There’s no getting around it: Texas’ budget is a mess, and the worst is yet to come.
We’ve gotten a preview this week of just how painful the budget process will be next session. (This Fort Worth Star-Telegram story has details on the first round of cuts.) State leaders are once again saying they intend to rely mostly on spending cuts to make up a budget shortfall that may reach $18 billion. It’s already clear lawmakers will have a difficult time cleaving that much money from Texas’ miserly state budget.
Now is the time to talk about this—not next year—because the budget gap isn’t just a result of the bad economy, although that has played a part.
At least half the budget deficit can be directly attributed to Gov. Rick Perry, Lt. Gov. David Dewhurst and other Republican leaders. The question is, will their handling of the budget become an election issue? (For more details on Perry’s budget dealings, I suggest you read this recent feature by my colleague Melissa del Bosque.)
To understand how Perry and other state leaders intentionally created a large chunk of the budget shortfall, we must retrace some history from 2006. That was the year the Legislature, under court order, passed a school finance reform plan. The framework of the plan was largely devised by Perry in conjunction with former comptroller John Sharp.
The idea was to cut property taxes and replace the lost revenue with a new business tax. It was pitched as a tax swap that wouldn’t cost the state any money. Problem is, it wasn’t a swap at all. The business tax doesn’t bring in nearly enough money to cover the loss in property tax revenue.
This means Texas budget is guaranteed to have a shortfall of several billion dollars every year.
And here’s the key point—one often missed in the reporting on what’s known as Texas’ structural deficit—Perry and the Legislature knew full well the plan didn’t balance when they passed it.
In the 2006 session, the state’s own budget analysts at the Legislative Budget Board told lawmakers the plan would create a $5 billion shortfall every year (that’s $10 billion per biennium—or more than half next session’s estimated $18 billion gap.)
In 2006, everyone knew the plan didn’t balance. And it wasn’t supposed to.
Here’s what the Observer wrote back in 2006, the week after the Perry-Sharp plan was approved:
“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….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 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.”
For the past two sessions, we’ve papered over the deficit—first because of the booming economy and then with the aid of federal stimulus money. But now our reckoning may be upon us.
I fear what the next budget—with its yawning $18 billion hole—will do to this state. Services for the poor will certainly be reduced. Cities and municipalities will likely suffer. So far Perry, Dewhurst and Speaker Joe Straus have refused to cut already underfunded and understaffed areas like prisons and state hospitals for the mentally ill. But that may not last.
We have to remember that Perry and other Republican leaders purposely structured the budget this way. They wanted to hold down state spending. That’s a perfectly legit policy decision, but now we’re seeing the consequences.
To my mind, the budget mess is the most important issue in Texas politics right now.
But the question remains: Will Perry (and others) intentional shorting of the budget ever become an election issue? It certainly should be.