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Susan Combs

What radicals?

I was reading this Patricia Kilday Hart column about how nobody outside Texas paid attention to the sonogram bill until the Virginia brouhaha and the Doonesbury series, which is a good albeit frustrating read, when I came across this bit that was frustrating for an entirely different reason:

In the Texas Legislature, votes like Davis’ – outside party lines – are increasingly rare, according to research conducted by Dr. Mark Jones of Rice University’s Baker Institute.

Jones has data to prove what most of us know by gut instinct: The Texas Legislature has become a more polarized institution in recent decades.

In the past, lawmakers of both parties would overlap on the conservative-liberal spectrum. Now, both parties are dominated by their extremist wings. Moderate Republicans oppose ideologically charged issues like the sonogram bill “at their peril,” Jones says.

Oh, for Pete’s sake. Please, Professor Jones, tell me who these people are that have radicalized the Democratic Party. I mean, I don’t know who you talk to, but I know an awful lot of folks who will laugh in your face if you suggest the Democratic Party has moved appreciably to the left in recent years. Tell me also what positions the Democratic Party has taken that are noticeably more extreme than they used to be, and what legislation they have been pushing to further those radical ends.

These questions are easy to answer for the Republican Party. For who the radicals are, start with Dan Patrick, Debbie Riddle, Wayne Christian, and most of the people that got elected in the 2010 wave. Oh, and Rick Perry, David Dewhurst, Greg Abbott, and now Susan Combs, too. Just compare the David Dewhurst who is running for US Senate to the one who presided over the Texas Senate in 2003, as a for-instance. The GOP as a whole has gone from a position of generally opposing abortion to a full-fledged attack on birth control and family planning, and from a position of generally supporting lower taxes and fewer regulations to opposing any tax increase on anything for any purpose, pushing huge tax cuts for the wealthy, cutting public education, and seeking to end Medicare. There’s quite a bit of polling data to suggest that they are sprinting towards a cliff by embracing these more radicalized stances, but even Republicans with a mostly moderate history are doing so because it’s what their base is demanding and they fear their primaries more than they fear their Novembers.

My point is there’s just no comparison. The Democratic Party has moved left on some things, most notably marriage equality, but it’s been a gradual shift that’s in line with previously held views on civil rights, and more to the point it’s consistent with national polling. The Republicans have moved way, way more to the right, and it’s happened almost entirely in the last two years, despite a plethora of polling evidence that should warn them against it. The “both sides do it” trope is ludicrous on its face. Why is this so hard to recognize?

Comptroller Combs’ slush fund

It took me longer than usual to read this story because I kept having to stop to say “Seriously? Seriously?”

This guy knows something about free government money, too

When lawmakers gave Comptroller Susan Combs more power to spend tax money to attract sporting events and conventions to the state, the idea was to generate economic development in Texas that might go somewhere else.

But in recent years Combs has used that power to approve millions of dollars in expenditures on events that originated here and don’t appear to be leaving Texas anytime soon.

Over the last two years, Combs, a Republican, has signed off on spending $2 million in state tax money to help defray the costs of the Cotton Bowl, a postseason college football game held in the Dallas-Fort Worth area since 1937; $1.5 million to help finance the Alamo Bowl college football games, played in San Antonio since its inception in 1993; and $2 million to stage two NASCAR auto races — the AAA Texas 500 and the Samsung Mobile 500 — that were specifically designed for Texas Motor Speedway in Fort Worth.

Several horse associations in Fort Worth and Amarillo have also used such funds to defray costs of events held in those cities year after year — funds that went directly to the private associations hosting the shows, officials say.

Combs’ office says the event fund expenditures, which hit an all-time high of $78 million last year, are authorized by the Legislature and supported by the cities in which events are being held. The cities also say the fund has been an invaluable tool in attracting and retaining marquee events.


“Looking at some of those events, clearly they already would have been here already, so why are we spending tax dollars to bring them here?” said Texas Land Commissioner Jerry Patterson, a Republican who has repeatedly questioned Combs’ oversight of the tax incentive funding. “Is this Susan Combs’ slush fund? We need to know that. And who is doing the oversight?”

Well, the Legislature, obviously. Clearly, they need to rewrite the law that created this loophole so as to tighten it up. You almost have to admire Combs’ brazenness here. So many of the examples cited don’t come within a mile of passing the laugh test. I mean, by the logic being employed, Combs should be cutting a check every year to all of the state’s pro sports franchises as insurance that they don’t relocate. You would think that this sort of unfettered largesse would offend some conservatives’ principles, and frankly I won’t be surprised if someone other than Patterson, who may be Combs’ rival for the Lite Guv nomination in 2014, piles on. If nothing else, I’d say we’ve identified a source of money for Governor Perry to use on his state-funded replacement for the Women’s Health Program, if he actually is sincere about that. In the meantime, may I suggest that the Comptroller throw a few bucks at Harris County to ensure that no one drives off with the Astrodome in the middle of the night? Thanks.

That’s hitting them where they live


Elizabeth Ames Jones

Railroad Commission Chairman Elizabeth Ames Jones vacated her office when she moved from Austin to run for the state Senate, and she should not be continuing to collect her monthly salary, a lawsuit filed [last week] alleges.

In the suit, Austin attorney and former Travis County Judge Bill Aleshire alleges that Jones’ move of her official residence to San Antonio on Nov. 1 to run in the Republican primary against state Sen. Jeff Wentworth violated a constitutional requirement that Railroad Commission members live in the capital city.

In order to run for the Texas Senate, Jones had to live in the district — which stretches from South Austin to San Antonio. Since she was appointed to the Railroad Commission in 2005, she has lived in a Tarrytown home that is not located in the Senate district.

Because she is no longer eligible to serve on the Railroad Commission, which regulates Texas’ oil and gas industry, she should no longer be getting a state paycheck, according to the suit.

“When an officer is prohibited by the constitution from discharging the duties of her office, her term in office has fully and finally ended, she cannot be a de facto officer and is nothing more than an interloper,” the filing by Austin attorney Doug Ray states, alleging that Jones is now being paid “for duties she is constitutionally prohibited from discharging.”

While the suit seeks to stop her paycheck, the suit does not name Jones as defendant — but instead was filed against Comptroller Susan Combs, who signs state paychecks. The law firm of Austin attorney Buck Wood, who has represented Wentworth in the past, filed the suit on behalf of Aleshire because the former judge is a taxpayer and has a legal interest in “seeing that his tax funds are not spent illegally.”

You can see a copy of the suit here. As the Trib notes, Jones has asked AG Abbott for an opinion on the matter. I’m no lawyer, but this is what the Constitution has to say:

Sec. 23. COMPTROLLER OF PUBLIC ACCOUNTS; COMMISSIONER OF GENERAL LAND OFFICE; ELECTED STATUTORY STATE OFFICERS; TERM; SALARY; FEES, COSTS AND PERQUISITES. The Comptroller of Public Accounts, the Commissioner of the General Land Office, the Attorney General, and any statutory State officer who is elected by the electorate of Texas at large, unless a term of office is otherwise specifically provided in this Constitution, shall each hold office for the term of four years. Each shall receive an annual salary in an amount to be fixed by the Legislature; reside at the Capital of the State during his continuance in office, and perform such duties as are or may be required by law. They and the Secretary of State shall not receive to their own use any fees, costs or perquisites of office. All fees that may be payable by law for any service performed by any officer specified in this section or in his office, shall be paid, when received, into the State Treasury.

Emphasis mine. Seems pretty clear-cut to me: To hold statewide elected office, one must live in Austin. Austin is not in SD25, however, so we have a contradiction. And what does Commissioner Jones say in her defense?

While Jones has acknowledged that the Constitution says statewide officials should reside in the “capital of the state,” she argues that because the language is vague, it cannot be enforced.

