The hole in next year’s state budget will likely be just over $900 million, Oklahoma Finance Secretary Preston Doerflinger said Tuesday.
State agencies will also likely face mandatory mid-year budget cuts due to the declaration of what’s called a “revenue failure.” The annual state budget includes a five percent cushion if revenues fall below the official estimate. The state hit the five percent threshold in November, and on Monday the state Board of Equalization will look at revenue forecasts that show collections are 7.7 percent below what the board approved in June at the start of Fiscal Year 2016.
“A shortfall is all but certain after 18 months with the oil price as it is, so agencies have been formally advised to prepare for a midyear reduction if they have not already,” Doerflinger said in a statement Tuesday. “It’s going to be the biggest fiscal challenge since the years following the 2008 recession, and we’ll need to meet it head on with all hands on deck.”
Once a revenue failure is declared, the monthly agency allocations are cut by a percentage that will cover the rest of the current year’s shortfall. That number will be determined after Monday’s Board of Equalization meeting. The state hasn’t faced a revenue failure since 2009 during the nationwide recession following the global financial crisis.
In February, the Board of Equalization will meet again to make a second revenue estimate, and those are the figures lawmakers and the governor will use to craft the budget for FY 2017.
The anticipated $900 million shortfall for FY 2017 would be about 13 percent less than the appropriated budget in FY 2016. Oklahoma faced a $611 million shortfall last year, which lawmakers closed by tapping into the state’s savings account, agency revolving fund, and the Unclaimed Property Fund.
The global price of oil has shown no signs of rebounding since the fall that began more than a year ago. The state’s economy is heavily dependent on tax revenue from the oil and gas industry, and the Office of Management and Enterprise Services blamed the precipitous drop in oil prices on the Organization of the Petroleum Exporting Countries not easing production levels due to a global oil surplus.
“Tax revenues in energy states are collateral damage in the market warfare OPEC is waging on U.S. energy producers,” Doerflinger said. “As tempting as it may be to send OPEC and Saudi princes a $900 million bill, we can’t do that and have to manage this hole realistically and responsibly with the tools at our disposal.”
Agency Impact
The shortfall for this fiscal year means state agencies will be forced to find at least $157 million in spending cuts by the start of 2016, The Journal Record’s Dale Denwalt reports:
Gov. Mary Fallin already asked agencies to prepare by drafting plans to reduce non-critical spending by 10 percent. She also directed agencies to follow a moratorium on nonessential, taxpayer-funded travel out of state. “I also encouraged state agencies to sell unused property and buildings and to centralize the custody and control of all state-owned airplanes and helicopters,” Fallin wrote in a statement. “I hope that by taking that action, agencies are in a position to make changes that will allow them to absorb any cuts without cuts to key services.” . . . If the price of oil were to rebound before the end of the fiscal year and make up the lost revenue, Doerflinger told reporters he would have to reimburse agencies for the cuts.
Doerflinger told Capitol reporters yesterday he hopes agency payments on debt will be protected:
He also said the Legislature might consider a supplemental appropriation to spare debilitating cuts in corrections and human service-related agencies. Democratic lawmakers last session argued that a $147 million income tax cut that takes effect Jan. 1 should be delayed or canceled, but Republican leaders didn’t consider the proposal.
The left-leaning think tank the Oklahoma Policy Institute issued a statement criticizing the state for cutting education, healthcare, and public safety during the energy boom.
“We can’t make it through this emergency by doubling down on deeper cuts and one-time fixes,” the OPI said. “The only responsible path forward is to put new recurring revenue on the table and to reassess tax cuts and tax breaks that are becoming more unaffordable every day.”
Mental health services in Oklahoma could be slashed based on the projected shortfall. Last week Department of Mental Health and Substance Abuse Services Commissioner Terri White asked lawmakers for a $4.4 million increase for FY 2017 just to maintain the services it provided last year, according to The Oklahoman’s Jaclyn Cosgrove:
"You're going to have tough choices," White told a group of lawmakers. "And I know this isn't going to shock any of you — I'm not going to make it easy for you. I'm not going to just say, 'Yep, I know it's tough choices' and not advocate for what I think is the best use of state dollars. So, my thought that we should all be thinking about is, 'How much is a life in Oklahoma worth?' " With that money, the agency would pay for the Oklahoma County family drug court, support a 1 percent growth in its behavioral health programs, cover a decrease in federal funding and pay law enforcement mileage for transporting residents in mental health crises.
Cosgrove reports a flat appropriation would mean 2,200 Oklahomans would no longer have mental health services.
Additionally: A 5 percent budget cut (plus unfunded maintenance) would mean at least 8,950 Oklahomans lose services A 7.5 percent cut (plus unfunded maintenance) would mean almost 12,500 lose services And a 10 percent cut (plus unfunded maintenance) would mean more than 16,000 Oklahomans lose services.
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