Capitol Offenses

Few aspects of the legislative process are as important and as mysterious as the fiscal note. Any bill or resolution that authorizes or requires the expenditure or diversion of state funds cannot get past the committee level until it receives a fiscal note from the Legislative Budget Board. The amount of that note is ultimately subjective–based on assumptions and projections–and thus quite often open to political manipulation. The fiscal note has been likened to a Vatican policy pronouncement. Analysts with arcane knowledge toil in the shadows and then the LBB executive director produces a number, ex cathedra. Often little public documentation exists to substantiate the claim.

But that number can assure damnation or salvation for a bill. Many a legislator has discovered with horror right before a committee is to hear his bill that the LBB slapped a hefty fiscal note on it. Suddenly, there he is, imploring the chairman to postpone the hearing while he negotiates for a zero fiscal note from the LBB.

The fiscal note will take on added importance in this 78th Legislature. As lawmakers stare down at least a $10 billion deficit, any bill with a significant fiscal impact is probably dead on arrival. “I suspect that if you have a bill that costs money, more than likely, it’s not going to pass,” opines Rep. Garnet Coleman (D-Houston). “If you have a bill that saves money, you are in good shape.”

Coleman says that in his ten years on appropriations, before the new Republican leadership knocked him off the committee, his working relationship with the LBB was “fantastic.” He didn’t always get his way, but overall he found the process fair.

“What I would hope is that the folks in leadership now would not play around with a system that people generally trust,” he says.

But while most laud the LBB staff, not everybody shares Coleman’s endorsement of the process. Tales abound of bills with negligible fiscal costs that came back from the LBB with estimates in the millions or even billions of dollars. Or conversely, bills, despite their obvious costs, returned with a zero fiscal impact or marked with fuzzy terms like “no significant impact” or “de minimus.”

The Legislative Budget Board is not an independent agency, insulated from politics, like the federal General Accounting Office. It is run by five members of the House and five members of the Senate. Six of those positions are fixed and include the Speaker, the Lt. Governor, and the chairs of the key fiscal committees. The board chairmanship belongs to Lite Gov Dewhurst. Current LBB director, John Keel, has served in that capacity since 1994. Keel gained some notoriety recently over an acid e-mail he sent to the governor’s budget staff that colorfully questioned whether Perry’s crew was competent enough to draft a budget. Exposure of the e-mail and a subsequent apology sparked speculation around the Capitol that Keel’s days are numbered. But LBB watchers note that the governor’s opinion of Keel does not carry much weight since Perry does not sit on the agency’s board.

After a committee clerk forwards a bill to the LBB, a fiscal note coordinator reviews it. If the coordinator determines that it has “probable fiscal implications” the bill is bucked on to the comptroller’s office or the state agency that will be affected. (The comptroller’s office looks at all bills that concern revenue items, comptroller budget cut recommendations, and anything else the LBB requests.) Each state agency has analysts waiting to receive the bills. “There are a million places in the process where someone can screw you, from the Speaker’s office to some lowly person in an agency that makes a subjective call,” explains one former legislator-turned-lobbyist.

Some believe it is at the agency level that trouble most often enters the mix. “There is a lot of politics involved. Obviously, if the state agency director doesn’t like a bill and suggests that there is going to be a big fiscal note, it decreases the chance the bill will pass,” says Rep. Elliott Naishtat (D-Austin).

Naishtat remembers one example from the 76th Regular Session of the Legislature when a bill that should have carried a negligible fiscal impact came back with one for more than $2 million. The bill, HB 3638, would have closed a loophole whereby those denied financial, medical, or nutrition assistance by the Texas Department of Human Services without supporting evidence to prove they were ineligible could appeal their case to a state court. Such judicial review is common nationwide and only affects between two to five percent of cases. TDHS claimed that they would have to produce transcripts for every single case involving denied benefits rather than the handful that would appeal.

