The leaders of the Oklahoma House of Representatives and state Senate announced Monday they have reached a budget agreement. Although lawmakers faced a $1.3 billion shortfall, the budget agreement cuts far less thanks to $866 million obtained from savings and by redirecting money from state pension systems, among other things.

Senate President Pro Tempore Greg Treat said “circumstances with the oil-and-gas revenue, and also with the global pandemic” made this year’s budget process more challenging than what lawmakers typically face.

“This budget that you will see today represents hours and hours and months and months of work and a constantly shifting amount,” said Treat, R-Oklahoma City. “Originally, we were thinking we were going to be $200-and-some-odd million dollars down, then $400-and-some-odd million down, and then the Board of Equalization met and gave us a $1.3 billion number.”

“A year ago, nobody anticipated the COVID-19 situation that we would face today that has disrupted our state’s economy,” said House Speaker Charles McCall, R-Atoka.

The state budget agreement will spend $7.7 billion, which is $237.8 million, or 3 percent, less than the fiscal year (FY) 2020 budget. Even with the reduction, lawmakers said this year’s state budget will still be among the largest in state history.

Most of this year’s budget hole was filled by drawing down state savings, redirecting money spent outside the appropriations process (primarily funding currently used to shore up state pension systems), and taking money from agency revolving funds.

According to a release issued by legislative leaders, the state will still have $600 million available in savings funds and through apportionment reforms and other flexibility measures to stabilize the FY 2022 budget when they reconvene next year. In addition, they noted agencies typically have close to $1 billion in agency-specific reserves at their disposal throughout every fiscal year.

Under the announced budget plan, money currently earmarked for state pension systems, which is provided separately from state-appropriated funds, will be redirected to K-12 public schools. House Appropriations & Budget Chairman Kevin Wallace said the money now allocated for pensions will be reduced 25 percent for each of the next two years. In the subsequent five years, lawmakers said they would increase pension apportionments again to make up for the lost revenue.

For example, the plan will redirect $73.1 million from the Oklahoma Teachers Retirement Dedicated Revenue Revolving Fund and instead place that money into the Education Reform Revolving (“HB 1017”) Fund, which pays for K-12 public schools. Another $38.8 million will be taken from the apportionment given to the Oklahoma Firefighters Retirement, Police Pension, and Law Enforcement Employees Retirement Systems and redirected to the “1017” public school fund.

Another $180 million will be redirected from the state’s Rebuilding Oklahoma Access and Driver Safety (ROADS) Fund, which pays for road and bridge repair, and sent to public schools. The plan would then replace that road money through the issuance of $200 million in bonds.

“It is something that we did as a Legislature years ago—and I speak in the editorial ‘we’—and said we’ve got to help the pension systems,” said Senate Appropriations Chairman Roger Thompson, R-Okemah. “Today, we need to help education.”

While lawmakers have debated whether to provide a cost-of-living adjustment (COLA) to state retirees, that was not part of the budget agreement, although lawmakers said that idea remains under consideration. If approved, a COLA would further reduce state pension systems’ funded status.

While the K-12 public school system’s appropriation will be reduced 2.5 percent, or $78 million, Wallace noted the state has received nearly $161 million for the K-12 system that will more than offset the reduced state appropriation. Another $39.9 million in federal funding has also been provided to the governor, which may also be used for some K-12 expenses.

“Not counting the governor’s $39.9 million, education will have approximately a 2.69 percent increase in state-and-federal funding over last year,” said Wallace, R-Wellston.

 While the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act money is technically to be used for COVID-19 expenses, an Oklahoma State Department of Education official recently noted the federal law allows the money to be used for any activity deemed necessary to maintain the operation and continuity of services in a school district. She said that category is so broad it “could be applied to just about anything” and the requirement that the money be used for COVID-19 response is therefore “a bit of semantics because of the broad flexibility that is given for the funds.”

At the same time, public schools may reap significant savings due to the current shutdown of physical schools, particularly for things like transportation and utility costs. It is estimated those savings could be as much as $300 million statewide, providing additional funding outside the appropriated budget.

Under the budget agreement, most agencies will see a 4 percent reduction in state appropriations, although some agencies saw larger cuts. A handful of agencies will receive appropriation increases with the largest such increase being a 13 percent bump given to the Oklahoma Election Board due to the cost of running this year’s elections amidst COVID-19 restrictions. The Department of Tourism and Recreation, and the office of the attorney general, each received 12 percent increases to their appropriated budgets.

In a statement, House Minority Leader Emily Virgin, D-Norman, called the plan “one of the most disappointing budgets in my legislative career.”

She objected that officials did not rely more on federal CARES Act funding to plug budget holes. Officials with the office of Gov. Kevin Stitt have said federal restrictions on much of that funding prevent the use of those funds for non-COVID-19 issues. Virgin accused Stitt of “playing political games during a pandemic.”