It is now reasonable to forecast the following: fiscal year 2017 will become the first year in recent state history when the amount of state spending will be substantively reduced.
There are any number of explanations as to why this shortfall has occurred, some of which you have heard, such as, “The decline in gas prices has driven down the state’s severance tax income.”
That claim is factual. However, it is also a simplistic explanation for the shortfall. All of the severance revenue combined doesn’t constitute much more than 3 percent of the state’s approximate 17.5 billion dollars of spending.
The downturn in the energy sector, even with its secondary and tertiary impacts on tax revenue collection, constitutes just part of the many reasons for the shortfall.
There are several other important reasons to consider, but there is very little public analysis of these reasons. While some of these causes are unfortunate, there is one outstanding, foremost, justifiable reason for the shortfall that nobody really talks about in the context of this year’s budget deficit.
For many years, Oklahoma legislators created a huge long-term financial liability to the citizens. They gave away increases in retirement benefits without paying for those increases. Their action resulted in short-term political benefit to them, but long-term financial liability for the state.
Those leaders did a great disservice to those they served. Their financial mismanagement resulted in billions of long-term liabilities and was similar to the actions of today’s federal government leaders and their creation of 19 trillion dollars of federal debt.
In much the same way as we all know that a financial day of reckoning lies on the horizon for the federal government, today is the day of reckoning for Oklahoma’s officials.
Starting in 2004, a new generation of legislators rose to power. These legislators were of a much more austere composition than their predecessors. These austerity-minded officers determined to address and mitigate Oklahoma’s massive liability of billions of dollars of unfunded retirement benefits.
They first stopped the bleeding by halting retirement system benefit increases unless those benefits were paid for or tied to real funding sources.
They then sought to bring down the amount of debt. Their new policies require government officials to place many millions of dollars into the retirement system every year.
These many millions of dollars of yearly payments have now established themselves as a significant component of the budget.
Despite these payments, the problem hasn’t necessarily been mitigated. The liabilities of the retirement system are down, but are still subject to flux with the condition of the stock market. I have long feared that Oklahoma lawmakers have too greatly liberalized retirement system investment strategies and in their effort to eliminate the liabilities have actually placed too much capital at risk.
Hopefully my concerns are unfounded and the retirement system debt will continue to come down. But until that time, for far into the future, the taxpayers are now saddled with millions of dollars of cost as a result of the mismanagement of the past and the desire of today’s austerity-minded officials to correct the problem.
Today is the day of reckoning.
Thank you for reading this article. Your interest and input are much appreciated. Please do not hesitate to email Jason.Murphey@hd31.org with your thoughts and suggestions.