Vague? Seriously? Again, I’m no lawyer, but “any statutory State officer who is elected by the electorate of Texas at large” and “shall…reside at the Capital of the State during his continuance in office” sure look clear to me. I’ll grant that it doesn’t specifically mention the Railroad Commission, but I daresay the folks who drafted this thing included that “any statutory State officer” bit because they realized that the composition of the state’s government may change over time. Just ask our State Treasurer about that. Let me say this: If there’s any evidence that any prior Railroad Commissioner – or Ag Commissioner, or any other “statutory State officer who is elected by the electorate of Texas at large” – did not reside in Travis County during his or her time in office without anyone kicking up a fuss about it, then I’ll concede the point. If not, I don’t see what leg she has to stand on. Judging by her lawyer’s pound-the-table response in the original story, I’d say she knows it, too. We’ll see what the court and the AG have to say.

State revenues inching up

A little bit of good news.

State coffers will be bit plumper than previously expected, Comptroller Susan Combs announced Monday, but her outlook for the Texas economy is less optimistic.

Texas is estimated to collect $1.6 billion more than was budgeted for 2012-13, the two-year budget that started Sept. 1. The comptroller’s report provides the first official state revenue update since January.


The driving force behind the additional state dollars is improved sales tax collections, particularly in the oil and gas industry, according to the report.

Sales tax revenue from the mining industry, which includes oil and gas, was up 72 percent in the previous fiscal year. The industry also created 17.3 percent more jobs, while the rest of Texas’ industries combined had job growth of 1.9 percent .

But Combs cautioned against expecting that kind of robust growth going forward. Industry job losses in 2013 are expected to wipe out any gains in 2012, she said.

“The Texas unemployment rate — as low as 4.3 percent in early 2007 — is now at 8.4 percent and giving no indication of receding rapidly,” Combs said.

You can see Combs’ letter to state leaders about her revenue update here. This is better than the alternative, but it’s not going to do much to mitigate the cuts we experienced this spring. Mainly, if things continue on this pace, it means that at least the next Lege won’t have to start out by closing a deficit left over from the prior biennium, as this one did. Make sure you understand that when you read stories like this.

After a long run of tough times brought on by a sour economy, Texas lawmakers got some good news Monday as the state’s chief fiscal officer projected a $1.6 billion surplus that could provide a much-needed financial cushion for the next session of the Legislature.

The windfall available for the fiscal biennium that started Sept. 1 was generated by better-than-expected state revenue. It could enable lawmakers to partly offset a $4.8 billion shortfall in Medicaid and soften some other cuts enacted during the 2011 Legislature, analysts said.

The new projections by Comptroller Susan Combs will make things easier for budget-writers at the outset of the next legislative session in 2013, although lawmakers will still face a host of financial challenges.

Combs projected available revenue of $82.7 billion by the time the biennium ends on Aug. 31, 2013, which would give the state a $1.6 billion balance over the $81.1 billion in the two-year budget approved by this year’s Legislature.

Lawmakers entered the 2011 session facing one of the biggest shortfalls in years.

They ultimately enacted an austere budget that cut spending by $15.2 billion over the previous biennium and reduced state aid to public education by $4 billion.


Dale Craymer, president of the business-supported Texas Taxpayers and Research Association, said Combs’ report offers good news for lawmakers. In passing the $172.3 billion budget, lawmakers left Medicaid underfunded by $4.8 billion and expected to tamp down the shortfall by drawing from the state rainy-day fund in 2013. Craymer said lawmakers can use the surplus to partly meet the Medicaid obligation.

Combs projected that the rainy-day fund will reach $7.3 billion by the end of 2013.

Eva DeLuna Castro, an analyst for the Center for Public Policy Priorities, which advocates for programs for low-income Texans, said the surplus means that lawmakers “will have a little left over” to deal with Medicaid and restore $250 million in general revenue cuts. But she said the amount is not big enough to deal with broader financial issues, including state policies that critics say have created a permanent “structural” deficit. She called Combs’ projection “mediocre at best.”

This report has to do with this biennium. Other than ensuring that there should be enough in the Rainy Day Fund to handle the massive Medicaid short-changing and not requiring a second dip into the RDF to close the books on this chapter, it doesn’t really tell us anything about what conditions to expect for the next biennium and the budget that legislators will have to write for it. I fully expect there will still be a large deficit, quite likely another eight-digit shotrfall, because the underlying structural deficit of the business margins tax not paying for the 2006 property tax cuts is still there. Some healthier sales tax numbers aren’t going to make a dent in that. We also have no idea what may result from the various school finance lawsuits, but since they will be arguing (among other things) that the state is not adequtely funding public education, you can expect that to put some pressure on lawmakers to find more revenue. And of course the kind of lawmakers we have in place for when that comes up will have a huge effect on the kind of solutions, or “solutions”, that are found. We’ve got a long way to go before things change.

The Rick Perry bailout

I don’t think I’d ever heard about this before.

Over his eight years as Texas’ [Agriculture Commissioner], [Rick] Perry oversaw a loan guarantee program with so many defaults that the state had to stop guaranteeing bank loans to startups in agribusiness and eventually bailed out the program with taxpayer money.

The state auditor panned Perry’s claims of creating jobs and criticized Perry and his fellow board members at the Texas Agricultural Finance Authority for not following their own lending guidelines.

In some instances, the auditor said, Perry and the authority guaranteed loans to applicants with a negative net worth or too much debt. Citing growing debts, the auditor finally suggested that state officials consider dismantling the program.

Even as the first alarms were sounded, Perry defended the program, saying no taxpayer money was at risk, blaming others and claiming he had fixed it.

It only got worse.

By 2002, Perry’s successor, Agriculture Commissioner Susan Combs, a Republican, stopped making loans as the percentage of bad loans neared 30 percent.

By 2009, her successor, Agriculture Commissioner Todd Staples, also a Republican, asked the Legislature to pay off the loan guarantees with a $14.7 million appropriation. The finance authority could no longer afford the $541,000 to cover the annual interest on the bad debts, almost all of which dated back to Perry’s tenure.

“It’s bad,” Staples told the American-Statesman at the time. “Unfortunately, taxpayers are on the hook for something that happened as long ago as 1987.”

In effect, Perry, as governor, signed his own government bailout when he approved the 2009 appropriations bill.

Read the whole thing, it’s quite interesting. The amount of money needed to close the books on this program wasn’t very much, but it’s clear that it was entirely Perry’s responsibility as Ag Commissioner, and that he spent a lot of effort defending his sinking ship. And I’m amazed that I’d never heard of this before now. You wonder how the 2010 campaign might have proceeded if “Rick Perry authorized his own bailout” had been part of it. Maybe we’ll get some idea about that next year.

Don’t expect the next budget to be any better than this one

Continuing a theme I’ve harped on here, if state legislators thought that they solved Texas’ budget issues this year they are sadly mistaken.

Some experts say Texas tax revenues must zoom far above forecasts, if we’re to escape another miserable budget session in 2013. But the state’s leading forecaster on Wednesday offered little hope that will happen.

“The year of ’12 is not going to be a great recovery year,” John Heleman, chief revenue estimator for the Texas comptroller’s office, testified at the House Ways and Means Committee. He was referring to the fiscal year that began this month and ends Aug. 31, while answering a question from Kerrville GOP Rep. Harvey Hilderbran, the panel’s chairman.

“It’s still going to be flattish [and] soft,” Heleman said.

