Gnawing the bone: Analyzing Oklahoma’s 2012 budget

Governor Mary Fallin and Republican legislative leaders expressed deep satisfaction with the 2012 budget that finished moving through the Legislature this past week. 

Critics had a different view, but an all-Republican team fashioned a budget for the first time in Oklahoma history. While the details are important, the broad spending picture is, unsurprisingly, conservative. However, the budget is not a “right-sizing” document – one fundamentally adjusting government priorities. That debate still lies ahead. 

In comments to reporters at a Capitol briefing last Friday afternoon, not long after adjournment, Fallin put the budget into a broader picture. She said, “At the beginning of this legislative session, I asked lawmakers to focus on legislation that would bring more and better jobs to Oklahoma, make government smaller and more efficient, and improve our quality of life.” 

“I’m happy to see they responded by sending a series of important, landmark bills that accomplish these goals. This has been a historic legislative session that will lay the groundwork for long term prosperity and job creation in Oklahoma. It was perhaps the single most productive legislative session in state history, and one which every conservative lawmaker can be proud of.”

In response to a question from CapitolBeatOK, the chief executive said the pension reforms that passed just days before the budget accord was reached would, over time, save the Sooner State billions of dollars. 

On the budget, she disagreed with one reporter’s suggestion that working men and women “got hosed” in the budget. 

Fallin said, “This was a great session for the working men and women of this state. We cut taxes and worked to make state pensions sound.” She agreed the budget was good for big business, “but it’s also good for small business, and for working people.” She applauded decisions to leave a scheduled income tax rate reduction on track. 

In discussion of the “right-sizing” issue, Fallin did not directly challenge contentions the budget left most functions of government intact.

 She did highlight passage of essentially all of her priorities for government efficiency – some agency functions will be consolidated, and Information Technology reforms are expected to bring better performance. 

As she has throughout her four months in office, Governor Fallin said those reforms will bring budget savings and limit government.

Fallin was clearly enthusiastic about the final budget document. She spent considerable time exchanging views with reporters and offering detailed responses to questions. 

Senate President Pro Temp Bring Bingman, a Sapulpa Republican, met with reporters within a couple of minutes of session’s end last Friday. Like Fallin, he linked the budget outcome to the philosophy of limited government. 

He reflected, “We live in a conservative state, the people have spoken and we are listening. Our priorities were to reform state government in a way that eliminates inefficiencies and duplication so that government size and costs are reduced. The federal government should follow our lead in cutting government, including the tax cuts that we enacted.”

Bingman had identified pension reform as both a top priority and a matter with implications for the annual appropriations process. Referring to long-term cost savings, estimated at more than $6 billion from the package of pension bills, he asked rhetorically, 

“When is the last time the legislature saved as much as it spent?” 

Bingman contended, “Oklahoma is an example to the rest of the country; the days of no fiscal accountability and liberal tax and spend policies that left our state with billions of debt are over. We cut taxes despite the $500 million budget shortfall. We then balanced a budget that is the same size as the amount of money we saved on pension reform.”

Despite some harsh exchanges in press releases and in final debates over the budget and other matters, Bingman said the process was inclusive and representative of broad state interests. He said, “I firmly believe that this is a body of 48 valuable members that have all added greatly to the process this year. While we have a majority and a minority caucus, both have contributed by offering their life experiences and expertise as a unique perspective and [conscience] on every issue that we addressed. Our strong finish is a result of diligent work from Democrats and Republicans alike.”

Speaker of the House Kris Steele said his side of the Capitol did what members had promised to do in the 2010 campaign. He believes the just-concluded session was characterized by “a sweeping, pro-growth, conservative agenda.”

In response to a question from CapitolBeatOK about budget criticisms from some conservative legislators, and frustrations over House rules and other issues, Steele reflected, “I’m not sure I fully understand the frustrations. But communication is the key. I consider myself a solid conservative and I will continue to promote conservative policies, for the good of the whole state.” 

