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By R.G. Ratcliffe and Clay Robison
Houston Chronicle Austin Bureau
Tuesday, January 11, 2005
Higher revenue estimate greets 79th Legislature
Comptroller says lawmakers will have $6.4 billion more than in '03
AUSTIN - Two years after facing a devastating budget deficit, Comptroller Carole Keeton Strayhorn said Monday that when the legislative session begins today, lawmakers will have more money to spend than they did in 2003.
Strayhorn estimated legislators will have $64.7 billion in state revenue to spend in the upcoming two-year budget — $6.4 billion more than they had in January 2003.
But whether that means lawmakers are in the black for the 2006-2007 budget is in the eye of the beholder.
Gov. Rick Perry and legislative leaders told state agencies to cut 5 percent out of their current budget to use as a starting point for budget writers. This would put it in the black by billions of dollars, but the surplus would rapidly disappear as the Legislature added spending.
Strayhorn made estimates based on current state spending levels plus money to cover population increases in public schools and social services. She said that would leave a $400 million surplus.
But advocates for the poor said Strayhorn's revenue estimate is at least $7 billion in the red if the state wants to maintain current services and restore cuts made during the 2003 session. And that does not include increased funding for Child Protective Services, teacher health insurance or to lower public school property taxes.
The Legislature for years started with a baseline budget of what was spent in the previous two years plus the cost of inflation and population growth. Lawmakers in 2003 changed to a zero-based budget in which any growth had to be added in the appropriations process. That turned the definition of a current services budget into a moving target.
Strayhorn's estimate of tax and fee revenues is the official number used by the Legislature in drafting the two-year budget.
The 2003 session opened with clear budget numbers for lawmakers: economic unrest had created a flood of red ink.
There was a $1.8 billion deficit in the 2002-03 budget and a projected shortfall of $8.1 billion in what was needed to maintain state services in the 2004-05 budget. Lawmakers made up the shortage by raising $2.7 billion in fees, allowing universities to set their own tuition and by making deep cuts in state programs.
The Texas Public Policy Foundation said Strayhorn's revenue estimate proved lawmakers in 2003 did the right thing by cutting the budget rather than raising taxes.
But the Center for Public Policy Priorities, which advocates for the poor, said lawmakers now are facing a budget that will require billions of new dollars to maintain current services and to restore cuts made in 2003 in programs for the poor.
Comply and complain
"People just aren't facing reality," said Scott McCown, executive director of the policy center. "The bottom line is that Texas needs much more new revenue to draft a budget that will even come close to meeting the state's basic needs."
Perry said the budget is in the black. He said the state has an additional $6 billion in spending available because he and legislative leaders asked state agencies to submit proposed budgets that included a 5 percent across-the-board reduction in state spending. Those new cuts would be made on top of those made in 2003.
State agencies complied but complained. For instance, the Texas Department of Criminal Justice said a 5 percent cut to the prison budget "would have a profound effect on our ability to securely and safely house, feed, clothe and provide health care to those offenders incarcerated in TDCJ."
Perry also declared increased funding for Child Protective Services and public school finance as emergency issues for the Legislature. Those two issues alone would require additional state revenues.
Just last week, Perry asked for a two-year increase of $253 million in state funds for Child Protective Services in the wake of well-publicized failures in the system.
The total state budget for 2004-05 was $118.2 billion. About half the budget consists of either federal funds for specific programs or dedicated state funds. The Legislature determined how $58.9 billion in state revenue was spent.
Strayhorn said an economic recovery is mostly responsible for her estimating a starting-point budget in the black. She said a surplus in the current budget plus tax and fee revenue growth will provide $6 billion to cover the increased costs of current services.
"Our economy has picked up. While we're not going at the blistering pace of the go-go days of the 1990s, we are going to have good, steady growth," Strayhorn said.
Addressing one of the session's most expensive items, Perry, Lt. Gov. David Dewhurst and House Speaker Tom Craddick all said they could support a new, broad-based business tax to help fund public schools and cut local property taxes.
But they admitted they have not agreed on what type of business tax. In separate appearances, all three addressed a pre-session conference of editorial writers and reporters sponsored by the Associated Press.
Only one in six Texas businesses pays the corporate franchise tax, the state's main business tax. Perry once again ruled out a business payroll tax, which he opposed during last spring's unsuccessful special session on school finance.
All three leaders predicted rough sledding for proposals to expand gambling, including the legalization of video slot machines at race tracks and on Indian reservations. The slot machines were part of an education funding plan proposed by Perry last spring but met strong opposition in the House, particularly from Republican legislators.
"I don't see a lot of support at this point in time for casino-style gambling in the state of Texas," Perry said. It would require a constitutional amendment, which must be approved by two-thirds votes in the House and the Senate to get it on a statewide ballot.
The Texas Constitution requires tax bills to originate in the House, but Dewhurst said the Senate will have the outline of a new school funding plan ready for discussion this week.
He said it would cut local school property taxes by one-third, create a broad-based business tax and most likely increase the state sales tax rate, with low-income Texans receiving sales tax breaks.
Dewhurst said the Senate plan won't tax sole proprietorships and probably won't include gambling.
State Sen. Florence Shapiro, R-Plano, chairwoman of the Senate Education Committee, said she will propose a statewide property tax to replace local school taxes. She said she wants to increase overall public education spending by $2 billion over the next two years.
Strayhorn, who is positioning herself for a possible challenge to Perry in the 2006 Republican primary, repeatedly used her revenue estimate news conference to take shots at the governor. She said Perry has been a failed leader on overhauling the school finance system.
Leadership 'shortfall'
"No matter how strong our economy is, fixing our broken school finance system cannot be done within our existing revenue estimate," Strayhorn said. "There is no shortfall when it comes to the budget. There is a shortfall when it comes to the governor's leadership."
Strayhorn said Perry needs to immediately restore funding for the Children's Health Insurance Program, fully fund teacher health insurance and give teachers a $3,000-a-year pay raise.
Those proposals would cost almost $3 billion more than her revenue estimate, but she said they could be funded by adopting a $1 a pack increase in the cigarette tax, legalizing video lottery at horse racing tracks and closing franchise tax loopholes.
"The governor (in 2003) championed a budget with $2.7 billion in new fees and charges and out-of-pocket expenses, and balanced the budget right on the backs of our school teachers and our most vulnerable Texans," Strayhorn said.