By Constitution Staff

Oklahoma legislators returned to the state Capitol on February 1 to begin the 2010 legislative session. Their main challenge will be how to deal with the state budget crisis. They must immediately deal with the shortfall in the current budget, and then craft a budget for the next fiscal year.

At the end of the last legislative session which ended in May, legislators passed a budget for the 2010 fiscal year would begin July 1. That budget reflected a 7 percent reduction in funding for most state agencies. By the end of the first month of the new fiscal year, revenues were already falling below projections. In August, State Finance Director Michael Clingman ordered monthly allocations to state agencies be reduced by five percent. That reduced level of funding for state government continued through November. In December, Clingman ordered the cut in allocation be doubled to 10 percent after Governor Brad Henry and legislative leaders agreed to the increased reductions.

State revenue collections have fallen below prior year collections and the official estimate every month for the past year, and the end of the downturn is not yet in sight, said State Treasurer Scott Meacham. He said December's numbers continue to be disappointing, "We were hopeful that revenues might begin to improve slightly; instead they continued their downward slide."

General Revenue Fund collections for the first six months of the fiscal year totaled $2.199 billion. That amount is $882.2 million or 28.6 percent below the prior year; and, $756.1 million or 25.6 percent below the estimate. While state revenue was down by more than 25 percent, the monthly allocations were only reduced by 5 to 10 percent. To avoid deeper reductions in the monthly allocations, $233.8 million has been transferred from various state reserve funds. Those funds must be repaid by June 30, the end of the fiscal year.

With Gov. Brad Henry presiding, the Board of Equalization met December 22 and declared a "revenue failure" for FY 2010. This was the first time a "revenue failure" has been declared since voters approved the new process to access to the Constitutional Reserve Fund, also known as the Rainy Day Fund. The current balance of the fund is $596.6 million. But, the state's projected revenue failure for the current fiscal year is estimated at nearly $730 million.

Even with continuation of the current cuts in monthly allocations, after paying back the money to the various reserve funds, little may be left in the Rainy Day Fund by the end of the current fiscal year. But, legislative leaders have said some money should be kept in the fund to deal with lower revenues in FY 2011. Based on current projections, legislators will have $5.295 billion to spend in fiscal year 2011, a drop of $1.322 billion from fiscal year 2010.

As part of the federal stimulus package passed by Congress early last year, Oklahoma received $1.2 billion in federal stimulus funds for budget stabilization. Anticipating that the economic downturn could continue well into next year, lawmakers used only about half of the state's allocation for the FY 2010 budget. Even using all of the remaining stimulus funds and what may remain in the Rainy Day Fund, legislators will still find themselves with a three-quarters of a billion dollar hole in the budget for FY 2011. Unless revenues recover substantially for FY 2012, with all of the stimulus money spent and an exhausted reserve fund, that budget could be a catastrophe.

House Speaker Chris Benge, (R-Tulsa) said: "Discussions between the House, Senate and the governor's office are ongoing as we work together to address the budget shortfall for the current fiscal year, all while being mindful of fiscal year 2011. We must continue to treat this as a two-year budget cycle as we try to balance the need for cuts with use of reserve and stimulus dollars," said Benge. "We hope our state's economy rebounds soon, but slumping revenues are compounded by the fact that practically every policy discussion coming out of Washington will increase the cost of doing business, which does nothing to abate an overall lack of economic confidence."

Meanwhile, the Oklahoma Education Association fears the state budget shortfall will impact classrooms statewide. "Now is the time to make education a priority,"said OEA President Becky Felts. She expressed that it is imperative that the Governor and legislators use all available funds to limit the impact of the budget shortfall on the students and teachers of Oklahoma. But, with over half of state appropriations going to fund education, shielding education from cuts would mean deeper cuts for the remainder of state government.

While some are urging lawmakers to consider increasing taxes and capping or removing tax exemptions to enhance revenues, others say such a move could plunge the state economy into a deeper recession which may actually decrease revenues. Oklahoma's governor, the Speaker of the House, and the Senate President Pro Tempore have said that tax increases are not an option for fixing Oklahoma's budget problems.

Senate President Pro-Tem Glenn Coffee (R-Oklahoma City) said, "We know that many Oklahoma taxpayers are hurting because of the national recession, policies coming out of Washington, and the depressed job market. It is imperative that the new budget framework is fiscally responsible, and protects Oklahomans from tax increases."

National and state taxpayer advocates have urged state legislators to put some teeth into that promise by signing the Taxpayer Protection Pledge sponsored by Americans for Tax Reform. The pledge is a commitment to the people of one's district and the state of Oklahoma to, "oppose and vote against any and all efforts to increase taxes," said Grover Norquist, president of Americans for Tax Reform.

"Taxpayers hear empty promises every day from elected officials in Washington about spending and taxes, only to end up disappointed because government decides it wants more and more," said Brian Downs, executive director of Oklahomans for Responsible Government. "Signing this pledge to keep all tax increases off the table while fixing Oklahoma 's budget gap will give taxpayers some peace of mind that their government leaders here in Oklahoma are listening to them."

"The budget situation could very well get worse in the next several months, and then could get downright ugly if things like SQ 744 and Obama's Medicaid expansion come to pass," added Brandon Dutcher, vice president of the Oklahoma Council of Public Affairs and chairman of the Oklahoma center-right coalition meeting. "Oklahomans already spend more time working to pay taxes than to pay for food, clothing, and shelter combined. They need assurances from their state legislators that enough is enough."

Most legislators, especially those who believe in big government, view the budget problem as a looming disaster. But, some see the shortfall as an opportunity to set priorities, streamline Oklahoma government, and make it more efficient. The 2010 legislative session should prove to be interesting.