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John O’Brien

The hole keeps getting deeper

I’ve said multiple times that even if we survive the 2011 legislative session, the budget problems we’ll be dealing with next year aren’t going away. The reason for that is because we have a structural deficit, as the giant unaffordable 2006 property tax cut was supposed to have been paid for by the new business margins tax plus a few other things. The problem is that the new revenues have never come close to making up for the cuts, and that gap keeps on growing.

The Legislature’s top budget-writing staff member told a panel Wednesday that the built-in fiscal gap the state faces is nearly $5 billion a year. While they knew that a reworked business tax meant to make up for a large chunk of property tax cuts has sputtered, legislators hadn’t been told in such precise – and stark – terms how big the problem was.

“We expected that of the $7.1 billion a year in property tax relief that the state paid for, that the revenue increases would cover about 60 percent of that,” John O’Brien, director of the Legislative Budget Board, told a newly created House panel. “As it turned out … the new revenue covers about 36 percent of the change in state spending.”

O’Brien, testifying before the House Select Committee on Fiscal Stability, which Speaker Joe Straus created in January to see if shortfalls are mostly recession-driven “or a more systemic problem,” said higher taxes on smokers and some businesses and used-car purchasers have produced $2.5 billion a year. That’s less than an expected $4.2 billion, he said.

Overall, that leaves a $4.6 billion annual gap, he said.

It’s certainly possible that the current economic situation is exacerbating the problem, but let’s be clear about this: We knew from the beginning that the margins tax would fall short of projections. In other words, the hole came pre-installed. This is a big part of the reason why we are still trying to get school finance right, and it’s the top issue the Lege has to face. We can fix it now or fix it later, but one way or another we need to fix it.