Saturday, December 19, 2009
By Jason Embry
AMERICAN-STATESMAN STAFF
Legislative leaders eye spending cuts to deal with looming budget hole
Because of shrinking revenue, Texas may need $15 billion to balance budget.
Legislative leaders might soon ask universities, regulators, state parks and other branches of state government to trim their spending as Texas starts to prepare for a years-in-the-making budget shortfall.
Surging sales tax receipts and booming oil prices in the middle of the decade, along with lawmakers' reluctance to spend, allowed billions of dollars in state reserve funds to stockpile.
The passage of a federal stimulus package this year gave the state an injection of federal dollars and kept the reserve funds piling up, even as the national economy took a nose dive.
But lawmakers have allocated those stimulus dollars, oil prices are back down, and sales tax collections are plummeting. So Capitol leaders are once again discussing ways to cut back state services.
Lt. Gov. David Dewhurst is floating a plan to ask state agencies to cut spending about 2.5 percent or more per year over the next four years. Health and human services programs and public schools — two giant staples of the state budget — would be exempted, he said.
Dewhurst said the cuts would help the state leave some of its reserve funds — optimistically, $4 billion to $6 billion — unspent at the end of the 2011 legislative session.
"We can't spend down to zero," he said.
Dewhurst expressed confidence that the cuts would not be severe. But leaving as much money unspent as he wants could prove difficult.
As compared with a year earlier, sales tax collections were down 14.4 percent in November, and those kinds of returns have hastened budget-cutting talk. But what's really driving the conversation is a decision that lawmakers made in wealthier times to put property tax cuts at the top of the state's permanent priority list.
In 2006, facing an order from the Texas Supreme Court, lawmakers passed a one-third reduction in school property taxes for operations, committing the state to spend $7.1 billion every year to hold those taxes down. But the tax increases that lawmakers passed at the same time to replace that money — most notably a revamped business tax — produce less than $3 billion per year.
So every two years, the state has to pull more than $8 billion away from other priorities, such as public schools, universities or prisons, to pay the rest of the cost of property tax cuts. Doing so wasn't too difficult when the state had surpluses, but now that they're gone, the property tax cuts threaten to eat up any revenue growth the state sees, even though many homeowners never saw much of a decrease in their tax bills.
To meet the state's commitment to hold down property taxes, to pay for an increasing number of people enrolling in public schools and colleges and joining Medicaid rolls and to replace the stimulus dollars used to pay for the current budget, lawmakers in 2011 might have to come up with $15 billion or more to balance the budget, which now totals $182 billion over two years.
That's a daunting number, but Dewhurst said he is convinced the state can close that gap without severe cuts in state services. After all, the state could have as much as $11 billion in reserve funds available to balance the budget, although two-thirds of the Legislature has to agree to use that money, and that could be a tough sell.
An upturn in the stock market in recent months will probably make more money available from state investments, and an economic recovery in 2010 and beyond could bring in billions of dollars of new money as sales tax collections start to pick up.
It was Dewhurst who, in 2007, resisted calls from Gov. Rick Perry to use a state surplus on further tax cuts and calls from some Democrats to spend that money on state programs. Had Dewhurst listened to either side, the budget gap could be billions of dollars larger.
Because the cost of keeping down property taxes isn't going anywhere — in fact, thanks to an additional tax cut for small businesses that lawmakers passed this year, it's getting more expensive — Dewhurst wants to tell agencies to trim their spending so lawmakers will have some money left over for the budget that they'll have to balance in 2013. He'd like to get House Speaker Joe Straus to sign on to a letter instructing them to do just that.
"I don't have an agreement worked out yet with the speaker, other than he knows that I've gone through this several times and he's new to this," Dewhurst said. "I'm hoping that he will work with me."
State leaders ordered 7 percent cuts in 2003. Dewhurst has said he does not think balancing the budget in 2011 will require cuts in services as deep as those enacted in 2003, when lawmakers cut myriad services.
In a statement relayed through a spokeswoman, Straus said the Legislature and agencies should look for ways to be more efficient.
"We are early in the process, and we will continue to take a close look at economic forecasts before deciding on specific numbers," he said.
Under the parameters laid out by Dewhurst, a 2.5 percent annual reduction in spending would save about $400 million per year.
"They forget that all of these programs need more money to stay in the same place," said Eva DeLuna Castro of the Center for Public Policy Priorities, which advocates more spending on programs that aim to help low-income Texans. "Even if you just do what you're doing now, it's going to cost more, because of inflation. So it's like a double cut."
The state's worsening budget outlook will make it more difficult for state leaders to reach some of their stated goals, such as building up more flagship universities, DeLuna Castro said. Reducing waiting lists for state services is also likely to become more difficult.
And even though it is the state's effort to restrain property taxes that is causing much of the projected shortfall, that effort could result in higher property tax bills because the state will have fewer dollars to help school districts, community colleges and other forms of local government cope with cost increases, she said.
While some of the Capitol's best minds are already taking a hard look at the budget shortfall, it's not getting much attention so far on the gubernatorial campaign trail.
Perry has focused on highlighting the fact that Texas has not seen the budget crises experienced by many other states. And nobody running against him has suggested that the state needs to raise taxes or find other ways to take in more money.
In fact, U.S. Sen. Kay Bailey Hutchison, Perry's top challenger in the March Republican primary, has argued that the Texas budget has grown too quickly, but she has not identified ways to significantly reduce spending.
Perry, like Dewhurst, has sounded the call for restraint on the part of state agencies.
"It is time for state leaders and state agencies to sharpen their pencils and begin prioritizing their goals and their spending, because every penny we save during the current biennium is one penny closer to balancing the budget in 2011," he told a business group last month.
Asked whether the governor agreed with Dewhurst's call for cuts in the neighborhood of 2 percent, Perry spokeswoman Allison Castle said, "It's a step in the right direction."