Still, some conservative critiques outside of the Republican caucus may be a matter of emphasis. 

Treasurer Ken Miller gave mixed grades to the Legislature for their policy and budget performances this session. His critical conservative assessment appeared in his monthly commentary, this time entitled “Let the grading begin.”  It included an expression of hope that the Legislature would, next year, be “as bold as this session’s efforts at pension, legal and education reform.”

Miller’s presentation did not actually include a letter grade. CapitolBeatOK pressed for a letter grade. Miller and his spokesman seemed initially reluctant to accommodate, but in a follow-up discussion Miller agreed his grades for the session would be: “For policy changes made this year, an A. For the budget, a C.” The treasurer made the case for those grades in his essay. 

The cover story in Miller’s May economic report distilled an interesting trend in legislative votes on recent budgets. 

For the Fiscal Year 2012 spending plan, out of 149 possible votes in the House and Senate, the budget carried 87-53. 

For the Fiscal Year 2011 spending plan, the vote was 108-31. In Fiscal Year 2010, it was 132-3. 

State Sen. Andrew Rice of Oklahoma City, minority leader for Senate Democrats, assailed the FY 2012 spending plan. In a statement sent to CapitolBeatOK when the budget was initially unveiled, Rice said: 

“After months of secret negotiations, the Republicans who run state government are finally ready to show all Oklahomans where their priorities lie. They have chosen corporate special interest tax breaks that will result in drastic cuts to important areas like public schools, senior nutrition centers, and public safety.

“The Republicans are disingenuous when they say these deep cuts are unavoidable. They had a choice, and they chose corporate special interests over middle class families. We all know that you get what you pay for, and in this case Oklahomans will not be happy to see their communities short-changed by fewer police on the streets, larger class sizes for fourth-graders, and the closing of nursing homes.”

Equally critical of the Grand Old Party’s budget plan was state Rep. James Lockhart of Heavener, who circulated a stinging analysis to news organizations, including CapitolBeatOK. He asserted the Republican budget primarily was designed “to fund tax credits and giveaways to companies.” 

Lockhart also criticized the budget’s use of House Bill 2171, “a $70 million, 15-year bond for the Oklahoma Department of Transportation. This bond was initiated to help offset the $100 million swiped from the Transportation Department’s revolving fund in order to shore up some of the $500 million shortfall in this year’s budget.”

Although that was the only bond issue to advance this cycle, Lockhart observed, “What we owe in bonds at this point represents over 20% of our entire state budget of $6 billion for this fiscal year.”  

Another critic of the budget was David Blatt of Oklahoma Policy Institute. A recent blog post, as the budget bills began to weave through the two houses of the Legislature, reflected his group’s “progressive” view:

“We are grateful that leadership heeded the calls of advocates to protect our most vulnerable populations by targeting available funds for Medicaid, human services, mental health, and rehabilitative services, as well as ensuring that education and public safety were spared the full brunt of cuts. 

“The agreement shows that legislative leaders and the Governor worked to minimize the damage, especially where cuts in state funding would have entailed a corresponding loss of federal matching funds. Some agency heads expressed optimism that they would be able to make it through next year without substantial reductions in staffing and services to the public.

“However, this agreement is not cause for celebration. State agencies are now facing a third consecutive year of funding reductions and budget cuts, which will continue to corrode their ability to perform their core missions. Overall, next year’s budget is slated to be $622 million, or 8.7 percent, less than FY ’09.”

The analysis concluded, “Yes, it could have been worse. Yes, we can and must do better.”

A conservative analytical view came from Jonathan Small, fiscal analyst the Oklahoma Council of Public Affairs. 

In an interview with CapitolBeatOK, he said:

“Overall, it seems that this year, lawmakers tried to approach development of the appropriated budget in a more prioritized fashion. This explains why some agencies received cuts of 0.5%, while others received cuts of 9.0%.  Some would say this is a better way to approach budgeting, because it starts the process of trying to focus spending on core functions, and eliminate spending on non-core functions.”

