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Underfunded Public Ed: Cyclical or Structural?

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In case you haven’t heard, Texas public education system is facing a $9.3 billion shortfall over the next biennium. That’s not including funding needed for textbooks, about $400 million according to Sen. Florence Shapiro, R-Plano. But lawmakers are debating how the state’s public schools got in such a deep hole—and how possibly to get out.

Education funding has been in a financial hole since the legislature restructured the tax system in 2006. They lowered property taxes, historically used to pay for public education, and added a revamped business franchise tax that, along with a hike in cigarette taxes, was to account for the difference. But the franchise tax has dramatically underperformed, only bringing in $2.5 billion in 2009 as opposed to the projected $4.2 billion, according to John O’Brien, Director of the Legislative Budget Board. Does that mean we have a structural deficit in education funding?

O’Brien says the jury’s still out. At today’s Senate Finance Subcommittee on Education hearing, the LBB director began with some basic explanations. “The definition of structural is that it’s not cyclical,” said O’Brien. “Cyclical means something tied to the business cycle. For example, property taxes will go down in 2011 and 2012. That’s cyclical. There’s nothing we can do about that except ride it out.”

As an example, O’Brien pointed to the state’s healthcare costs. While the state’s budget has grown about 7.7 percent per biennium over the last decade, the cost of healthcare grew at double that pace. That is as textbook case of a structural deficit, one that has so far been addressed by spending less on everything else in the budget not healthcare-related.

As for education funding, the verdict is still out on whether it’s structural or cyclical, said O’Brien. “Whether the underperformance of the new franchise tax is cyclical or not is going to have to play out. Did it just not perform well or will it bounce back?” he said.

Sen. Eddie Lucio, Jr., D-Brownsville, didn’t seem convinced that more time was needed to determine the nature of the shortfall. “If we don’t address the structural issue now, what happens next biennium?” he asked O’Brien. “I want to know how catastrophic it can become.”

O’Brien pointed out that the task of the subcommittee is to find acceptable cuts to make to public education, not to address the longer-term issue of funding, saying “that will have to wait until another session.”