Pyrrhic Victory

It seemed appropriate that the same week the Texas Legislature finally passed a school finance package, the FBI thought it had found Jimmy Hoffa. The body of the long-missing labor leader never turned up, though, disproving anyone who thought that Hoffa would be found (or the Cubs would win the World Series or hell would freeze over) before Texas Republicans raised taxes—and taxes on business at that. Apparently the sixth time—and a court-ordered deadline—was the charm for the GOP leadership.

The standards for competent governance have dropped so low at the Capitol the past three years that we’re tempted to fete lawmakers for simply passing something. The package of five bills that won approval in the special session ensures that schools will open on time in the fall; provides homeowners a much-needed cut in school property taxes; creates a legitimate, low-rate, broad-based business tax; and puts a smidge more money into the public schools, including a small pay raise for teachers. Lawmakers did all this without increasing the tough-on-the-poor state sales tax.

Gov. Rick Perry—his re-election chances at stake—deserves some credit. By appointing former comptroller and political rival John Sharp to head a tax commission and then following through on that panel’s recommendations, Perry provided some leadership for a change. What’s worrisome is where he’s leading us.

Every few years, the Lege has to recalibrate the way we finance public schools. It’s never a permanent fix—even the best school finance reforms have the life expectancy of your average house pet. But the current proposal is especially short-sighted. The main problem? The plan simply doesn’t balance. The expanded business and cigarette taxes won’t generate nearly enough revenue to cover property tax cuts that total an estimated $15.7 billion over three years. The number-crunchers at the Legislative Budget Board project that the proposal will burn a $5 billion hole in the state budget every year. The estimated five-year deficit is $25 billion. That’s no small beans. It’s worth remembering that the state, unlike the feds, can’t borrow money from China to cover deficit spending. The Lege is constitutionally obligated to balance its budget. Worse yet, the tax cuts in this proposal swallow most of the state’s current $8 billion budget surplus. We’re tiptoeing on a budgetary high-wire without a net.

At a celebratory day-after-session news conference on May 16, Perry responded to such concerns with a supply-side argument. He contended that the Legislative Budget Board’s numbers are off because they don’t take into account “dynamic modeling” and other measures of future economic growth that will balance the state’s books. Curious about how much dynamism the governor expects, we asked Perry’s press office for revenue numbers that the governor thinks are more accurate. They didn’t have any. The governor’s staff did, however, send over models by Ray Perryman, who runs an economic forecasting firm, the Perryman Group, in Waco. He estimates that the Perry-Sharp plan will generate enough economic growth to flood state coffers with an added $300 million annually. Maybe we’re missing something, but $300 million doesn’t seem to cover a $5 billion shortfall.

We suspect it’s not supposed to. The dirty secret of this plan, which everyone at the Capitol knows, is that the $5 billion annual deficit will box future legislatures—starting in 2007—into deep budget cuts or a sales tax hike or a combination of both. That will hurt poor and vulnerable Texans. Some right-wing lawmakers are not only aware of the built-in deficit, they don’t mind it. After all, some on the right adore shrinking government and expanding consumption taxes.

But for anyone of a different ideological bent, this plan looks irresponsible.