Oklahoma Economic Recommendations

As the economic downturn continues, the Oklahoma Policy Institute has recommended the state make it easier to tap into its Rainy Day Fund, defer additional tax cuts, find new revenue streams for Medicaid and begin multi-year budget forecasting.

OK Policy made the recommendations in a recent thorough and insightful issue brief about the state’s 2010 fiscal year budget, which begins in July. The state’s revenues have been in a steep decline recently as the national recession finally hit here. As oil and gas prices dropped so did energy tax revenues in Oklahoma. You can read the issue brief here.

The Oklahoma budget was helped this coming year by federal stimulus money. This meant no cuts for education. In response, the University of Oklahoma, Oklahoma State University and the University of Central Oklahoma will not raise tuition this coming fall. But other state agencies did receive cuts, averaging about 7 percent. I recently wrote about the issue here.

The recommendations by OK Policy are prudent and responsible. This is what it suggests about the Rainy Day Fund, which currently has nearly $600 million:

We have now seen that leaders are extremely hesitant to tap the RDF at the onset of a downturn without knowing how bad things will ultimately get. This creates the prospect that we will be facing large shortfalls in FY ’11 and, especially, FY ’12 while most of the Fund remains off-limits. An alternative would be to allow RDF money to be used any time revenues remain below the peak of the current economic cycle. If legislation were introduced next year to put such a proposal on the ballot in 2010, it would create the opportunity to have RDF revenues help us over the post-stimulus hump in FY ’12 and FY ’13.

Gov. Brad Henry and legislative leaders refused to use Rainy Day Fund money to limit budget cuts this coming fiscal year. They argued the money might be needed more urgently later. I see this as a mistake for two reasons: (1) The money would have helped the sinking economy and could prevent problems from snowballing, and (2) the impact on state services and people would have been lessened.

OK Policy also believes tax cuts scheduled to phase in during future years should be stopped until the state is back to the “pre-downturn” budget levels. This only makes sense in a state that has consistently underfunded education at all levels. The state does have access to more stimulus money next year, but what happens after that?

The Medicaid and multi-year budget forecasting issues make sense as well.

If you want a thorough look at Oklahoma’s current budget picture, I recommend you read the brief. OK Policy, a think-tank dedicated to helping all Oklahomans prosper, continues to offer the absolute best external state budget analysis in Oklahoma.