That could mean, if you check out the bottom half of this post I had earlier this month, that we’re sailing into fiscal headwinds in trying to keep up with the education, health care and transportation needs of a growing state. True, as Hilderbran pointed out, recent revenue numbers have looked good. Final but unofficial figures for fiscal 2011 show sales tax receipts increased by 9.4 percent over the previous year, which was — in a word — ugly. Fiscal 2010 included December 2009, which “marked the low point in Texas employment” during the Great Recession, Heleman said in a written presentation. In the just-ended fiscal year, Texas consumers and diners spent about 5.5 percent more on retail and restaurant purchases, he testified. The reason overall sales tax receipts leapt by 9.4 percent was “supercharging” from a burst of oil and gas drilling activity, some decent manufacturing growth and a bit of an uptick in at least parts of the construction industry, said Heleman.

This fiscal year, though, he sees “probably a little bit less than” 5.5 percent growth in retail and restaurant sales. As for the energy exploration and production sector’s purchasing, “it’s actually just going to flatten out — at higher levels,” he said. But that won’t grow, in percentage terms, the way it did last year.

Click on that link referenced above, and you learn the following bit of cheery news:

In the 2013 session, the budget gap may very well turn out to be as large. The economy’s recovery is slow, and lawmakers this year exhausted many of the available, one-time-only fiscal remedies — such as delaying state payments and speeding up tax collections. They also punted a $4.8 billion Medicaid IOU to next session. Yes, this time they could do that because they left about $6 billion in the rainy day fund. But next time? Probably a non-starter.

If revenue doesn’t run well ahead of forecasts for the next two years, and keep growing strongly for the two years after that, then “2013 will pretty much be a re-run of the 2011 revenue shortfall – with a 24 percent gap, instead of 27 percent,” said Eva DeLuna Castro, budget expert at the center-left Austin think tank the Center for Public Policy Priorities. That’s “back of the envelope,” but still pretty alarming, she said.

But don’t worry. The legislators will always have flim-flammery available to them.

In a report released this week, Comptroller Susan Combs illustrates the trickery that legislators and Gov. Rick Perry used to get there. That’s because lawmakers assess fees under the guise that they will be used for a specific purpose — to help low-income residents pay electric bills, for instance — but then leave much of that money unspent to balance the state budget.

Combs’ report shows the problem is getting worse. The state will leave $4.9 billion unspent in its dedicated accounts over the next two years, up from about $4.1 billion in the previous budget.

The unspent balances include $851 million that comes from fees on electric customers and is supposed to help low-income Texans defray their utility costs, $654 million meant to improve air quality and $388 million in an account for improving trauma facilities and emergency medical services. Technically, these dollars don’t get spent on other programs. But by sitting there unspent, they allow the state to show on paper that it has enough money to pay for the amount it budgets for education, health care and other high-cost programs.

That $851 million is of course the System Benefit Fund, which I’ve mentioned several times before. There’s also hunting and fishing license fee funds, which are supposed to go to the Parks and Wildlife Department, and there’s funds from the sale of specialty license plates, which are supposed to go to various non-profits. All that money is just sitting there, not being used for its intended purpose, because to do so would mean that it couldn’t be used to “balance” the budget. The end result is that these are stealth tax increases, passed because the purpose they were intended to serve was seen as worthwhile, but then not used for that purpose so the funds can then be counted along with general revenue even though they can’t be used as general revenue. A more honest approach would be to admit that we need more general revenue, not only for the things that general revenue provides for, but also so that these dedicated funds can actually be used for their intended purpose. Just another thing to think about when you go to vote next year. EoW has more.

What if they all lose?

Now that Rick Perry and David Dewhurst have decided they really want to be in that place they profess to hate so much, Washington, DC, there are a bunch of politicians behind them hoping to move up. Ross Ramsey wonders, what happens if Perry and Dewhurst lose?

What if Perry loses the Republican primary for president and comes home to finish his term? What if he wins the nomination and loses the general election? And what about Dewhurst? What if he loses and comes back to run the State Senate through the Legislature’s 2013 regular session?

They’d both be kind of cranky, don’t you think?

And what about all of those other state officials who’ve been thinking excitedly about what the near future might hold? If the governor and lieutenant governor lose their races, state senators wouldn’t be electing one of their own to handle the rest of Dewhurst’s term or, possibly, Perry’s. The statewide officeholders looking hard at campaigns for 2014 would have to tap the brakes, waiting to see what Dewhurst and Perry do.

The assumption is that Perry would not run for another term, but Texas pols have fallen for that one before. Kay Bailey Hutchison got talked out of a 2006 run for governor by supporters who told her they would back her in 2010 if she’d stay out of the incumbent’s way that year. She did, but Perry surprised her and a lot of other people when he decided to run again in 2010.

If he fails to win the presidency, he probably would not seek reelection as governor again in 2014, but you never know. And what about Dewhurst? The prevailing presumption is that Attorney General Greg Abbott will run for governor in 2014, but what about Dewhurst? If the lieutenant governor falls short in a United States Senate bid in 2012, he’ll still be in Texas. Would he run for re-election, or challenge Abbott and others for Perry’s seat?

First and foremost, there’d be no small amount of grim satisfaction taken by Perry and Dewhurst’s opponents. I don’t want to get ahead of myself, because there is way too much game left to be played, but there are an awful lot of people who’d like to see Rick Perry fall on his face. Not all of those folks are Democrats, either, not by a long shot. When you ask the “what happens if they lose” question, you’re really asking how do they handle the schadenfreude? Avoid it, or return fire?

As for the question of 2014, I would not assume that anyone will get out of Perry or Dewhurst’s way any more, especially after they’ve lost a race. Why would they, especially after having their campaigns in gear for over a year? They’ve been waiting a long time for this opportunity. How appealing is the idea of waiting till 2018 going to sound? Better to go down swinging than tuck tail between legs and go back to the same boring job they’ve been marking time in. I mean, it’s not like Todd Staples wants to be Ag Commissioner, or Susan Combs wants to be Comptroller. If they lose, they get to become high-priced lobbyists. Where’s the downside?

Perhaps this would be easier if Rick Perry resigned to run for President. But what are the odds of that happening? Rick Perry does what’s best for Rick Perry; everything else is at best a side consideration. If the folks he and Dewhurst are holding back want to change their station, it’s up to them. Either make your decision based on what you want to do, or live the rest of your life waiting for someone else to hand you an opportunity.

Patterson to run for Lite Guv

With Lt. Gov. David Dewhurst running for the Senate, everyone else in state government that’s been waiting for a chance to move up is undoubtedly making plans to do so. At the front of the line is Lanc Commissioner Jerry Patterson.

Jerry Patterson confirmed Tuesday night that he will run for lieutenant governor in 2014, making that announcement just hours after Lt. Gov. David Dewhurst said he’ll run for U.S. Senate in 2012.

Patterson, a former state senator, followed Dewhurst as Land Commissioner and wants to follow him again. Other Republicans have expressed interest in the post, including Comptroller Susan Combs and Agriculture Commissioner Todd Staples.

Click over to see Patterson’s statement. Obviously, there is no guarantee that Dewhurst will be successful in his Senate campaign. I think everyone would agree that his odds of defeat are likely to be greater in the primary than in the general, but the point is that there is a non-zero chance that David Dewhurst will not be taking the oath of office in the nation’s capital in 2013. If that happens, who can say for sure what he’ll do next? We were supposed to have a special election for KBH’s Senate seat some time last year, after all. Would Dewhurst want to stay on as Lite Guv if he loses next year? In particular, would he want to run for Lite Guv again in 2014? Admittedly, it’s hard to imagine, but stranger things have happened. I’d do the same as Patterson if I were in his position, but in the back of my mind I’d be a little concerned that this might not wind up being a primary for an open seat. You just never know. By the way, Todd Staples appears to be in, too. So’s Rep. Dan Branch, who would have the distinction of not currently being a statewide office holder.

