Oklahoma Perspective on Spending Limitations Jonathan Small, CPA Fiscal Policy Director Oklahoma Council of Public Affairs, Inc.

Jonathan Small, CPA Certified Public Accountant Bachelor’s Degree in Accounting Budget Analyst – Office of State Finance Fiscal/Research Analyst – House of Reps Auditor – BKD, LLP Dir. of Government Affairs – Insurance Dep.

Mission “OCPA's mission is to accumulate, evaluate, and disseminate public policy ideas and information for Oklahoma consistent with the principles of free enterprise, limited government, and individual initiative.”

Sources Pages 152 – 154 of the Oklahoma Comprehensive Accounting Financial Report United States Department of Commerce Bureau of Economic Analysis Oklahoma House of Representatives Legislative Appropriations publications

General state legislative spending limits General & special appropriation bill limits Balanced budget requirements Limit on appropriations authority of 95% Limit on appropriations growth of 12% Requirement to save surplus Limits on “Rainy Day Fund” spending

Limit on appropriations growth Article 10, Section 23 of the Oklahoma Constitution Limit on total appropriated from all funds in the preceding fiscal year Total appropriated cannot exceed growth of 12% plus inflation

Why a limit on appropriations growth? Economic volatility in 1970’s & 1980’s Passed by 1985 Legislature Added by HJR 1005, SQ 587 Election held April 30, 1985 Yes – 405,775, No – 203,369

What’s happened since creation of the limit on appropriations growth?

State appropriations continue to grow FY-1993 – $3.65 Billion FY-2012 – $6.50 Billion Inflation adjusted growth of $640 Million Appropriations have been less than the prior year in only 5 of last 20 years

Total state government expenditures continue to grow FY-2001 – $9.64 Billion FY-2010 – $16.6 Billion Inflation adjusted growth of $4.7 Billion Total state spending has grown every year since FY

Total state government expenditures outpacing private earnings Private Earnings 2001 – 2010, growth of 40.71% Govt. Expend – 2010, growth of 72.20%

Total state government earnings outpacing private earnings Private Earnings 2001 – 2010, growth of 40.71% State Govt. Earnings 2001 – 2010, growth of 59.60%

Is the current limit working?

Preceding decline periods, rapid increases Appropriations in FY-1996, $3.7 Billion Appropriations in FY-2002, $5.6 Billion Appropriations growth of $1.9 Billion or 48.76%, in just six years Private earnings growth over same period 50.71%

Preceding decline periods, rapid increases Appropriations in FY-2004, $5.1 Billion Appropriations in FY-2010, $7.2 Billion Appropriations growth of $2.1 Billion or 41.29%, in just six years Private earnings growth over same period 36.24%

Preceding each decline, rapid increases Private employment in 2000, 1,572,190 Private employment in 2010, 1,667,644 Private employment growth from 2000 – 2010, 6.07%

Preceding each decline, rapid increases State employment in 2000, 79,805 State employment in 2010, 86,641 State employment growth from 2000 – 2010, 8.57%

The challenge State government appropriations and spending growth exceeding private earnings growth State government employment growth exceeding private employment growth Rapid increases in growth years, resulting in abrupt decreases

How have we solved other spending challenges?

2010 SJR 51, State Question 757 Former limit on “Rainy Day Fund” of 10% of prior year general revenue certification During downturns and emergencies, this proved inadequate Lawmakers and citizens saw the need to save more

2010 SJR 51, State Question 757 Lawmakers pass SJR 51 Sent to a vote of the people a constitutional amendment increasing limit on the size of the “Rainy Day Fund” Increase to 15% approved by voters in November

Solution Given government growth rates exceeding private sector growth rates, and periods of rapid unsustainable growth in state appropriations, it is reasonable and time to amend the current state constitutional limit on appropriation growth.

Thank You! Q & A Jonathan Small, CPA (405)