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Oklahoma needs to wean itself from federal funds, state's top financial officials say

Less federal money is expected to go to states next year even if a deal if reached on the looming fiscal cliff, they say.
BY MICHAEL MCNUTT Published: December 9, 2012

Even if a deal is reached on the looming fiscal cliff, Oklahoma will have to start weaning itself from federal dollars because any agreement likely would result in reduced federal spending to the states, the state's two top financial officials say.

“Oklahoma has to get ready for a federal pullback in spending,” state Treasurer Ken Miller said. “We have got to see the United States get its spending under control and back to a sustainable level so that our taxes will remain low and incentivize production and work.

“Oklahoma's going to have to get ready for a different federal government, one that sends less direct aid to the states,” said Miller, who applauded recent efforts of House Speaker-elect T.W. Shannon, R-Lawton, to look at ways the state will face reductions in federal assistance. “We have to prepare as a state for reduced federal aid.”

State Finance Secretary Preston Doerflinger said that appears to be a certainty, even if an agreement is reached to avoid the fiscal cliff.

“No question regardless of whether a deal's reached in the immediate future, we're still going to see less federal dollars flowing to states,” said Doerflinger, who serves on Gov. Mary Fallin's cabinet. “There's no question that that's going to occur in some form or another.”

The federal cliff, or sequestration, could result in Oklahoma losing $137 million in direct federal funding as a result of the automatic, governmentwide spending cuts set to take effect Jan. 1.

Projected losses

Oklahoma finance officials have said the projected losses of federal funding includes $50 million in funding for education and more than $40 million for health and human services. Several federal funding streams would not be affected by the looming cuts, including funds for Medicaid, transportation, Social Security payments, food stamps and most veterans' programs.

Tax cuts passed a decade ago and renewed in 2010 also are set to expire at the end of the year. In early January, spending cuts totaling $1.2 trillion are scheduled to take effect, with most affecting the Defense Department.

“I'm probably more concerned about the ripple effects across our economy over possible defense spending cuts because of our big military presence,” Doerflinger said. “It's hard to quantify the impact, but when you consider that those folks are spending less money so your sales taxes are reduced, your income taxes are reduced. There's an opportunity for a bigger impact on our economy as a ripple effect versus so much of the direct cuts in federal money coming to the states.”

The sequestration would cause uncertainty and could result in consumers holding onto their money and not spending as much, he said.

Miller, who also is an economist, said it makes economic and political sense for Congress and the president to reach a deal to prevent the fiscal cliff.

It likely will cause the country to tumble back into a recession, which could disrupt progress that Oklahoma's economy has been making the past year, said Miller, who also is an economics professor at Oklahoma Christian University.

‘Political hot button'

Miller, a Republican, said he backed Fallin's decision last month to decide against expanding the Medicaid program in Oklahoma. The GOP governor said no matter how much money the federal government contributed for an expansion, the state ultimately would not be able to afford its share without cutting funding for other essential services, such as education and highways.

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