Small continued, “There has been discussion of the cumulative effect of appropriated cuts to agency budgets the last 3 years, with some putting those figures at 20%+, but those discussions should be made in the context of the rapid increase in government spending and in particular state appropriations, which grew 32% from FY-2005 to FY-2009.”

CapitolBeatOK’s own overview/sketch of the budget, and a look at some details, follows. The analysis then concludes by touching on broader issues of government spending not controlled through the appropriations process at the Legislature.

In appropriated dollars, this new budget is for $6,502,883,889 in Fiscal Year 2012. The total budget reduction is 3.2% from the FY 2011 budget of $6,720,8347,226. It was the first budget accord in state history where the announcement was made by an all-Republican team. 

The budget outline anticipates cuts in the range of 5-9% for most agencies, although some were less than 5% and a handful actually saw increases. 

As reported above, what are deemed “core government functions” are held to comparatively smaller cuts, including common education (4.1% cut), Public Safety (4% less), Health and Human Services (1.2% less). However the common education (K-12) cut is the largest yet in the series of government trims that began with the Great Recession in 2009.

Limited government resources finally, and inevitably, led to meaningful cuts even for the “protected” agencies that dodged major cuts in past state budgets. 

State appropriations were based, in large part, on the expenditure authority extended by the Board of Equalization. To be sure, cash flow reserves and some revolving funds were used. 

From a strict conservative view, swapping $100 million in cash with a $70 million bond for the Transportation Department was deemed by Small and others as bad policy. 

Still, that was a rare exception to the conservative fiscal approach reflected in the budget – which clearly reflected the careful methodology of the two Budget and Appropriations chairmen: Rep. Earl Sears of Bartlesville, and Sen. David Myers of Ponca City.

A common reflection among observers has been that the new budget does not feature multiple “gimmicks” and/or as many “revenue enhancements” as have been seen in some past efforts at balance. 

The foregoing brings any serious analysis to the broader picture of state government spending. 

Bottom line: Total state spending is about two-and-a-half times higher than the amount that is appropriated by the Legislature. 

As Rep. Sears explained in an interview with CapitolBeatOK this week, annual state revenue is roughly $16 billion, while (for the upcoming year) appropriations will amount to $6.51 billion. The appropriations cuts of 3.14% for the coming year will bring those reductions to 6.9% since Fiscal year 2009. 

Education appropriations cuts for the coming year were ameliorated in part by supplemental appropriations of $21.4 million, which advanced through the Legislature late in the past week. 

Adding to this broader picture, Gov. Fallin and Harry Birdwell, the new secretary for the Commissioners of the Land Office, expect to distribute $124 million to education (most of it to common schools) by the end of this fiscal year (on June 30). 

Specifically, $112 million had been distributed to education purposes through early May, $84.9 million of that to K-12 schooling. 

Looking back to recent years, distributions from the Land Office were $82.6 million in FY 2009, $114.3 billion in FY 2010, and are projected to reach $124 in FY 2011. 

A May 16 press release from Fallin and Birdwell said the forthcoming distributions “will further offset” education spending reductions from general revenues.

The Land Office today controls 1.3 million mineral acres, about 750,000 acres of land, and has a $1.8 billion trust fund.  

Rep. Sears said it is almost certain that schools will continue to receive “more money than ever” from the Land Office. Decisions on how to use land office money are left to local school boards (or other governing bodies). Sen. Myers reflected education “has several strong funding sources outside of general state appropriations, including [Land Office] money.” 

As discussion of “right-sizing” state government continues alongside arguments about government resource allocation, CapitolBeatOK will endeavor to dig deeper, and be clearer, about the total spending picture. 
Editor’s Note: This weekend, CapitolBeatOK editor Patrick B. McGuigan joined M. Scott Carter of The Journal Record and Arnold Hamilton of The Oklahoma Observer for a discussion of the budget and other legislative issues on “Oklahoma Forum.” The wide-ranging 25-minute discussion, moderated by OETA’s Dick Pryor can be accessed here