State leadership: budget problems likely to worsen

Senator Clark Jolley speaks to the media in the Oklahoma State Capitol. (Keaton Fox/KOKH)

A looming budget shortfall is likely to worsen and is brought on by falling oil and gas prices, state leaders said Thursday.

That, in addition to a current fiscal year shortfall worse than earlier projected, according to the Office of Management and Enterprise Services.

"We need to cut at least $157 million dollars across the board," said finance secretary Preston Doerflinger. "We'll probably cut a little more than $157 million to give an extra cushion and somewhat soften next year's reductions."

For the next fiscal year, estimates are projected at $900 million, but that will likely worsen Doerflinger said.

"Frankly, I see the situation worsening by the time [the legislature] is back in February," he said. "I think the hole could get bigger this year and next year."

Doerflinger says though the situation is bad, it's not as bad as 2009, when cuts to agencies were close to 7%. This year, agencies are looking at another 2-4%, though he cautioned the problem was fluid and could worsen.

"Make no mistake, the vast majority of the challenge we face ahead of us started at the OPEC building in Saudi Arabia, not at this building," Doerflinger said.

While Doerflinger and other state leaders blame oil and gas, they also point to budget fixes in previous years, including last year, where one-time funds were used to shore up cuts. Doerflinger, along with state treasurer Ken Miller, both say that these methods don't work, and say they've warned state leaders against them.

"Outside of government, it is well accepted that nonrecurring revenues should not be used for ongoing expenditures and that recurring revenue streams should not be cut when current costs exceed them," Miller wrote in his monthly commentary. "Yet under the capitol dome, that has become standard operating procedure and changes shouldn't be expected next session given the expected severity of the shortfall."

"The goal and the reason the state legislature for decades has utilized one-time sources for recurring expenditures is actually an admirable reason," explains Senate appropriations chair Clark Jolley. "The reason is to prevent further deeper cuts in core government agency spending."

Jolley says state leaders were waiting for the economy to improve, and says that every other sector of the economy is improving, except for oil and gas.

One in four tax dollars coming into the state is from oil and gas, Hickman said.

Income tax, tax breaks fight

State leaders also fought back against critics of an income tax cut set to take effect at the beginning of the year.

"When there are 11,600 Oklahomans who are out of work and have lost their jobs, the effect is going to be profound, and it doesn't make any difference what the income tax rate is," said House Speaker Jeff Hickman.

"There are some people, including some news reports that I've read recently, that want to blame a quarter percent income tax cut that hasn't even taken effect yet for this problem. That's simply, not only, inaccurate, it's just not true," Hickman said.

Hickman says the income tax cut has nothing to do with the revenue failure and accounts for only a small portion of the problem.

"The argument, that, well, just do away with the tax cut, you're not going to get a 75 percent vote of the House, the Senate, to raise income taxes," Jolley said. "It's not a factor... It's a false argument."

"The citizens of this state have elected majorities in both the Senate and the House, every statewide office because they want low taxes," Doerflinger said. "This idea that rolling back an income tax cut is going to solve the problem frankly, I'm glad that they've done this."

Hickman also points out that over $1 billion in business tax breaks are handed out, but until last year, there was no mechanism to measure the effectiveness of those cuts, yet cuts continued to be added.

Consolidation, elimination of agencies

Some agencies have had significant cuts over the years, so significant, they may not be able to perform, Hickman said.

"Deep cuts to some... agencies will mean they can no longer fulfill their mission," Hickman said. "There will be discussion then of consolidation or elimination of some of those agencies as we go down that path."

Hickman didn't name any specifics on the possibility of that happening, but Doerflinger said consolidation could provide the state with a more efficient government.

Hickman pointed out agencies that have seen steep cuts since 2008:

  • OETA - 34.3%
  • Emergency management - 25%
  • Dept. of Transportation - 35%
  • Corporation Commission - 28%
  • DEQ - 29%
  • Insurance department - 32%
  • Tourism - 27%

"Something has got to give, and we're to that point with some of these agencies," Hickman said.

"We will have a conversation about consolidation, but I think the reason we'll have a conversation is not so much for budgetary cutbacks and saving dollars to reduce budgets as it would be to try to make sure that we are getting budgetary savings in the long run to be more effective in how we administer the programs at those agencies," Jolley said.

Discussions about voluntary buyouts have also been discussed, Jolley said, if layoffs have to happen.

Education funding fight

Education funding is up 6% since 2007, while other agencies have seen steep cuts, Hickman said.

Education leaders say that increase is a correction after years of a serious funding problem.

"It's extremely disappointing that our legislative leaders, the very people who created the fiscal crisis we're in, are blaming everyone but themselves," said Alicia Priest, the president of the Oklahoma Education Association. "The decisions they've made to cut taxes year after year and to make little or no effort to reform corporate tax exemptions are why our revenue is down nearly $2 billion over the last three years."

"[School districts] have more money to spend than they ever have," Hickman said, when asked about school funding.

"When you look at all sources of their funding... it's over $8 billion, if you take out retirement, it's just under $8 billion," Hickman said.

Hickman acknowledged the state's teacher shortage, saying every state is suffering with the problem except Pennsylvania, along with teacher pay problems, but tempered it with total spending concerns.

"Our concern is if we're spending more money than we ever have, why is that not getting into teacher salaries?" Hickman said. "In large part, those dollars haven't gotten to where they needed to go."

Hickman says the big problem is health insurance costs that eat up step raises and increases to teacher pay. Hickman says the state pays $420 million in health costs for education employees alone, with an additional $30 million expected the coming year.

He says if the health costs hadn't gone up, you could give each teacher a $10,000 pay raise.

Jolley emphasized Hickman's point about districts having more money today than ever before.

"On average, no question, every school district in Oklahoma has more money than it's ever had," Jolley said. "Their argument is that they also have more students than they've ever had. Ironically, the chart that shows that Oklahoma leads the nation in cuts to spending does not include... a lot of dollars that are directly flowing to education. And that report is flawed and is not comparing apples to apples."

Statistics from the National Center for Educational Statistics, however, that compares all school districts equally, shows Oklahoma's per-pupil spending is ranked 48th in the nation.

Jolley said at a national conference with other budget leaders, many others had the perception that they were 48th in the nation, suggesting that many states are low in spending, depending on the formula.

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