Another way of looking at this is that we could have a very different state leadership in 2015 than we did this year, much as the leadership in 2003 differed greatly from that of 1999. Everyone knows that Greg Abbott wants to run for Governor; if one way or another this is Rick Perry’s last term in office, given all of the known and projected campaign activity it could be that the only current statewide non-judicial incumbent still in the same office in 2015 will be Railroad Commissioner David Porter. It’s usually foolish to make statements about an election this far in advance, but it’s quite clear that 2014 is going to be a change election in this state. Anyone even remotely thinking about running that year – and not just at the state level – should be thinking about it in those terms.

Perry vetos Amazon sales tax bill

Of course he did.

Gov. Rick Perry has vetoed legislation that was aimed at tightening the state’s rules on when online retailers must collect sales taxes on Texas transactions, the bill’s author said this morning.

Perry had earlier criticized Comptroller Susan Combs for moving to collect $269 million from for uncollected sales taxes.

State Rep. John Otto, R-Dayton, said Perry’s office told him the governor had vetoed the measure, House Bill 2403, but did not tell him why.


Otto stressed that his bill did not call for creating a new tax, but rather intended “to put into statute the current rules and practices of the comptroller,” Otto said. “The bill simply defines physical presence, well within the Quill supreme court decision.”

The bill was good public policy that would raise a little bit of much-needed revenue while making the playing field more level for ordinary retailers. Vetoing the legislation was mostly a bit of leftover spite from Perry’s tete-a-tete with Combs. What did you think would happen? The Trib has more.

We have a budget

Such as it is.

Budget negotiators met briefly this morning and voted 9-1 to adopt a conference committee report that cuts the state budget over the next biennium by $15 billion, or 8 percent. The total amount of funding from taxpayers, known as general funds, is $80.4 billion. The total expenditures for all funds, including federal money, is $172.3 billion.

Senate Finance Chair Steve Ogden, R-Bryan, and House Appropriations Chair Jim Pitts, R-Waxahachie, told reporters their respective chambers are expected to vote on the report as early as Saturday afternoon.

“We have covered the entire (2010-2011) biennial deficit and the budget is balanced for the next two years. And at the end of the day, that’s a pretty extraordinary accomplishment considering the challenge we were in,” Ogden said.

I suppose a Hollywood accountant might call this a “balanced” budget, but between the delayed payments to school districts, the $4.8 billion hot check for Medicaid, the fantasizing about federal waivers and higher-than-projected property tax revenues, it’s a budget built on cotton candy and hallucinations. And that’s before we consider the cost of slashing $4 billion from public education, which was the best case scenario for that. What still hasn’t been done is to figure out how to spread that $4 billion in cuts out over all the school districts.

Senate Finance Committee Chairman Steve Ogden, R-Bryan, said there’s a provision in the budget agreement that makes Foundation School Program payments to school districts contingent on the House and Senate agreeing on school finance.

“If there is not agreement … there’s no appropriations to the Foundation School Program. We’d have to come back in special session,” Ogden said.

Abby Rapoport has more on what the school finance options are at this point. I assume they’re strongly motivated to avoid having to go into a special session. But even if they do, there’s still the question of whether or not the Comptroller will certify the budget. Rep. Garnet Coleman has some questions for Comptroller Combs:

1. Will you evaluate the combined revenue and expenses of all major pieces of legislation regarding the state’s fiscal matters, not just the primary budget bill (House Bill 1), in determining whether or not Texas has passed a balanced budget?

The Legislature is deliberating numerous “fiscal matters” bills that have consequences on our state’s finances for FY 2012-13. In 2003, the last time Texas faced a massive budget shortfall, Comptroller Carol Keeton Strayhorn determined that the budget was a “’patchwork’ piece of legislation that depends on several other bills to determine some of the spending” for the FY 2004-2005 budget. (Source: Associated Press, “Strayhorn criticizes lawmakers for ‘smoke and mirrors’ budget,” June 5, 2003).

Which, if any, bills other than House Bill 1 do you anticipate your office evaluating in order to determine whether or not you will certify the Texas budget?

2. Will you certify $4.8 billion in Medicaid expenses if they are not paid for with revenue Texas can identify in its budget?

Wayne Pulver, an assistant director at the Legislative Budget Board, stated before the Texas House Committee on Appropriations on Monday, May 16 that, “it is our estimate that with these funding decisions, the bill is short $4.8 billion in general revenue.” (Source: Associated Press, “Texas budget plan kicks Medicaid funding problem down the road,” May 21, 2011.) It is your intention to certify the Texas budget as balanced, even if we are budgeting to pay for something we do not have the money to pay for?

3. If you cannot certify the $4.8 billion in Medicaid expenses, will you send the budget back to the House in which it originated to ensure Texas passes a balanced budget?

In 2003, Comptroller Carol Keeton Strayhorn refused to certify the state’s budget because it spent $186.9 million more in the FY 2004-2005 biennium than the state could count as available revenue. Governor Rick Perry, under a special provision inserted by budget writers, was able to use line-item veto authority to cut expenditures in the budget by $186.9 million. Comptroller Strayhorn was then able to certify the budget.

However, the current $4.8 billion shortfall in Medicaid expenses is over twenty-five times the size of the 2003 budget shortfall Comptroller Strayhorn originally did not certify. It is my request that, provided you do not certify the $4.8 billion in Medicaid expenses that remain unaccounted for in any legislation being considered by the Texas Legislature, you do not send the budget to the Governor to balance the budget.

It is our duty, as legislators, to pass a balanced budget. Should you determine that the budget is not balanced, I would request that you send it back to the House in which the budget originated, as prescribed by Article 3, Section 49a(b) of the Texas Constitution.

You can read Rep. Coleman’s full letter to Comptroller Combs here. A statement from the CPPP is here, and a statement from Rep. Mike Villarreal is here. Trailblazers and EoW have more.

Combs raises revenue estimate

Looks like Sen. Ogden and his fellow dreamers got their wish.

Comptroller Susan Combs added $1.2 billion to her estimate of state revenues, making that much more money available to budget writers who are scrambling for cash. She said the state’s income from sales taxes, motor vehicle sales taxes and oil production are all up, and that those numbers justified the increase in the amount available to spend during the 2012-13 budget.

That’s not enough money to settle the differences between the House and Senate — their budgets differed by $4 billion in education alone — but it’ll help. The House is scheduled to consider a package of finance bills on Wednesday; the outcome of that debate will determine whether the legislators writing the budget can finish their job this week, or whether the budget will have to be written in a special session this summer.

There’s still a big gap between the House and Senate budgets, and the final product is still going to suck. But every little bit helps, I guess. On a tangentially related note, see Nate Blakeslee.

Senate passes supplemental appropriation with extra rainy day funds

I guess I hadn’t realized that the Senate hadn’t gotten around to passing a bill to close the deficit from the last biennium, since the House had done that a long time ago amid a huge debate about using Rainy Day Funds, but it’s just now that they passed the House’s bill, with a little vig thrown in.

The Texas Senate approved a $3.97 billion draw on the state’s Rainy Day Fund to cover a deficit of the same size in the current budget, but not before rejecting efforts to add on a larger amount to help balance the 2012-13 budget.

Sen. Steve Ogden, R-Bryan, matched the size of the withdrawal to the size of the current deficit. But he asked the Senate to use more of the fund than the House used, casting aside other revenue sources that were in that chamber’s mix. If that prevails, it would mean a bigger draw on the Rainy Day Fund and would make an additional $855.9 million available for the next budget.


Ogden said the bill — HB 275 — isn’t supposed to finance the next budget. He limited the size of the draw on the savings account to the size of the deficit in the current budget. “I’m using the Rainy Day Fund for a single purpose, and that is to cover the current deficit,” he said.

