At a press conference last December, Senate Appropriations Chairman Clark Jolley suggested a war in the Middle East would fix Oklahoma’s budget crisis. “We’re one war in the Middle East away from high gas prices and high oil prices,” he noted. This is the level to which Oklahoma has fallen to fix its budget issues.
The Oklahoma budget crisis has slowly grown deeper. In December, when the press conference occurred, the expected shortfall for the 2017 fiscal year was $900 million. Recently, the shortfall has grown to $1.3 billion. Originally, various state agencies were expected to undergo a three percent cut, but now, schools, prisons and other agencies will face an additional 4 percent cut.
The total cut from the 2017 year’s budget now totals near $413 million. Public schools face almost a $110 million cut because of this shortfall. The prison system, $27.5 million; Health Care Authority system (which administers Medicaid), $63.8 million. The Department of Health will lose $4.2 million, while the Department of Human Services will lose $43.7 million. The Department of Mental Health will lose $22.7 million.
Recently, the Rainy Day Fund has been tapped to offset losses of this fiscal year by providing the Departments of Corrections and Education with $27.6 million and $51 million, respectively. This will be the second consecutive year the fund has been tapped, leaving it with $307 million. Since money is only allocated to the fund when general revenue collections exceed 100 percent of the estimate for that year, it is unlikely the fund will be refilled soon.
Cutting the various departments will have a variety of ill effects on each agency. Several rural school districts had to immediately go to four-day school weeks, to save money, according to State Superintendent of Public Education Joy Hofmeister. And while school enrollment has increased since 2008 by about 40,000 students, state aid funding has decreased by $182 million. Corrections is already 10 percent above inmate capacity but with 30 percent less staff. Others face decisions like closing offices in more rural areas or offering fewer preventative services.
Falling oil prices have generally been the focus of blame for the 2017 shortfall. Other oil reliant states, like Alaska, are also facing similar crises. Most officials have blamed the oil industry’s cyclical nature for Oklahoma’s issues. Not including sales and income taxes, the state’s biggest revenue source is the gross production tax on oil and gas.
From the fiscal year 2011 to 2013, the revenue stream from this industry fluctuated from a high of $724 in 2012 to $373 in 2013. Other sources of revenue, such as the cigarette tax and gasoline excise tax, remained relatively consistent during this time. Having such a volatile tax base will surely continue to affect Oklahoma’s success.
But in 2014, when the oil industry was doing well, Oklahoma also faced budget issues. Tax cuts helped drive down the revenue stream for the state, as well as the growth of online commerce and earmarks.
Even if oil prices recover in the near future — and they aren’t expected to until the middle of this year or by 2018, depending on which economic school of thought one listens to — the other issues causing the crisis will continue to haunt Oklahoma.
Because of the passage of State Question 640 in 1992, any future revenue increases need approval by three-quarters of both legislative chambers, or a majority vote of the people at the general election. Oklahoma legislatures have continued to cut taxes since the mid-2000s, favoring the idea that lower taxes would bring more revenue.
Cutting taxes has heavily favored the top 20 percent of citizens. In January, another tax cut lowering the top rate from 5.25 to 5 percent is estimated to cost the state $57 million in fiscal year 2016 and $147 million in 2017, according to the OK Policy Institute. Overall, the lowering of the top rate from 6.65 percent since 2004 has lost an estimated $1.022 billion of revenue.
Further research by the Center on Budget and Policy Priorities, a think tank, suggests that tax cuts have not brought the state more success. Of the five states that have enacted large personal income tax cuts within the last five years, four have seen total job and personal income growth below national averages. Before the onset of the Great Recession, Oklahoma saw job growth, but the Center concluded it was due to high energy prices and a boom in hydraulic fracturing.
While politicians continue to preach the doctrine of low taxes, by most estimates, these low taxes haven’t brought the state more success than its peers. Instead, low taxes have contributed to low revenue streams. Taxes have been cut across the board, from industry to personal income. Raising taxes could prove difficult, so whatever part of the shortfall was caused by low tax revenue will not be remedied by raised oil prices.
What agencies are forced to do due to the cuts will also create further issues for Oklahoma. Hofmeister noted this, saying “efforts that districts are making to cope with these cuts today will further impact the next school year, as they are forced to significantly deplete their cash fund balances.”
Some schools lack such savings, however. Bartlesville Public Schools recently announced that due to cuts, the district would have larger class sizes, changed bus schedules, and layoffs next year. “This year,” the district announced, denying the existence of rainy day funds or bloated balances, “we were less than one month’s payroll away from running our general fund into the red.”
The effects of school cuts may not all be seen right away. Increasing class sizes, shortening the school week, or cutting advanced placement or international baccalaureate programs affect the quality of students’ educations. Effects of these changes could be seen in the number of high school graduates or competency rates on standardized tests. Cutting AP or IB courses could detract from the attractiveness of Oklahoma students to colleges.
Schools aren’t the only ones facing a crisis. Nico Gomez, CEO of the Oklahoma Health Care Authority, believes that if deep budgets continue, the state’s Medicaid program could end. While he thinks it will survive for the next two years, cuts this year are forcing the program to contract its covered services, as well as debating rate cuts for providers, which may cause providers to leave the program.
Cuts to Medicaid and health services reduces the amount of preventative care individuals receive. Removing preventative care can result in increased disease, avoidable treatment costs, and an increased risk of death. As issues go untreated, costs and difficulty to treat the issue increase. This will further affect any budget issues.
The budget crisis is forcing other agencies to weigh difficult options that will ultimately lead to lasting consequences. One smaller program, the Rural Economic Action Plan grant program, helps smaller, cash-strapped towns deal with important issues.
McCurtain is one such small town. With a population of 500 people, the town has encountered a $100,000 water quality improvement project. While the mayor insists the water is safe for the time being, some people are drinking bottled water. Small towns like McCurtain often can’t complete costly projects because the cost would be reflected in higher rates, which could force emigration, and then even higher rates. If they aren’t able to get the necessary money, “You might see us going up there digging a hole in the tower and pouring chlorine into it,” said Mayor Harvey Way.
If small towns like McCurtain can’t rely on programs meant to assist them with larger projects, they may result to shortcuts, or suffer the ill effects of not fixing the problem. And not fixing the problem now could just lead to bigger problems later, like many other towns with water-quality issues that are now seeing citizens suffer health effects due to toxic drinking water.
Effects of budget cuts will likely be seen in the coming year, but the lasting effects of changes to schools, healthcare and other agencies could continue to be seen for years. And these lasting effects could add to budget issues.
The budget issues of Oklahoma are not likely to be fixed when oil prices rebound. Instead, the combination of low income taxes, low taxes in general, and effects of these budget cuts will continue to haunt the state. Low taxes will bring the state decreasing revenue amounts, while the effects of the budget cuts will lessen education, and cost the state an untold amount over the years.