September 12, 2010
Texas faces a budget gap of historic proportions over the next two years – nearly $21 billion, some state leaders are saying for the first time.
But the race for governor has been more about tax returns and land deals than the nitty-gritty of how to align state expenses with income.
Neither Republican incumbent Rick Perry nor Democrat Bill White has offered many specific suggestions on what to cut or how to raise more revenue. With the exception of a few Democratic lawmakers and House Republican leaders, who have sounded their party’s only note of alarm, state politicians mostly talk in platitudes about waste and loopholes.
Retired deputy state comptroller Billy Hamilton says the reason is simple: “I’ve worked for politicians most of my adult life, and I never knew one to say ‘Oh, no, there’s this huge problem and I haven’t got the first idea on how to deal with it.’ “
The budget picture is political peril for both Perry and White. The governor touts his economic stewardship of the state and his ability to govern through tough times, but the growing shortfall raises questions about whether the state is as strong as he says. White uses the issue to bash Perry’s leadership, but with few specifics of his own, he may not convince voters he’s ready to confront the problem.
And neither says much about one of Texas’ chief underlying budget problems: The state is on the hook for more money for school districts, thanks to a 4-year-old school finance plan that doesn’t include enough state taxes to make up for the costs.
“There’s either a politics of denial going on or there’s just a real disconnect on the way our budget works and the state of our economy,” said House Ways and Means Committee Chairman Rene Oliveira, D-Brownsville.
Oliveira has echoed Republican Rep. Jim Pitts of Waxahachie in warning that dire trouble lies ahead.
“The depth of the recession and the problems that the recession has caused in other states appear to be mythical to Texans and to some of our elected officials,” he said. “They’re not a myth, [and] we’re not going to escape.”
New assessments, obtained by The Dallas Morning News after a recent huddle of senior legislative staff members, show that even if lawmakers decide to spend all $9 billion in the state’s rainy day fund, they still would need to come up with almost $12 billion more to close the gap – through some combination of spending cuts, accounting tricks and new taxes or fees.
The figures, prepared by staff at the Legislative Budget Board and then tweaked by House leadership, show the situation has deteriorated since spring.
In May, Pitts, the House’s chief budget writer, drew derision from some GOP leaders when he said the shortfall could be between $15 billion and $18 billion. Perry said someone had “reached up in the air and grabbed” the figure.
The latest figures, though, show the gap as high as $20.6 billion.
Revenue is not rebounding quickly from the economic downturn, as Comptroller Susan Combs predicted it would. Population is expected to keep growing rapidly, which swells demand for education and social services, already high because of the recession.
Also, medical inflation is assumed to be robust through 2013 – a major burden, given how many employees, retirees and inmates receive health coverage or care through the state.
With more than four-fifths of the budget usually wrapped up in health care and education, the Legislature has few easy choices.
Even if it eliminated four agencies – agriculture, the attorney general’s office, Parks & Wildlife and the Workforce Commission – that would save slightly more than $1 billion. But that still would fall far short of needed cuts, if the Legislature’s number crunchers and House leaders are right.
On Friday, Perry for the first time acknowledged that there’s a fiscal emergency.
“You’d have to be deaf, dumb and blind not to understand that we have a major financial crisis on our hands,” he said.
The governor blamed federal spending under President Barack Obama, though he did not explain how that contributes to the state shortfall.
Perry stressed that he’s confident Texas again will bridge the revenue gap – as it did in 2003 – by “making prioritizations.”
“I’m not particularly concerned,” he said. “At the end of the day, we will have a balanced budget, without raising taxes.”
White, perhaps the most competitive Democratic nominee for governor in more than a decade, has accused Perry of financial mismanagement.
Still, although White criticized Perry last week for being “silent” on expected revenue and expenditures, the former Houston mayor has talked more about costs he squeezed at city hall than state programs he’d cut or how he’d raise more money.
White has said he favors looking at whether some state tax exemptions are outdated, a study now being conducted by Oliveira’s committee.
But he hasn’t said which exemptions he’d end and has shunned traditional revenue-raising proposals, such as an income tax, an increase in the 6.25 percent sales tax rate, or expanding the sales tax to services.
On the spending side, the only specific cuts White has proposed are aimed as critiques of Perry. He would cut the Texas Enterprise Fund – Perry’s treasured money for closing deals with businesses to create jobs – and eliminate a $22 million tourism ad budget controlled by the governor’s office.
“Bill has given very detailed answers on his approach to the budget,” White spokeswoman Katy Bacon said. “However, he must get under the hood to see the whole picture.”
Last week, Combs, the Republican comptroller, confirmed that revenue fell $1.3 billion short of her forecasts for the year that ended Aug. 31. In the year that began this month, revenue is likely to be less than she estimated in January 2009.
Normally issued at the start of legislative sessions, her estimate caps how much the state can spend in the next two-year cycle.
Only days earlier, Sen. Kirk Watson, D-Austin, requested that Combs refresh her estimate to reflect deepening economic woes. Under the state Constitution, she may but is not required to do so. And Combs, known as a team player among the state’s GOP leaders, probably won’t.
“We’ll be updating the revenue estimate in January,” Combs spokesman R.J. DeSilva said.
The Senate’s chief budget writer, Steve Ogden, R-Bryan, blasted Watson’s request as “just a political effort to give ammunition to the Bill White campaign.”
Perry also dismissed the request as “bizarre,” a break with standard procedure. But speaking of the looming crunch, the governor said, “I’m not downplaying it at all.”
Perry noted that leaders have ordered $1.2 billion of cuts in the current two-year cycle.
White, though, has said Perry should have moved more swiftly, starting the belt tightening months earlier. And Watson said it’s state leaders who, by refusing to come clean about the crisis, “make it look political.”
Hamilton, who served three state comptrollers, said Texas has “a very lean budget by comparison to almost any other state.” But it’s still in trouble, Hamilton said.
He pointed to one group’s finding that next fiscal year, the shortfall could be equal to 12 percent of what the state is spending this year, higher than in four other large states – Ohio, Florida, Pennsylvania and Michigan.
Hamilton said a fuller discussion would “lubricate the system” and lead to better informed decisions by lawmakers next year.
Oliveira said teachers and others dependent on state government would be better prepared for bad news – possibly, layoffs and furloughs.
Hamilton, though, said he sympathizes with the candidates.
“The magnitude of the problem is very large, and if you had to explain what you were going to do about it, you’d have to have a 75-slide PowerPoint presentation and two hours to talk about it,” he said.
“Modern politics doesn’t lend itself to [that]. It’s, ‘Oh, we’re going to cut the fat. Oh, we’re going to close loopholes.’ That’s what people want.”