Point being, and I confess I lost some of the details along the way in the fog, the deficit that needed to be closed was bigger than the total amount of Rainy Day Funds that the House voted to use, so the Senate version of HB275 frees up a bit more cash for this biennium. Not that much in the grand scheme of things, but we are well past the looking gift horses in the mouth portion of this session.

Whether the House will go along with this, and whether the two chambers can reconcile their budgetary differences remains an open question. A special session is not just a possibility at this point, it’s a near certainty – as Robert Miller points out, the House did not pass a Congressional redistricting bill before Thursday’s deadline, so at the very least there’s that. Ogden has suggested that a special session could be limited to school finance issues, meaning that other areas of the budget, including Medicaid, could be agreed upon before sine die. That now appears to be the case.

House and Senate negotiators have reached agreement on everything in the state budget except for public and higher education and a section of general provisions that can be used later to make sure the numbers in the budget balance.

They left some controversial issues — like funding for family planning — for later. And the leaders of the conference committee — Appropriations Chairman Jim Pitts, R-Waxahachie, and Sen. Steve Ogden, R-Bryan — said they need to resolve their differences over education quickly if they’re going to finish a budget during this regular session.

Time is running short. The conferees have to agree on a budget and coordinate that with other pieces of legislation that plug in, including a group of “fiscal matters” bills that generate money for the budget with cuts, accounting tricks and other measures, and on two bills that cover a nearly $4 billion deficit in the current budget, which runs through the end of August.


Lawmakers are also hoping Comptroller Susan Combs will make more money available. She’s been waiting to see what that business tax will produce — it was due this week — before making any adjustments to her forecasts. Sales tax returns lagged for the first year of the two-year budget period, but have been growing at a robust rate for the last several months. As a result, some budget writers expect her to raise her estimate of what will be available to spend, and expect to hear one way or the other in the next few days.

I don’t know how much hope to have about that. This agreement shorts Medicaid by $4.8 billion, at least some of which is to be appropriated later. The House will tackle some key budget bills tomorrow, at which time we’ll have a better idea of how the rest of this mess will play out. Whatever the case, the end result will be a disaster and an abject failure for the state. That much is already known, and won’t be resolved any time this year.

Senate passes Amazon sales tax bill


The Texas Senate has overwhelmingly passed a measure aimed at tightening the state’s rules on when online businesses must collect sales tax.

Senators voted 30-1 [Friday] to pass House Bill 2403, a measure that originated with Rep. John Otto, R-Dayton. The bill was sponsored in the Senate by Sen. Royce West, D-Dallas.

The bill now goes to Gov. Rick Perry.

With its vote, the Senate joined the House in siding with state Comptroller Susan Combs in her push to force and other online retailers to collect taxes on sales made to Texans.

The company has consistently opposed collecting tax on its online sales, which has angered state governments and traditional retailers. Combs has said Texas loses $600 million a year in uncollected tax revenue on online sales.

See here for some background. Given Perry’s earlier spat with Combs over this, one wonders if he’ll sign this or veto it. I wouldn’t be surprised by the latter.

City layoffs begin

With more to follow later.

Expressing faith that the “brighter tomorrow we wait for is just around the corner,” the Parker administration on Thursday began pink-slipping municipal workers in hope of easing an expected $80 million budget shortfall in the coming fiscal year.

A memorandum from Mayor Annise Parker’s office to City Council and department heads said the first layoffs targeted workers in “non-public safety” departments.

Thursday’s layoffs are the first of many expected by May 17 — the legal deadline for handing out termination notices. Laid-off workers will remain on the city payroll until July 1, the beginning of the new fiscal year.

Mary Benton has a copy of the Mayor’s memo, which notes that “Economic improvements seen in the last month or so have allowed us to reduce the number of planned layoffs by more than half. If there is further improvement, it is possible that some of the remaining planned layoffs could be reversed.” From your lips to Susan Combs’ ears, I say. It is true that state sales tax collections have been up considerably over the past few months, though they’re still well below pre-crash numbers. But as long as the actual revenue is beating projected revenue, the budget picture will improve. Keep your fingers crossed.

The itty bitty budget deal

It’s not nothing, but not by much.

Gov. Rick Perry and House leaders struck a deal Tuesday to spend $3.2 billion from the state’s rainy day fund to fix one piece of the state’s budget shortfall.


Perry said at the start of the session that lawmakers should not use any rainy-day fund money, but he has softened his position in recent weeks to say the money should be used as a last resort. By endorsing the House vote Tuesday, he in many ways abandoned his last-resort position, since the January-to-May session is only halfway over.

Still, Perry’s posturing could go a long way in shaping the debate about how lawmakers should combat their much larger shortfall as they write the budget that begins in September.

“As we craft the next two-year budget, Texas leaders will continue to focus on a more efficient, fiscally responsible government, essential state services, and private sector job creation,” Perry said in a statement. “I remain steadfastly committed to protecting the remaining balance of the Rainy Day Fund, and will not sign a 2012-2013 state budget that uses the Rainy Day Fund.”

Many Republican lawmakers, fearful of looking weak to conservative activists by twice taking money out of the fund, are likely to agree with Perry.

“I think the governor wants to make sure that we don’t come back for more,” said House Appropriations Committee Chairman Jim Pitts, who says the $3.2 billion is all the House will take from the rainy day fund. “I cannot get votes to use it for anything else.”

While it’s better to use some of the Rainy Day Fund than none of it, this will do very little to mitigate the huge cuts that are still coming for public education, Medicaid, and everything else. And that’s just how Rick Perry and the most radical factions of the Republican Party want it. Burka sums up what happened.

Perry steamrolled the House. He limited the spending of the Rainy Day Fund to 3.2 billion, all of it to balance the budget by paying the state’s bills. The rest of the 4.3B necessary to balance the budget will come from more cuts ($800M and $50M).

Then, for good measure, he vowed to veto the budget if lawmakers attempted to spend any of the remaining money in the Rainy Day Fund.

I don’t know what the leadership in the House has been doing, but Perry has been calling in House members to lobby them against using the Rainy Day Fund. He has also been lobbying the committee. Obviously, he is a heckuva good lobbyist.

The House won nothing in the negotiations except the ability to spend $3.2B from the Rainy Day Fund, but only for the purpose of balancing the budget. It was a hollow victory because the state cannot constitutionally fail to balance the budget. All the $3.2B achieves is to spare the state the embarrassment of being technically broke.

Democrats on the Appropriations Committee voted for HB275, which authorized the use of the RDF for the 2010-11 biennium, then voted against companion bill HB4, which made the further cuts Burka mentioned.

State Rep. Mike Villarreal, D-San Antonio, said the leadership is using the rainy day fund to avoid the embarrassment of failing to pay its bills, which Comptroller Susan Combs has said would be result if they didn’t use some of the $9.4 billion reserve fund for the current deficit.

“We’re willing to tap the rainy day fund to save face but we’re not willing to tap the rainy day fund to mitigate the harm that is going to be inflicted upon our children,” Villarreal said. “That, in a word, is irresponsible.”

Appropriations Chairman Jim Pitts, R-Waxahachie, took the criticism from Democrats in stride, acknowledging that this is the political reality.

And that needs to be the message that gets through next November. The Republicans wanted the cuts that are to come. They’re going to get them, and they need to be held responsible for them.

UPDATE: The Trib has more.

The House Appropriations Committee voted 27-0 Tuesday afternoon to move HB 275 to the floor. The substitute bill authorizes the state to draw down about $3.1 billion from the Budget Stabilization Fund, commonly referred to as the Rainy Day Fund. A companion bill, HB 4, passed out of the committee on a party-line vote. That legislation is controversial because it outlines where the savings will come from. Lawmakers began the day short about $4 billion. After the Rainy Day funds are taken into account, the rest of the savings comes from Combs’ revised $300 million sales tax revenue estimate and more than $800 million in cuts. That latter figure is alarming, but officials say most — if not all — of those reductions have already been implemented by state agencies over the past two years.

