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."
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.
Blatt said he would suggest the new governor work with legislators to suspend the trigger from taking effect.
Tax increases are not an option. The Republican-controlled Legislature opposes tax hikes, which are difficult for lawmakers to approve. State Question 640, approved by voters in 1992, requires bills that create additional state revenue to receive three-fourths of all the votes in the Legislature or go to a vote of the people.
Changes in funding
Crafting a balanced budget for the 2012 fiscal year, which begins July 1, will be more of a struggle if voters approve State Question 744 on Nov. 2.
SQ 744 would require Oklahoma to increase its per-pupil expenditure to the average of surrounding states. Blatt said funding per-pupil spending to the regional average would cost $800 million to $1.7 billion in the three years the funding requirement would be phased in. It would cost the state about $392 million in the 2012 fiscal year.
Askins, Oklahoma's lieutenant governor, and Fallin, a congresswoman from Oklahoma City, have talked during the campaign about how to deal with the state budget.
Askins said she would like to have a budget-only session, which would require legislators and the governor to agree on a two-year budget. It would lead to better prioritization and reduce the spending rush at the end of each session, she said.
Fallin said she would focus on eliminating wasteful spending and make government more efficient, more effective and less costly. She would order a line-by-line review of the budget as well as a critical review of the functions of each agency.
This year's budget is about 7.6 percent less than the $7.2 billion budget legislators approved in 2009. State revenues came in nearly 20 percent below estimates beginning in August. Budget officials earlier this year revised the 2010 budget to about $6.9 billion.
"We need to have a conversation," said Brandon Dutcher, vice president for policy of the Oklahoma Council of Public Affairs. "What does government exist to do? And then just go about prioritizing."
The core services, such as public safety, health services, roads and education, should be funded first, he said.
"When we run out, then the lower priority items just fall by the wayside and we don't have those anymore," Dutcher said. "When times are good and the money's rolling in, government can be subject to mission-creep and can start doing additional things it wouldn't be doing if it didn't have extra money lying around."
Dutcher said the governor could look at selling some properties such as golf courses and lodges because they really don't serve a core function of government. She also might consider privatizing some services.
"Why would government own a golf course?" he asked.
Meacham, who is not seeking re-election, will leave the state Capitol in January along with Henry, who is prohibited from seeking a third consecutive term.
"I'll have my phone on — they can call me anytime they want my help for what it's worth," Meacham said. "I obviously want whoever wins to be successful and to serve our state as well as they possibly can."