Tinkering, Not Right-Sizing

June 2, 2011

Longtime conservative activist Howard Phillips has a great line: “Don’t read their lips—read their budgets.”

Andrew Spiropoulos, OCPA’s Milton Friedman Distinguished Fellow, puts it this way: “You can talk about reforming government all you want, but if you don’t change how government agencies operate—and the budget is the blueprint for what agencies do and how they do it—you haven’t changed what really matters.”

Before Oklahoma’s 2011 legislative session commenced in February, and indeed for a few months thereafter, it was widely reported by lawmakers and the media that the legislature would have about $500 million less to spend than it had the previous year. Despite these realities, early last month the governor and legislative budget negotiators announced that state appropriations would be about $6.5 billion for FY-2012. These appropriation levels reflect a decrease of only $217.9 million—not $500 million—from FY-2011. (Of course, as we’ve pointed out before, the appropriated budget accounts for less than 40 percent of the total state budget, and the total state budget in FY-2010 was the largest in state history. It remains to be seen if total state spending for FY-2011 and FY-2012 will reach new heights.)

This $6.5 billion appropriated budget comes as a bit of a disappointment. After all, in February OCPA released a proposed state budget which included many specific recommendations for lawmakers interested in charting a fiscally conservative path. We urged lawmakers to cut spending by more than $688 million, resulting in total FY-2012 appropriations of $5.9 billion. This would have allowed lawmakers to reduce the state income-tax rate from 5.25 percent to 4.25 percent—which is why we called our document “a state budget that respects your family budget.”

Nevertheless, the final budget agreed to by the governor and lawmakers did reduce appropriations by 3.2 percent from the prior year. Indeed, there are some features of the budget that fiscal conservatives can appreciate. For example:

• Better prioritization. Though much more needs to be done, lawmakers at least started the process of trying to focus on core functions of government and eliminate spending on non-core functions. Rather than across-the-board cuts, some agencies received cuts of 0.5 percent while others received cuts of 9 percent.
• More fiscally responsible funding. The appropriations are based mostly on expenditure authority, the cash flow reserve fund, some revolving funds, and diversion of some funds. This is an improvement over previous years which contained multiple gimmicks and “revenue enhancements.” During the 2010 legislative session, for example, lawmakers had used more than $1.5 billion in “additional revenues” to arrive at the final FY-2011 appropriation levels. During the 2011 legislative session, by contrast, lawmakers estimated there would be approximately $303 million in “additional revenues” to arrive at the final FY-2012 appropriation levels. Lawmakers’ attempts this session to “live within their means” should be commended.
• Fewer “games.” Lawmakers did not tie unrelated measures to the budget, which has been a regular practice in previous years. For example, lawmakers weren’t forced to issue bonds for an American Indian Cultural Center or a pop culture museum in order to pass the budget.

Unfortunately, there are also some disappointing features of this budget. For example:

• Robbing the transportation fund of $100 million. Lawmakers took $100 million from transportation and appropriated those funds for other purposes, and then voted to issue $70 million in bonds to replace the funding. This is very bad fiscal policy. The transportation fund was created for transportation spending, not for cash-flowing appropriations to avoid much-needed cuts in state government. (Lawmakers also took $2 million from the Secretary of State’s revolving fund and $5 million from the Insurance Department’s revolving fund.) This practice is very similar to the federal government’s financing practices, where spending is financed by borrowing from the Social Security trust fund.
• Not living within our means. Instead of appropriations being based solely on expenditure authority (predominantly recurring revenue), the budget relies on one-time revenues or non-recurring revenues—such as surpluses in revolving funds, surpluses in the cash flow reserve fund, and robbing the transportation fund. If revenues do not return to their record-high levels, necessary prioritizing decisions have simply been forwarded to future lawmakers.
• Status quo thinking. “Our political leaders have shown little interest in or even awareness of the revolution in government finance and management taking place all over the nation,” Spiropoulos says. Some states, for example, “have traded money for results, by contracting with their agencies and agreeing to maintain or even increase funding to particular programs in exchange for demonstrable results. The idea behind these reforms is that we can no longer afford to simply give an agency money and take its word that its programs are working well.”
• Few major spending reforms. Although there was some spending prioritization, few substantive reforms were adopted to control rising costs. For example, state spending through the Oklahoma Health Care Authority and Medicaid has grown 165 percent in just the last decade. Instead of developing innovative initiatives to drastically decrease the cost and use of Medicaid—a dysfunctional, single-payer medical welfare program that is almost certainly the worst health plan in America—lawmakers instead passed a provider tax which will only serve to further expand dependence on this program. To cite another example: Even though voters thrashed SQ 744 at the polls, lawmakers failed to do anything about the fact that higher education already has its own version of the concept. It’s called the “peer-factor” multiplier, a method by which higher education inflates its budget request by more than $191 million a year. This at a time when colleges and universities have experienced employment growth of more than 3,000 employees in just five years—while threatening tuition increases.

In short, the budget is disappointing, especially in light of the clear message Oklahoma voters sent on November 2, 2010: We want less government and more freedom. In addition, a statewide SoonerPoll taken the following week confirmed that voters prefer a smaller Oklahoma government with fewer services (71 percent of respondents) over a larger one with many services (17 percent).

Oklahomans know their taxes are too high. OCPA distinguished fellow J. Rufus Fears has pointed out that “the American public pays an amount of taxes that no despotic pharaoh in antiquity would have ever dreamt of imposing upon his people.”

Oklahomans know they’re forced to support too many government employees. Using Census Bureau data, University of Central Oklahoma marketing professor Russell Jones has shown that Oklahoma ranks 14th among the 50 states in the number of state- and local-government employees as a percentage of the population—with 18,048 more full-time equivalent employees than our population justifies. Moreover, according to a news report March 2 in USA Today based on Bureau of Economic Analysis data, Oklahoma’s public employees earn higher average pay and benefits than Oklahoma’s private-sector workers.

Yet policymakers seem untroubled by all this. Their budget seemed more concerned with “protecting core areas of government” (some of which aren’t core areas at all) than with protecting core interests of taxpayers.

As one conservative commentator aptly put it, this budget was about tinkering, not right-sizing.

Nevertheless, the budget was an improvement over past years, and fiscal conservatives can hope that future lawmakers will indeed craft a state budget that respects your family budget.