Democrats objected to the effects the potential cuts may have on education and health care services. They also spoke out against the governor’s refusal to consider using any additional Rainy Day funds to cover the next biennium’s shortfall, especially since Perry has clearly stated he will not support any kind of tax increase.

“[This statement] ties our hands,” said Rep. Sylvester Turner, D-Houston. “To say you cannot consider the Rainy Day Fund for fiscal years 2012 and 2013 is irresponsible.”

I suspect we’ll be hearing that word a lot. In related news, more specific cuts were made.

The Appropriations Committee just approved deep cuts to the Health and Human Services Commission and the four departments it oversees. The vote was 16-8. It wasn’t quite along party lines, as Rep. Susan King, R-Abilene, joined dissenting Democrats.

Chief social services budget writer John Zerwas, R-Spring, said addition of $2 billion from Tuesday’s decision to spend rainy-day dollars eased the pain a bit. He said that allowed members to “to get it to a place that’s at least a little more comfortable than where we started.”

Still, cuts to home-based care for the disabled and seniors, nursing homes, prevention programs for child abuse, programs for developmentally disabled children and health care providers remain far deeper than any belt-tightening taken in the last fiscal crisis in 2003.

If you’re lying on a bed of broken glass and rusty nails and someone gives you one of those little airplane pillows for your head, you’ll be a little more comfortable than you were before. But you’ll still be a long way off from being in a good place. A statements from Rep. Villarreal is here, and from Rep. Eric Johnson is here.

Comptroller finds a few more bucks

Better than a sharp stick in the eye.

Comptroller Susan Combs has revised the state’s 2011 revenue estimate by $300 million because of stronger-than-expected sales tax collections.

That change would reduce the deficit in the current budget to $4 billion and make an additional $300 million available for appropriation in the next two-year budget, which begins Sept. 1.


If sales tax revenue continues at this pace, the state could bring in $620 million more than Combs estimated, according to Eva DeLuna Castro of the Center for Public Policy Priorities.

It’s not much, but it does help. Every extra dollar Combs estimates is a dollar that won’t get cut. Of course, these newer estimates are based on the improvement in the economy, and the biggest threat to that is the huge number of job cuts that would be forced by the Republican budget policies in Texas and in Congress. So I trust you’ll understand if I keep my celebration of this news modest.

You can see Combs’ letter about the revenue estimate revision at the Trib, which notes that it’s early in the session for such a revision; that may well portend a further change. In the meantime, however, it’s unclear whether this will affect the nascent consensus to use some of the Rainy Day Fund. The votes to make that happen aren’t quite there yet.

Meanwhile, Committee Chairman Steve Ogden, R-Bryan, shed possible light on why House Appropriations abruptly cancelled a scheduled meeting Monday morning, at which is was planning to approve a bill tapping $4.3 billion of rainy-day dollars to cover a deficit in the current cycle.

“The House is struggling mightily with that 60 percent — three-fifths — vote,” Ogden said, referring to the supermajority required to spend money from the rainy day fund in the current cycle.

On Monday, Senate Finance discussed an Ogden bill that would spend about $3 billion of rainy-day money on both the current deficit and the next two-year budget. Doing so requires a two-thirds vote in both chambers — which is the Senate’s normal threshold for bringing any bill to a floor vote.

But after a spirited argument of the state’s current predicament and the 2006 tax swap-school finance bill, Ogden delayed a vote on his bill, saying he could tell his colleagues weren’t ready.

Rep. Jim Pitts postponed a hearing in the House on the Rainy Day Fund after getting stood up by Perry’s office. While the consensus seems to be that the Senate will have the votes to be able to act on using the Rainy Day Fund, it’s a close shave in the House. As such, Peggy Fikac suggests that Democrats are trying to get a little leverage out of this.

Rep. Mike Villarreal, a San Antonio Democrat on the Appropriations Committee, said enough Republicans oppose the idea that Democratic support will be needed to reach 90 House votes.

“We’re going to make sure that our priorities are met,” he said. “And we’re going to make sure that we’re not taken for granted, but that we leverage to the extent possible a proper hearing of our priorities for the next two years.” Those priorities include health care for vulnerable Texans and education, he said.

One presumes that Democratic support for using the Rainy Day Fund was never in doubt. Given that, only 41 Republicans are needed to meet the 3/5 threshhold for spending RDF money on the 2010-11 biennium. I think that much is doable, based on the scattered reports of this Republican and that supporting RDF usage, but beyond that I’m not terribly optimistic.

Don’t plan that Sunday trip to Liquor Mart just yet

The debate over allowing Sunday liquor sales continues on.

A leader of the Texas Package Stores Association told the Senate Business and Commerce Committee on Tuesday there’s been no great demand from customers that liquor stores open on Sundays. Plus, opening on Sunday would likely spread the same sales over seven days instead of six, said association president Greg Wonsmos, who’s also president of Centennial Fine Wine and Spirits.

Some independent store owners and the Distilled Spirits Council of the United States back the bill by Sen. Rodney Ellis, D-Houston, saying it’s a matter of customer convenience and could provide extra tax revenue for the state.

Estimates range from $7.4 million to $12 million in increased state revenue per biennium. Former state chief revenue estimator Billy Hamilton said when blue laws preventing Sunday sales of certain items in stores were lifted in 1985, there was also much debate about the effects.

“I can tell you conclusively that is has both added to the convenience of shoppers and it has produced money for the state of Texas,” Hamilton said, adding that a ban on Sunday liquor store sales is one of the last remnants of the Texas blue laws.

Ellis’ bill is SB595; it did not get a vote in committee. Apparently, Comptroller Combs disagrees with Hamilton – she has announced that allowing Sunday liquor sales would not raise “no significant revenue”. I don’t know that I agree with that, but I also don’t think it really matters. I’ll say again, I see no reason to not allow liquor sales on Sunday. Whether it gets through the Lege, that’s a different story.

Going through the couch cushions

“Taxes” may be a dirty word, but the Lege is busy looking for revenue in other places.

“Right now, there is a tremendous amount of effort being invested in identifying new revenues that avoid being called a tax bill,” said Dale Craymer of the business-based Texas Taxpayers and Research Association.

“Politically, a lot of members have pledged not to raise taxes,” he said. “Obviously, members are seeing the impact of the budget proposal, and there’s a desire to try and raise new revenue to protect the budget without violating the no-new-taxes pledge.”

Some revenue measures already have been filed. Details are lacking on others as lawmakers work to get them in shape in advance of Friday’s bill-filing deadline.

House Ways and Means Committee Chairman Harvey Hilderbran, R-Kerrville, is having hearings through the next several weeks on measures including his House Bill 257, which would yield $72 million by having unclaimed property revert more quickly to the state.

Hilderbran said he also has legislation to boost Comptroller Susan Combs’ enforcement and that his panel will look at efforts to strengthen audits, hike tax penalties and close loopholes.

Here’s HB257, which has been referred to committee. One revenue-enhancer that has made it out of committee is Rep. Villarreal’s HB658, which is aimed at closing a corporate tax loophole. By themselves, none of these bills adds up to much, but all together they’ll have some effect. Assuming they all pass and get signed, of course, which is far from a guarantee.

In addition to these revenue enhancers, there are the usual accounting tricks that delay payments till the next biennium, of which we saw plenty in 2003. They can save substantial amounts for this budget, but since they do have to be paid, they put that much more pressure on the next budget. The big ticket items are still the Rainy Day Fund – HB275, the bill filed by Rep. Jim Pitts to use RDF funds to balance the prior biennium’s budget, may come to the floor for a vote next week – and fixing the structural deficit. Unfortunately, that and anything else that would have a more significant effect are off the table for the session.

