joint resolutions. In the Senate, lawmakers filed 1,082 bills and 28 joint resolutions filed, with another 860 bills and 38 Senate Joint Resolutions that carried over from 2009.