Texas Is Flush with Cash, But Will We Spend It?

And just like that, Texas is flush with cash again.

Comptroller Susan Combs unveiled her biannual revenue estimate for state government this morning. The revenue estimate isn’t just some abstract forecast; it determines how much money state lawmakers can spend in the two-year budget they will construct over the next five months.

Combs estimates that Texas will have more than $92,6 billion available in 2014 and 2015. Add to that $8.8 billion left in the bank from the last two-year budget. In all, lawmakers will have more than $101 billion to spend on the rest of 2013 and 2014-2015. Then there’s the Rainy Day Fund, which has grown to $11.7 billion. Texas is rolling in cash.

That’s good because the budget, as it stands now, is a mess. In the strictest sense, Texas’ 2012-2013 budget does “balance,” as the state constitution requires. But to make the numbers add up, lawmakers resorted to absurd gimmicks. In 2011, the Legislature faced a $27 billion shortfall—it was pretty dour day two years ago when Combs announced how little money Texas had. The 2011 shortfall was due mostly to the recession—though at least $10 billion of that was of lawmakers’ own doing (more on that in a moment). Gov. Rick Perry refused to let budget writers use the nearly Rainy Day Fund to offset cuts to education and health care. The result was a $5.36 billion cut to public schools—a reduction almost inconceivable, until it actually happened. Texas’ schools are funded so poorly, nearly every school district is suing the state to fix the situation.

On Medicaid, lawmakers couldn’t afford to pay for the program without crippling cuts. So instead of writing a 24-month Medicaid budget, they simply axed the final six months and went with an 18-month Medicaid budget. Presto! Problem solved. Until March 2013, that is, when the state is on the hook for those Medicaid payments. So unless the world ends before March, the 2013 Legislature will have to come up with $4.7 billion in Medicaid funds fewer than 60 days into the session to keep the program going.

That looked like a serious problem…until Combs’ announcement this morning. Improving sales tax receipts and the booming energy sector have resulted in the extra $8.8 billion in state coffers. That will easily cover the $4.7 billion in Medicaid IOUs. In 2011, the Lege gambled that the economy would improve enough to pay for the Medicaid IOUs, and that gamble has apparently paid off. Lawmakers will still need to act quickly to pass the mother of all supplemental spending bills in the first two months of the session, but at least the money is there.

When they write the budget for the next two years—2014 and 2015—lawmakers will again have to contend with a $10 billion structural deficit. That’s the result of the 2006 business tax that legislators knew at the time wouldn’t bring in enough money to cover the state’s obligations. This will be the fourth session in a row that budget writers start their work with the state $10 billion in the red.

Meanwhile, years of lean state budgets have increasingly burdened local governments, and they’re borrowing money at alarming rates. The comptroller recently reported that Texas leads the nation in debt carried by municipal governments. That’s not balancing the budget, that’s deficit spending by another name.

A growing economy has blessed Texas with ample resources for this legislative session. Now might be a good time to undo the deepest cuts from 2011, to finally close the structural deficit and to take some burden off local governments. Lawmakers will have the money—if they choose to spend it.