[Rep. Harvey HIlderbran, chair of the Ways and Means Committee,] said he sees opportunity in some of the recommendations made by the Legislative Budget Board that could generate $500 million or more by better enforcing existing law, closing some loopholes and tinkering with some tax exemptions.

One proposal, for instance, would allow the state to claim forgotten bank accounts, uncashed checks and security deposits if they are left dormant for three years rather than the current five years. That change would generate $72 million.

Hilderbran would not, however, follow the path of his predecessor , state Rep. Rene Oliveira, a Brownsville Democrat who last year identified as much as $1.5 billion in sales tax exemptions he said were ripe for elimination.

“That’s a tax hike, and that’s not what we’re going to be working on this session,” Hilderbran said. “We’re not changing the code substantially or significantly. We’re just basically making it more effective.”

That narrow approach will probably produce a relatively small amount of the $27 billion needed if the state were to maintain the current level of services in the 2012-13 budget.

Fixing the big problems, such as the revamped and underperforming business tax, will have to wait until the next legislative session in 2013.

Ideology trumps need. It’s not just Hilderbran – if it were, it might be possible to generate some leverage on him, but he has plenty of company in his stance. The Republicans may tinker, but they’re comfortable with not fixing what’s broken.

How about those tax exemptions?

There’s a lot of them, and they cost the state big bucks.

A 68-page report released by Texas Comptroller Susan Combs on Monday offers a detailed look at billions of dollars in state tax exemptions and could fuel renewed discussion on rolling back certain tax breaks as lawmakers deal with a multibillion-dollar budget shortfall.

Exemptions from sales, franchise, and gasoline and motor vehicle sales taxes for the 2011 fiscal year that ends on Aug. 31, 2011, will amount to $32.2 billion, Combs reported. In addition to state revenue, exemptions to local school district property taxes will amount to additional $6 billion, Combs said.

Exemptions to the state sales tax, the state’s biggest source of revenue, will total $30.8 billion for the current fiscal year, Combs said, although some items exempted from the sales tax are taxed from other sources. Gasoline tax exemptions will amount to $113 million. Motor vehicle sales tax exemptions will total $125 million.

“While sales and use tax collections totaled $19.6 billion in fiscal 2010,” Combs said, “the tax is limited in scope when compared with the total number and kind of transactions in the economy, because of various exemptions and exclusions,” Combs said.


The report shows that sales tax exemptions for the upcoming 2012-13 biennium would total $66.2 billion, outpacing the $42.9 billion the tax is expected to generate during that period.

Sales tax exemptions include food and food products, water, child day care, healthcare supplies as well as most professional services.

I’d love to point you to the report, but I’ve looked on the Comptroller’s website, and I don’t see anything that looks like it. If we collected all the revenue lost to these exemptions, we would entirely wipe out the budget shortfall, accounting for growth as well. Obviously, some of these exemptions are more justifiable than others, though for sure all of them have an army of lobbyists set to defend them to the death. It would be nice to at least have a periodic review of the existing tax exemptions to see which are still serving a viable policy purpose and which are little more than an undeserved perk for some group that no longer needs it. HB 1308, by State Rep. Mike Villarreal would establish a Select Commission on Periodic Tax Preference Review to do that; there are other bills out there relating to tax exemptions that should be given strong consideration as well. If we’re going to insist on looking everywhere for possible savings, we should also insist on ensuring we’re collecting all the revenue we should be as well. I’m pleased to see that there’s at least some Republican support for this.

State Sen. Robert Deuell, R-Greenville, would rather raise taxes a little bit than make the cuts lawmakers are considering now, he said this evening.

Deuell has been a proponent of a 10-cent increase in gasoline taxes for some time — since before his Republican primary and general election victories last year — and said he would support a broader sales tax, too. He also said the state should use “most” of the $9.4 billion Rainy Day Fund.

“I think it’s raining, and I would hate to make cuts this session and come back in two years and find out we didn’t have to make those cuts,” he said.

Deuell is on the Senate Finance Committee and sits on its subcommittee on Medicaid; that panel will vote Wednesday morning on that part of the budget and send it up to the full committee.

“We’re the 45th-lowest tax state,” Deuell said. “I’m not chomping at the bit to be number 44, but we’re a low-tax state and we’ve got people in need.”

It’s a start, and I commend Sen. Deuell for being realistic about what we’re facing. I should add that there’s a lot of these opportunities at the federal level, too. EoW and Abby Rapoport have more.

Comptroller states the obvious about the deficit

Obvious if you’ve been paying attention, anyway.

The Texas comptroller told the House Appropriations Committee on Thursday that she can’t imagine solving the current budget crisis through cuts alone.

Susan Combs spoke at a hearing designed to be a reality check for conservatives who think the budget can be balanced by slashing state services. The current two-year budget cycle is $4.3 billion short and, under the Texas Constitution, that deficit must be made up by Aug. 31.

The state is also facing another projected $27 billion shortfall in the next two-year budget, but that was not the subject of Thursday’s hearing.

Committee Chairman Jim Pitts, a Waxahachie Republican, asked Combs to testify after he introduced a bill to spend $4.3 billion from the state’s Rainy Day Fund to cover the deficit. In opening Thursday’s hearing, he tried to communicate the gravity of the problem, which left lawmakers silent and stone-faced.

“The budget adopted by the Legislature last session, and signed by the governor, exceeded the comptroller’s measure of available revenue,” Pitts said. “This committee, and this Legislature, has very limited options: the use of the Rainy Day Fund, further reductions … or deferring payments into the next biennium.”

While Combs never called on the committee to dip into the Rainy Day Fund, she presented a detailed history of how it had been used in the past and how spending it would not hurt the state’s credit rating. She also examined the other options.

“I don’t know how you can get to $4.3 billion in cuts,” Combs said. She warned that even if the recession ends, that doesn’t mean revenues will return to levels seen in 2005, when the Texas economy was booming.

Pitts filed his bill to use Rainy Day Funds for the current biennium’s deficit earlier this week. He hasn’t gone as far as some of his colleagues in suggesting we may need to use it for more than just that, but he’s certainly made no bones about this. Not having to dedicate any current revenue to last biennium will help – not enough, of course, but it will help. I just hope his Republican colleagues are listening.

More on Combs v. Perry over Amazon

The Trib has a good story that explains the background of the Perry-Combs smackdown over Amazon. There’s another player in this fight, and they’re on the Comptroller’s side:

Retailers who charge sales taxes employ thousands of Texans, and some of those sellers are in tough financial straits. Giving a price advantage to their out-of-state rivals doesn’t seem fair, they argue. Amazon didn’t answer requests for comment.

The legislative and political fight has all sides lobbying and lawyering up. Amazon has focused on the tax fight, leaving the legislative battles to Luis Saenz, a former campaign manager for Rick Perry who is the company’s lone lobbyist in Austin. He’s outnumbered by lobbyists for various trade groups and big stores. For example, Mike Toomey, the governor’s former chief of staff, is working for parity between the different types of sellers. So is Eric Bearse, a former Perry speechwriter and spokesman.

The comptroller argues that the physical presence is the trigger — not whether the company operates a cash register in the state.

The difference isn’t over the taxes owed, but over who should be sending them to the state. You might not know this, but if you buy something that’s taxable in Texas, you owe the taxes whether the seller collects them from you or not. That’s true for over-the-counter sales, mail-order sales or online sales. It’s called the use tax, and it’s the state’s levy on purchases from companies that don’t have a physical presence, or “nexus,” in Texas.

If a company does have operations here — and nexus exists — it is supposed to collect sales taxes from customers and remit them to the state. The state pays retailers for their trouble giving them 0.5 percent of the sales taxes they collect to cover their costs.