Confronted with the LBB’s determination, Bruce Bower, a lawyer with the Texas Legal Services Center working with Naishtat to pass the bill, contacted the assistant attorney general in Alabama, a state that allows judicial review. The Alabama official corrected TDHS’ shoddy math. In Alabama they waited to see who would get judicial review before producing transcripts. The cost turned out to be negligible. Naishtat then conferred with the LBB and wrangled a new determination: “No Significant Fiscal Impact.” (Ac-cording to the comptroller’s office that means less than $50,000. The LBB determines it by some secret formula which involves the size of the agency in question.) But by that time it was too late in the session to pass the bill. “If an agency were trying to deliberately sink a bill, it would do what TDHS did through the information it supplied for the fiscal note,” says Bower today.

As Naishtat’s experience indicates, sometimes a legislator can go to the analysts who prepared the fiscal note (their initials are written at the bottom of the note) and argue the merits. “Part of the process comes down to knowledge,” says Coleman. “I think that is where some members end up at a disadvantage because they don’t know how to work the process.”

Sometimes it doesn’t matter. A more egregious example of an overblown fiscal note occurred last session over HB 2999 sponsored by Rep. Carlos Uresti (D-San Antonio). The bill would have allowed Texas to negotiate with pharmaceutical companies for discount drug prices for the uninsured that would be similar to those already available to the insured. Patients would buy their drugs at reduced cost from pharmacies. The druggist would then bill the state for the amount of the rebate. In turn, the state would bill the pharmaceutical company. “The state doesn’t pay anything, it just slides the money from one place to another,” explains Bernie Horn, policy director for the Center for Policy Alternatives, which has pushed similar measures in several states.

The LBB returned a fiscal note for the bill that put the cost to the state at $3.5 billion. “When you put a fiscal statement in front of a legislator that says $3.5 billion, they say ‘we can’t talk about that,'” observes Horn.

In this case, the LBB explained their “logic” for the fiscal note. They estimated how much it would cost for 2.5 million people to buy one prescription per month and then assumed the state would pick up the entire cost. “It is so far off from what the bill does–and it’s not that complicated–that it makes you wonder if it was intentional,” says Horn.

Uresti wrote a letter to the LBB asking them to reconsider but they wouldn’t budge, according to Horn.

A central flaw in the reasoning behind fiscal notes is that the LBB refuses to take into account secondary impacts. A classic case involves attempts to pass a living wage bill. In 1997 the fiscal note for such a bill concluded that to pay all state employees a living wage would cost millions, according to one participant. But the LBB would not provide information on the benefits a living wage would bring in increased sales tax revenue for the state.

More troubling still are fiscal notes that show no appreciable cost when in fact there is one. Chief among the culprits in this category are prison sentence enhancements, a perpetual favorite for politicians posturing as tough on crime. One example of many is HB 460, passed last session. Filed by Rep. Will Hartnett (R-Dallas), it bumps repeat prostitution convictions from a Class A misdemeanor to a state jail felony beginning with the third conviction. The LBB determined that “no significant fiscal implication to the state [was] anticipated.” One day in a state jail costs $32.08, according to the Criminal Justice Policy Council, a state agency that provides fiscal and policy analysis to the legislature on criminal justice issues. Based on an ACLU database compiled through open records requests, for 45 prostitutes statewide, convicted under the new law, with an average eight-month sentence, the price tag for the state would be $346,463. That number would likely increase over time as the law reached full implementation. (It is important to note that the ACLU is presently involved in a lobbying effort to promote sentence reductions for nonviolent crimes as a humane and cost-effective alternative to overcrowded jails. More than half a dozen calls by the Observer to the Criminal Justice Policy Council for a response were not returned.)

In this session marked by ideological revolution, many members of the Republican majority have an ambitious social agenda–from outlawing gay foster care to eliminating bilingual education and vouchers–that they have waited years to enact. Realistically, most of these bills should have some fiscal impact. If for example, Child Protective Services is required to investigate the sex life of every prospective foster parent, one would think that in a time of drastic budget cuts, such a new mandate would cost money. With firm Republican control of both the House and the Senate, it will be interesting to see what the fiscal notes say or don’t say.