Time to Limit—or Reduce—State Spending

October 4, 2011

Since 1985, Article 10, Section 23 of the Oklahoma Constitution has placed several limits on appropriations made by the Oklahoma legislature. The limits were added because of extreme economic volatility the state faced during the 1970s and 1980s when the state was heavily reliant on oil and gas economic activity.

The spending limits established in 1985 were very reasonable, considering the alternatives of continued unrestraint in spending at that time. These limits included:

• Revenue certification before spending;
• Limit of 95 percent of appropriations authority/certification;
• Limit on appropriations growth of 12 percent plus inflation per year;
• Establishment of the Constitutional Reserve Fund (also known as the “Rainy Day Fund”); and
• Limits on spending from the “Rainy Day Fund.”

All of these limits helped to provide increased stability to the appropriation process, and without these limits revenue downturns since that time would have resulted in significantly deeper appropriation cuts.

Recently, state Representative Elise Hall (R-Oklahoma City) and the Oklahoma House of Representatives conducted an interim study of the state’s current limit on appropriations growth. The study was borne out of Representative Hall’s 2011 legislation which sought to decrease, from 12 percent to 7 percent, the current limit on appropriations growth. During the study, OCPA presented the following information:

• Appropriations have been less than for the prior year in only 5 of the last 20 years.
• Adjusted for inflation, total state spending has grown $4.7 billion from FY 2001 to FY 2010.
• Total state spending has grown every year since FY 2001. At $16.6 billion, government spending in Oklahoma is now at an all-time high.
• From 2001 to 2010, private earnings in Oklahoma grew 40.71 percent while total state spending grew 72.20 percent.
• From 2001 to 2010, private earnings in Oklahoma grew 40.71 percent while state and local government earnings grew 59.60 percent.
• From FY 1996 to FY 2002, state appropriations grew from $3.7 billion to $5.6 billion, or 48.76 percent in just six years, while private earnings over the same period grew only 50.75 percent.
• From FY 2004 to FY2010, state appropriations grew from $5.1 billion to $7.2 billion, or 41.29 percent in just six years, while private earnings over the same period grew only 36.24 percent.

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

Indeed, even though a spending limit of 7 percent plus inflation is a good first step, it doesn’t go nearly far enough. As the polling data on the facing page make perfectly clear, Oklahoma voters aren’t interested simply in limiting the growth of government. They want to make government smaller.

Jonathan Small, CPA, is the fiscal policy director at OCPA.