Monday, March 2, 2015
By Governor Mary Fallin
With every challenge comes an opportunity and, as one of my favorite sayings goes, “setbacks are opportunities for comebacks.” Fifty dollar a barrel oil prices and a $611 million budget shortfall certainly qualify as challenges, even setbacks, but they are ones that we can overcome. This year we have a tremendous opportunity to carefully rethink how we put together the state’s budget and to address cyclical and structural imbalances that threaten the stability of state finances.
It is important to keep this shortfall in context. This is not the first or the largest budget shortfall the state of Oklahoma has had in recent memory. In 2010, during the national recession, we had a billion dollar shortfall. The sky did not fall.
In 2011, when I took office, I inherited a $500 million shortfall. At the time, we had very few tools to work with to close that budget gap. The state was broke; we had only $2.03 in our savings account. The economy was stagnant; tens of thousands of Oklahomans were without work.
Today we are in a much better position to deal with a budget hole. We have a strong economy, one of the lowest unemployment rates in the nation, and more than $535 million in our Rainy Day savings account. Thanks to strong economic growth, we are much better equipped to deal with this year’s shortfall. Because of that growth, we can balance the budget while still preserving the core functions of government.
There are several tools in our toolbox we know we can use to make up for the shortfall, including:
· Cutting some agency appropriations
· Redirecting some amount of the Rainy Day Fund to core government services like education
· Redirecting some portion of the $1.7 billion dollars in agency revolving funds to the general revenue fund to better uses
· And seriously evaluating the value of ALL of Oklahoma’s tax credits and economic incentives.
These are all things we can do to balance the budget in the coming fiscal year. As I said before, however, we need to take a longer view and use this year’s budget as an opportunity to correct structural imbalances in our budget system.
This year’s budget challenges are often blamed on falling oil prices, and there is a great deal of truth to that. But our current budget system and structure are also big contributors to the problem.
Every year, we divert billions of dollars away from the General Revenue Fund – the primary source of discretionary spending by the Legislature - before the budgeting process begins. Those funds go either to support various government programs, to pay for tax credits and incentives, or to fill revolving funds maintained by state agencies. Some of those revolving funds go unused; in fact, state agencies are currently sitting on over 900 million unencumbered revolving fund dollars.
The great irony of this year’s budget shortfall is this: as our economy has grown, the state is now collecting more total tax revenue than ever, which you can see in this chart:
However, because of off-the-top spending, the percentage of total tax receipts that make their way into the General Revenue Fund is decreasing, as you can see in this chart:
In 2007, the Legislature appropriated 55 cents of every dollar taken in by the government. Last year, that declined to 47 cents.
That means that lawmakers today have fewer total dollars to appropriate than in the past, despite the state collecting significantly more money. That is a decline that will continue if we do not fix the problem. My budget office’s projections show the percentage of the total revenue that lawmakers can appropriate will shrink to less than 44 cents of every dollar by 2017.
The ability to minimize cuts to government services is going to hinge on how great an effort we make to fix these structural problems in our budget. That means this year’s legislative session should not just be about closing a $600 million budget hole. Our goal should be to address the recurring problems that continue to reduce our legislators’ ability to direct state dollars to public priorities.
That can be done through an earnest, thoughtful evaluation of revolving funds and tax credits and a commitment to performance informed, data-driven budgeting.
This legislative session surely represents a challenge. But it also represents an opportunity to permanently improve the financial situation of the state of Oklahoma. I encourage lawmakers to seize that opportunity.
Read more about Governor Fallin’s budget proposals at http://www.ok.gov/governor/State_of_the_State_Address.html