Why the State Budget is Such a Mess
Writing the budget is by far the most important thing the Texas Legislature does. Indeed, under the Texas Constitution, it’s the only thing lawmakers must do. It’s also the most difficult part of the process for the average person to follow. Budget debates are convoluted and filled with arcane language, and the most important decisions are rarely discussed in public. That complexity makes it easy for politicians to shape their narratives about how state government is doing — and sometimes, to escape blame for whatever’s gone wrong.
As lawmakers begin drafting a budget that will likely include many unnecessary cuts, it’s important to be clear about what’s happening, and why. To that end:
How bad is the state’s budget situation?
Pretty bad. For the next two years, Texas is projected to be significantly short of the money needed just to maintain the current meager level of services.
According to Comptroller Glenn Hegar, lawmakers have a relatively paltry $105 billion to spend. But the Center for Public Policy Priorities (CPPP) estimates that paying for the current level of services would cost $109 billion. Factor in the increasing cost of providing state services, and the figure rises to more than $111 billion.
So there’s an effective shortfall of some $6 billion. But that’s without taking into account new spending. Both Republicans and Democrats are excited about a mental health services overhaul that would cost additional hundreds of millions of dollars. Doing something meaningful about the state’s school finance system could cost billions more. And Lieutenant Governor Dan Patrick has his own priorities, including so-called school choice programs. On top of that, some Republicans want to cut taxes even more than they did in 2015.
Why does the state have so much less money this year?
One reason is the low price of oil, which has dragged down the economy a bit. Another reason: In 2015, at the behest of the Legislature, voters approved diverting billions of dollars in sales tax revenue to the state highway fund. That’s money budget-writers no longer have available for schools, prisons and health services. Lawmakers like talking up those two factors for the budget shortfall because it lets them off the hook.
But then there are tax cuts, which legislators aren’t saying much about. In 2013, the Legislature significantly cut the franchise tax, which drained some $1.1 billion from state coffers over the last four years. Then, in 2015, largely at Dan Patrick’s initiative, the Lege passed several additional tax cuts that blew another $4.5 billion hole in the current biennial budget, according to CPPP budget-watchers. Together, those tax cuts, along with other minor revenue tweaks, total a little less than $6 billion lost over the last four years.
In other words, there is an almost one-to-one ratio between the size of the hole in the budget now and the cumulative effect of the last few years of tax-cutting. (They’ll lose the state money going forward, too, but how much is hard to say.)
Those tax cuts sound like something we should be hearing more about.
Democrats in the Legislature have yet to figure out how to talk about budget issues in a meaningful way. In part, that’s because most of them vote for the Republican budget when it comes to the floor: Last session only one Senate Democrat, Sylvia Garcia, voted against Patrick’s budget.
And because no Democrats have hammered tax cuts as a causal factor for the budget crisis, it won’t come up much in the media. Texas’ political press does a solid job of covering politics and policy. Where the press is weaker is in describing the interconnection of bad politics and bad policy. That gives politicians a lot of power to control the narrative.
For example, if state Senator Jane Nelson, R-Flower Mound, offers a nonsense explanation for why state lawmakers shredded Medicaid services for disabled children, her thoughts are generally given equal weight to anyone who happens to be offering an accurate account, and it’s up to newspaper editorial boards and a few columnists to challenge them, if they’re challenged at all.
How will the Legislature fix the shortfall?
“You either raise taxes or you have to have cost containment,” Patrick told a local TV station in Dallas. “We’re not going to raise taxes.” Patrick’s plan is to cut. Presumably, a lot.
Even setting aside that Patrick’s tax cuts are significantly responsible, it’s a misleading framework. First, there’s an obvious third option. The state’s rainy day fund is projected to hold some $12 billion at the end of the next biennium. Lawmakers could easily tap the fund to cover the budget gap. They’re just choosing not to. That’s important to remember when the fallout from this round of cuts starts to kick in.
But look at the priorities of top GOP senators. Nelson, Patrick’s budget chief, has her own franchise tax cut plan. Craig Estes, another veteran senator, is offering a bill to end the franchise tax by 2018. And in the interim Senator Paul Bettencourt, a top Patrick lieutenant, chair of the Senate Select Committee on Property Tax Reform and Relief, conducted a statewide listening tour and concluded that Texans have issued an “overwhelming cry” for more tax cuts, a cry echoed by Governor Abbott in his State of the State address Tuesday.
Abbott proposed mangling the franchise tax “until we can fit it in a coffin,” and called for more measures to restrict property tax collection in cities. While he wants to shrink revenue, he has his own budget priorities and pet projects, which, if implemented, mean more cuts to other state agencies.
Shrinking revenue last session poisoned this session’s budget, and if lawmakers cut revenue again it will poison the next one. When Democrats don’t talk about how the two are related, it becomes harder for them and their allies to mount an effective opposition.
This is pretty dismal. Will it get better?
Is there any chance Texas could simply outgrow the deficit? “No,” said Eva DeLuna Castro, a budget expert with the CPPP. “Legislators have to do something about revenue.” The problem, she said, is that revenue generators like the sales tax aren’t keeping pace with population growth. As the state cuts more and more, the tax burden shifts to cities, which have to levy high property taxes to fund what the state won’t. Residents don’t necessarily understand that high property taxes are the result of the state’s long-term retreat from funding services. And with Texas consistently in the bottom five states ranked by per-capita state spending, there’s very little left to cut.
If anything, Texas’ budget situation is likely to get worse, Castro said. As Baby Boomers age, their property taxes will be frozen, which could mean a funding crisis for local governments. Increasing costs for higher ed, infrastructure and health care will strain state government. And there’s the ever-present possibility — if not eventual certainty — that the Texas economy cools, loses its remarkable decades-long momentum and squeezes tax revenue even more.
But most alarming is that lawmakers aren’t being honest. The public conversation — end the franchise tax, or just cut it? — is almost completely divorced from reality. They’re playing poker with Monopoly money, and eventually they’ll run out of that, too.