Oklahoma “Revenue Failure” Declared, Tight Spending Projected

For the first time in years, the December Board of Equalization meeting in the governor’s conference room on the second floor at the state Capitol could scarcely be described as routine.

At the Dec. 22 session, with Gov. Brad Henry presiding, the board took five formal votes, each unanimous. Members certified the 2010 revenue report, declared revenues had not grown sufficiently to trigger income tax cuts, found $57 million is needed to fund Oklahoma’s Promise (OHLAP) scholarships, certified tight revenues for Fiscal Year 2011, and declared a “revenue failure” for FY 2010.

Only the OHLAP vote provoked lengthy discussion. Superintendent of Public Instruction Sandy Garrett noted the OHLAP projection is required, while she said spending for national board certified teachers is coming in nearly $4.7 million below anticipated costs. (See CapitolBeatOK’s separate story on this issue.)

The “failure” declaration, reached for the first time since voters approved a process for such conclusions, could theoretically allow access to the entire Constitutional Reserve (better known as the Rainy Day Fund) balance of $596.6 million. However, leaders in both political parties and in both chambers of the Legislature have said they believe some money should remain in the fund to deal with anticipated lower revenues in FY 2011.

The FY 2010 “revenue failure” was determined by the difference between the general revenue (GR) projection of $4,414,975,742 and the appropriated “GR” of $5,144,371,712. The 2010 “failure for 2010 is thus projected at $729,395,970.

The next stage for income tax reductions was not achieved, but final determination will not come until February. A 4% increase in growth would have been required to “trigger” a rate drop from 5.5% to 5.25%.

The board certified FY 2009 GR receipts of $5,544.7 million, or 93.2% of the estimate. The comparatively tight budget did not allow any deposit into the constitutional reserve. Actual revenues (total collections to all certified funds) came in at $5,636,572,491.

The revenue gap – about 18.5%, or more than $1 billion for FY 2010 — could improve in the next six months after absorbing agency cuts already ordered. Five percent monthly allocation reductions had been in place “across-the-board” for all agencies. In December, Treasurer Scott Meacham ordered 10% reductions for December and January.

Although some analysts have expressed hopes the allocation cuts could drop back to 5% in February, state officials have not ruled out sustaining the higher level until legislators and the governor negotiate targeted cuts. While a special session remains possible, many leaders hope to avoid that expenditure. The regular session begins on Feb. 1.

The gap between FY 2010 and FY 2011 revenue estimates is $966.8 million, a 17.9% difference. The total proposed expenditure authority for FY 2011 is projected at $5.295 billion, a $1.322 billion, or 20%, drop.

For FY 2010, Treasurer Meacham pointed to revenue shortfalls in every tax category except one. The tax categories and (in parenthesis) the amount below prior estimates are: Individual income (-$391.5 million, 19.2%); Motor vehicle (-$16.5 million, 11.7%); Estate (-$2.4 million, 6.7%); Corporate income (-$134.9 million, 43.9%); Sales (-$242.1 million, 13.8%), Gross Production Gas (-$232.3 million, 54.3%), and Use (-$36.7 million, 23.1%). Only the gross production tax on Oil was up, at $87.7 million.

The board consists of six officials holding statewide elected positions and one appointee. Besides the governor and Superintendent Garrett, members are Lt. Gov. Jari Askins, Auditor and Inspector Steve Burrage, Attorney General Drew Edmondson, Treasurer Meacham and Terry L. Peach, the secretary of agriculture (the appointed post).  All members of the panel are Democrats.

In a Monday, Dec. 21 briefing for journalists, Treasurer Meacham took issue with an analysis by the National Conference of State Legislatures which said the Oklahoma revenue crunch was the nation’s worst. Meacham said the analysis was wrong in not accounting for Oklahoma’s reserves, requirements to restore funds taken from agency reserves and other provisions.

This month, the House Appropriations and Budget Committee for two weeks held daily hearings during which agency budgets were scrutinized. Directors and administrators from various agencies appeared before the panel to report on cuts already made, and what the effect of further budget reductions might be.

As reported in the daily “blog” of Oklahomans for Responsible Government (OFRG), at one of the House committee sessions Department of Human Services (DHS) director Howard Hendrick observed: “$100K cut from Higher Ed might cost two jobs, cutting $100K from [DHS] might cost nine jobs.  Can you find nickels and dimes?  Sure. But in the big picture, are there low hanging fruit? Probably not. There has to be a substantial decision: either cut education and spend in DHS, or decide we’re not going to cover these people. We’re either going to pull this out with sacrifices from other places or we’re not going to help people.”

In a statement after completing the two weeks of House hearings, Appropriations and Budget chairman Ken Miller said, “We have to encourage agencies to think outside the box when it comes to finding efficiencies and savings as we seek to balance our budget this year and beyond.”

Miller, a Republican from Edmond, said, “During these meetings, many agencies unveiled proactive cost-savings ideas, but this is only the beginning as we navigate the effects of the ongoing global recession.”
A House legislative release issued just before Christmas noted, “Oklahoma has a variety of tools to help state agencies get through the budget downturn, including sustained or additional funding cuts, additional use of federal stimulus dollars and use of the Constitutional Reserve ‘Rainy Day’ Fund.”

NOTE: CapitolBeatOK is an online news service in Oklahoma City, beginning full-time operations in the New Year. Editor Pat McGuigan is also Capitol Editor for Tulsa Today.