State agencies should assume a 10 percent cut in funding when they make budget requests to lawmakers in coming months, according to instructions from the Legislative Budget Board and Gov. Rick Perry's office.

The two offices described the cut as a starting point, though agencies may end up with no reduction at all. Two years ago, agencies were told to start off assuming a 5 percent cut. But by the time lawmakers finished writing a two-year state budget, spending of state general revenue had grown from $59 billion to $64 billion.

"It is a valuable step for agencies to go through in re-examining what their priorities are and how they would spend tax dollars," said Perry spokeswoman Kathy Walt. "An important thing for everyone to remember is that this is just a first step in a year-long process."

Agency officials will describe their spending needs and wishes to lawmakers over the next several months and into the next legislative session, which begins in January.
The instructions say some areas of government are not subject to cuts, including funds needed to pay for education measures passed by the Legislature; to maintain caseloads for federal entitlement programs, such as Medicaid; and to maintain adult prison populations. Agencies also were told that the money they were given in 2005 to pay for an across-the-board employee pay raise is not subject to the 10 percent reduction.

Still, the instructions could lead to a $3 billion cut in services if carried out, said Eva DeLuna Castro of the Center for Public Policy Priorities, which advocates for spending on programs that help low-income Texans. Even if the budget grows, she said, population growth and inflation may quickly eat up funds. "The total budget can grow, but for an individual program like state parks, they may not get any of that new funding," she said.

Comptroller Carole Keeton Strayhorn reported an $8.2 billion state surplus a couple of months ago. But since then lawmakers approved a net tax cut and increased education spending during a special session on school finance.

Legislative Budget Board figures show there will be a $10.5 billion, two-year shortfall in the school finance plans by 2009, causing some to warn of drastic cuts in areas such as higher education and criminal justice to make up the difference. Perry has said such projections underestimate the economic growth the tax cut will trigger.
jembry@statesman.com; 445-3654