Budget & Tax, Law & Principles
Was it legal to drain Oklahoma’s rainy day fund?
April 3, 2017
Gov. Mary Fallin’s administration has drained Oklahoma’s Constitutional Reserve Fund, often called the Rainy Day Fund. Executive branch officials spent all $240 million from the Fund to pay the state’s monthly bills rather than declare a larger or additional revenue shortfall. Whether or not this was good budget policy, was it legal?
Can the executive branch spend money from the Constitutional Reserve Fund at will, so long as they promise to repay those funds before the end of the fiscal year? Here is a look at the law.
Oklahoma’s Constitutional Reserve Fund is established and governed by the Oklahoma Constitution, section 23 of Article 10. The section creates the framework for the state’s budget process and begins as follows:
The state shall never create or authorize the creation of any debt or obligation, or fund or pay any deficit, against the state, or any department, institution or agency thereof, regardless of its form or the source of money from which it is to be paid, except as may be provided in this section and in Sections 24 and 25 of Article X of the Constitution of the State of Oklahoma.
To ensure a balanced annual budget, pursuant to the limitations contained in the foregoing, procedures are herewith established as follows:
[Sub-sections 1, 2, and 3 are about revenue forecasts.]
4. Surplus funds or monies shall be any amount accruing to the General Revenue Fund of the State of Oklahoma over and above the itemized estimate made by the State Board of Equalization.
5. All such surplus funds or monies shall be placed in a Constitutional Reserve Fund by the State Treasurer until such time that the amount of said Fund equals fifteen percent (15%) of the General Revenue Fund certification for the preceding fiscal year. Appropriations made from said Fund shall be considered special appropriations.
The Oklahoma Constitution then describes how the fund can be used (bold and italics added):
6. a. Up to three-eighths (3/8) of the balance at the beginning of the current fiscal year in the Constitutional Reserve Fund may be appropriated for the forthcoming fiscal year, when the certification by the State Board of Equalization for said forthcoming fiscal year General Revenue Fund is less than that of the current fiscal year certification. In no event shall the amount of monies appropriated from the Constitutional Reserve Fund be in excess of the difference between the two said certifications.
[The rest of sub-section 6 creates a manufacturing incentive program, which up to $10 million of reserve funds can be spent on under certain limited circumstances.]
7. Up to three-eighths (3/8) of the balance at the beginning of the current fiscal year in the Constitutional Reserve Fund may be appropriated for the current fiscal year if the State Board of Equalization determines that a revenue failure has occurred with respect to the General Revenue Fund of the State Treasury. In no event shall the amount of monies appropriated from the Constitutional Reserve Fund pursuant to this paragraph be in excess of the amount of the projected revenue failure in the General Revenue Fund, which total amount shall be computed by the State Board of Equalization, for the entire fiscal year. Monies appropriated to any state governmental entity from the Constitutional Reserve Fund pursuant to this paragraph may only be made in order to ensure that the monies actually received by the entity for the then current fiscal year are equal to or less than, but not in excess of, the total appropriation amount for such entity in effect at the beginning of the then current fiscal year.
8. Up to one-quarter (1/4) of the balance at the beginning of the current fiscal year in the Constitutional Reserve Fund may be appropriated, upon a declaration by the Governor that emergency conditions exist, with concurrence of the Legislature by a two-thirds (2/3) vote of the House of Representatives and Senate for the appropriation; or said one-quarter (1/4) could be appropriated upon a joint declaration of emergency conditions by the Speaker of the House of Representatives and the President Pro Tempore of the Senate, with a concurrence of a three-fourths (3/4) vote of the House of Representatives and Senate.
And that is all. Those are the only three ways to access Oklahoma’s Constitutional Reserve Fund. In each case, an appropriation is required--in other words, a piece of legislation explicitly authorizing expenditure of monies from the Fund. In each case, that appropriation can only be made if certain conditions are met. This is what makes the fund a Reserve Fund. The fact that all this is spelled out in the Constitution is what makes it the Constitutional Reserve Fund.
The Constitutional Reserve Fund is not just another state bank account. Staff in the Governor’s office point to a statute that empowers them to shift funds among the state’s “treasury funds” to pay the state’s monthly bills. But statutes trump constitutional provisions exactly never.
What about the claim that they simply borrowed the money and plan, or at least hope, to put it back? First, there is simply no express or implied power to do that in any of the constitutional provisions above. Second, the Constitution does actually mention--and limit--the use of debt to pay the state’s bills. The final sub-section of section 23 of Article 10 anticipates revenue shortfalls and says:
10. The Legislature shall provide a method whereby appropriations shall be divided and set up on a monthly, quarterly or semiannual basis within each fiscal year to prevent obligations being incurred in excess of the revenue to be collected, and notwithstanding other provisions of this Constitution, the Legislature shall provide that all appropriations shall be reduced to bring them within revenues actually collected, but all such reductions shall apply to each department, institution, board, commission or special appropriation made by the State Legislature in the ratio that its total appropriation for that fiscal year bears to the total of all appropriations from that fund for that fiscal year; provided, however, that the Governor shall have discretion to issue deficiency certificates to the State Treasurer for the benefit of any department, institution or agency of the state, if the amount of such deficiency certificates be within the limit of the current appropriation for that department, institution or agency, whereupon the State Treasurer shall issue warrants to the extent of such certificates for the payment of such claims as may be authorized by the Governor, and such warrants shall become a part of the public debt and shall be paid out of any money appropriated by the Legislature and made lawfully available therefor; provided further, that in no event shall said deficiency certificates exceed in the aggregate the sum of Five Hundred Thousand Dollars ($500,000.00) in any fiscal year.
It is a basic legal principle that such explicit provisions as are found throughout Article 10, section 23, of the Oklahoma Constitution exclude any other claims to power (expressio unius est exclusio alterius). And if the Governor has no constitutional authority to take funds from the Constitutional Reserve Fund in the way she did, simply calling the taking of funds a “loan” does not cure or obscure the violation.
The Governor has also sidestepped the legislative branch. While the Constitution does establish a way, with large supermajorities, for the legislature to tap the Constitutional Reserve Fund without the Governor’s approval, it does not authorize any method for the Governor to access the fund without the legislature. The Governor’s actions here challenge the fundamental idea of the separation of powers, which is specifically described in Article 4, section 1, of the Oklahoma Constitution:
The powers of the government of the State of Oklahoma shall be divided into three separate departments: The Legislative, Executive, and Judicial; and except as provided in this Constitution, the Legislative, Executive, and Judicial departments of government shall be separate and distinct, and neither shall exercise the powers properly belonging to either of the others.