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2010 Oklahoma Governor's race: New governor to face stiff budget challenges

Unlike the previous two years, legislators and the governor won't have federal stimulus money and a hefty amount of savings to help fill gaps caused by revenue shortfalls.
BY MICHAEL MCNUTT Published: October 3, 2010

Oklahoma's next governor will have little time to savor her victory before developing a proposed budget for a new fiscal year that by all indications will be grim.

"We may be facing an even more severe budget crisis this coming year than the past two," said David Blatt, director of the Oklahoma Policy Institute, a policy think tank. "The next governor, legislative leaders and the public probably have to expect that we are not at the end but more in the middle of what is a prolonged budget crisis."

Even though the state's economy is starting to show a flicker of recovery, the next governor will have to deal with crafting a budget that at best will match this fiscal year's budget, which is bolstered by one-time funds of nearly $1 billion. Compounding the problem, about $130 million of projected new revenue expected to help balance this fiscal year's $6.7 billion budget has yet to materialize.

"Just to maintain everything where it is and not have to make more cuts, you're going to start with having to replace all the (federal) stimulus funds, all the Rainy Day funds and any other one-time things we did last session," said state Treasurer Scott Meacham, who serves as outgoing Gov. Brad Henry's budget adviser. "You've got around $800 million that you've got to come up with in either growth revenue or any cash you have on hand, or you have to start making more cuts."

New opportunities

Brandon Dutcher, vice president for policy at the Oklahoma Council of Public Affairs, a conservative think tank, said the budget challenges could be an opportunity for the new governor.

"It will be a perfect opportunity to do what needs to be done and what the people want to be done and that is to start prioritizing," Dutcher said.

Voters will decide Nov. 2 whether they want Republican Mary Fallin or Democrat Jari Askins as the state's next governor.

"The new governor is going to face a big budgetary challenge just from sort of the structure of the budget, and it's going to be very dependent on how the economy does as far as how big of a challenge it's going to be," said Meacham, who helped Henry after he took office in 2003 deal with a budget shortfall of about $700 million with less than $100 million in savings available. "If the economy grows and you get a projection... that is $500 million higher than this year they'll be OK, but if it's the same or half or anything less, then they're going to be looking at having to make more cuts."

Years of cost-cutting

The current budget, about $400 million less than the previous budget, includes cuts of about 7 percent for most state agencies, which have been cut 15 to 20 percent the past two years as a result of the state's economic downturn, which was caused partially by the national recession. Some agencies, such as education and public safety, received smaller cuts.

"Revenues still look unlikely to get back to anywhere close to pre-downturn levels next year, and then they have to face the dilemma of all that nonrecurring money that was used to keep things afloat the past two years," Blatt said. "Without question the governor and legislative leaders will be facing significant shortfalls."

The fiscal staff of the House of Representatives estimates lawmakers will have a budget hole of about $565 million for the next fiscal year if revenue collections meet projections and come in 4 percent more than originally expected. If the state experiences economic growth of at least 4 percent, a mechanism is in place that would reduce the state's income tax from 5.5 to 5.25 percent, which would mean a loss of revenue of nearly $50 million for the 2012 fiscal year.

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