The Structural Deficit Theme

All over Austin today, people were discussing (in some cases lambasting) the structural deficit. For those who don’t speak budget-nerd, the term refers to a budget that can’t add up—where income can’t cover costs. That’s the situation in Texas where, as lawmakers opted to re-write the tax code and cut school property taxes. They would replace that lost revenue primarily with money from the new business franchise tax and higher taxes on cigarettes.  It didn’t work. 

At the first meeting of the Senate Finance Committee, the gap was one of the first things to come up. The room was packed to the gils with advocates, reporters and staffers, all there to hear Legislative Budget Board and state comptroller’s office explain just how bad the cuts would be this biennium’s budget. With a $27 billion shortfall, they’re sure to be severe, particularly in education and health and human services programs, which together make up more than 80 percent of the budget.

But before the committee could get down to brass tacks—or brass machetes—the state’s chief revenue estimator explained that senators could expect a $10 billion shortfall every biennium so long as the current tax structure remained in place. (Translation: structural deficit.) As some groups, like the Center for Public Policy Priorities, have been saying for years, the new system that 2006 ushered in simply doesn’t perform.

Quorum Report’s John Reynolds reports:

The rewritten franchise tax … did not come close to performing as expected. Instead of bringing in $6 billion per year, it’s collecting a little more than $4 billion. Heleman said that the Comptroller’s office expects the tax will bring in roughly that amount for the foreseeable future.

Also, the cost of property tax relief is running about $1 billion more per year than what had been expected.

Because these shortfalls are structural, changing economic conditions due to an improving business cycle won’t erase them. Heleman said that the Legislature always has the option of addressing the causes of these revenue imbalances.

At least for today, the discussion focused more on getting information than on political debate. While state Sen. Tommy Williams, R-The Woodlands, argued the gap wasn’t as high as Heleman said, most of the time was spent on questions and potential remedies. “We’ve got to make sure that those structural issues change not just for this biennium but from this day forward,” said state Sen. Florence Shapiro, R-Dallas.

Most GOP-ers have blamed this biennium’s unprecedented shortfall on the global recession. Because most have promised explicitly not to raise taxes, broaching the structural deficit can be tricky. There aren’t a whole lot of options outside of cutting even more out of an already boney budget or fiddling with, and likely raising, some taxes. But as Shapiro’s quote illustrates, some conservative lawmakers seem willing to deal with the issue—in the Senate. State Sen. Steve Ogden, R-Bryan, who chairs the committee, threw out the idea of changing the business franchise tax on the very first day of the session. 

While in many ways it’s dangerous political territory—anti-tax groups like Empower Texans and Americans for Prosperity will get up in arms over increasing any state revenue—it may also be politically feasible. 

While the Finance Committee discussed the problem, a few streets over, teachers and superintendents were blaming the structural deficit for the looming cuts to schools. At the Midwinter Conference for the Texas Association of School Administrators, there was a clear theme—find a way to avoid drastic cuts to education and fix the broken systems. 

As the Texas Tribune’s Morgan Smith reports

“[John] Folks, who serves as superintendent of the [Northside] San Antonio district and president of TASA, said it was “totally irresponsible” for lawmakers to ask districts to make cuts when the Legislature had created a structural deficit in 2006 when it compressed property tax rates, limiting the amount of money districts could raise locally.”

That’s not what lawmakers want to hear. But if there’s enough political pressure from teachers and school advocates, we could see some more conservative legislators change their tune. At least a little bit.

—Alexa Garcia-Ditta contributed to this report.

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Published at 12:16 am CST