“Our official position is that if you have a physical presence in the state, and employees in the state, you have nexus,” says Dale Craymer, president of the Texas Taxpayers and Research Association, a business trade group that does research and lobbying on fiscal and tax issues. “The comptroller is basically taking the heat for doing what the law requires her to do.”

Combs did an audit of the company and followed with a demand that Amazon pay $269 million in uncollected sales taxes for the four years from December 2005 to December 2009. The amount came to light in regulatory filings by the company late last year, and the fight has now gone to the lawyers. Amazon wants the state to share its audit of the company, and has started its challenge in the State Office of Administrative Hearings, a precursor to a full court fight.

Along those lines, a few Democratic legislators have asked Combs to show her work.

Three state lawmakers are calling on Texas Comptroller Susan Combs to explain how her office arrived at the assessment it levied last year against for uncollected sales taxes.

The letter — sent Tuesday by state Reps. Pete Gallego, D-Alpine, Joaquin Castro, D-San Antonio, and Jessica Farrar, D-Houston — asks for a meeting this week with Combs.

Last year, Combs sent Amazon a notice that it is responsible for $269 million in sales tax. Amazon has disputed that assessment.

In their letter, Gallego, Castro and Farrar say it is “fundamentally unfair” to tell Amazon it owes millions in uncollected sales taxes without explaining how the state arrived at that figure. “Texans have never accepted ‘taxation without representation,’ not should they accept ‘taxation without explanation’…” the letter says.

Comptroller’s spokesman Allen Spelce, however, disputed the contention that Amazon wasn’t told how the assessment was made.

“It’s inaccurate to say that we did not release the details of (Amazon’s) tax bill. We did explain to them how the tax bill was calculated,” Spelce said.

Spelce said Combs or someone from her staff would be available to meet with Gallego, Castro and Farrar.

Here’s a copy of that letter yet, which seems eminently reasonable to me. In the meantime, State Rep. Elliott Naishtat has filed a bill that would settle the matter.

House Bill 1317 defines a taxable retailer as one that brings in at least $10,000 a year in Texas or has an agreement with a Texas resident “for directly or indirectly referring potential customers to the retailer.”

The bill “is modeled after laws that have been passed in other states to make it a clear connection between companies doing business in those states and having to collect sales tax,” Naishtat said. “This bill will generate hundreds of millions of dollars for Texas. I would be surprised if Gov. Perry has a problem with this.”

Let’s just say that my capacity for being surprised by the Governor is not as large as that. Perhaps some of those high-powered lobbyists that the retailers have on their side can help grease the skids a bit. I most certainly support this bill, but color me dubious as to its odds of getting passed. Patricia Kilday Hart has more.

UPDATE: Combs responds to the letter, and pushed back against Perry.

Amazon abandons Texas

More job losses, and we haven’t even started firing teachers yet.

Online retail giant will close its suburban Dallas distribution center amid a dispute with the state over millions in uncollected state sales taxes, The Associated Press reported Thursday.

The AP obtained an e-mail Thursday sent to Amazon employees by Dave Clark, the company’s vice president of operations.

Clark wrote that the center in Irving will close April 12 because of the state’s “unfavorable regulatory climate.”

Amazon spokeswoman Mary Osako would not say how many employees work at the Irving distribution center.

Texas employees who are willing to relocate will be offered positions in other states, Clark said.


Allen Spelce, spokesman for the Texas comptroller’s office, said Thursday that though “we regret losing any business in the state of Texas,” that doesn’t change the state’s position.

“We feel like if you have a business presence in the state of Texas, you’re no different than any other business in the state of Texas, and you still owe sales tax,” Spelce said.

He declined to comment further on the state’s demand that Amazon pay back sales tax, saying the case remains in the hearings process.

I’ve said before that I side with the state in trying to collect these taxes from Amazon, and I’m not going to change my tune as a result of this. We really need action on this at the federal level, but we won’t get any from this Congress, that’s for sure.

In his e-mail to staffers, Clark said Amazon also is scrapping plans “to build additional facilities and expand in Texas, bringing more than 1,000 new jobs and tens of millions of investment dollars to the state.”

Katherine Cesinger, spokeswoman for Gov. Rick Perry, said the governor’s office has had “ongoing communications” encouraging Amazon to expand its business in Texas, “and we recently encouraged them to stay in the state.”

That’s in addition to the 119 jobs that will be lost immediately. With all the time Perry is spending gallivanting around the country rubbing elbows with the conservative elite, when did he ever have the chance to fit them into his schedule? And what would he have done about it anyway? Said “There, there, I’ll call of my Comptroller and we’ll find a way to give you a tax break, too”? Now that I think about it, the more gallivanting he does, the better. PDiddie, McBlogger, Grits, and Kevin Drum have more.

UPDATE: When I made up that quote about Perry telling Amazon he’d “call off” his Comptroller, I was only kidding. I should have known better.

Gov. Rick Perry, in Washington to speak to the conservative C-PAC gathering, today second-guessed Comptroller Susan Combs’ handling of a tax dispute with Amazon.

Amazon said this week it will close an Irving distribution center because of an unfavorable regulatory climate in Texas. The company cited Combs’ attempt to collect Texas sales tax on Amazon’s Internet sales to Texans, because the warehouse constituted a “nexus” under tax law.

In an interview with the Washington Examiner, Perry said the distribution center “obviously didn’t have a storefront.”

Perry said he would work with the Republican-controlled Legislature to try to make sure Amazon can stay. And he was bluntly criticial of his fellow Republican Combs:

“That is a problem and I would suggest to you that we need to look at that decision that our comptroller made,” he told the Examiner. “The comptroller made that decision independently. I would tell you from my perspective that’s not the decision I would have made.”

I will now type “I will never assume any position is too ridiculous for Rick Perry to adopt” one hundred times as my penance. Combs’ office released a statement saying they were just following the law. As if that sort of thing matters to Rick Perry.

Are you ready for the next big budget deficit?

It’s coming in the next legislative session.

Pressed by Democratic senators on the Finance Committee, John Heleman said the state will have a $10 billion structural deficit in future budgets largely because the business tax has underperformed and the 2006 property tax swap has cost more than expected.

The revised business tax was supposed to bring in $6 billion per year. Instead, it it is generating $4 billion. The cost of the property tax relief is also running about $1 billion per year above expectations.

“That gap is not closing up,” said Heleman, chief revenue estimator for Comptroller Susan Combs.

Republican state leaders have attributed the state’s budget woes to the recesssion and have dismissed calls to raise taxes to deal with the current budget shortfall, estimated at $15 billion to $27 billion, saying they can cut their way out of that hole.

But the structural deficit would mean legislators would have to come back in 2013 and beyond to deal with at least another $10 billion hole.

I wish there were some joy to be had in saying “I told you so”, but it’s too depressing. The bottom line is that when we’re done firing teachers and closing nursing homes and making college unattainable, we’ll be in more or less the same position in 2013 as we are right now. The people who are busy telling you that we can’t afford to do anything are lying. The situation we’re in is a Republican creation, but they don’t see it as a problem. Until enough other people begin to see it as one, we’ll keep doing what they’re about to do now. Abby Rapoport has more.

There’s still no such thing as a rainy day

Having been in denial about the size of the budget deficit, Governor Perry goes into denial about how to deal with it.

Gov. Rick Perry on Monday said he was opposed to using the state’s rainy day fund to help pay for services despite a looming budget shortfall that is estimated at $15 billion to $27 billion during the next two years.

“We will prioritize what’s important in this state. We will fund those. And we will craft a budget that meets those revenue projections and not raise taxes nor get into the rainy day fund,” Perry said. “And that’s been a consistent message for at least a year and a half.”

He disputed the idea of a shortfall when the next budget has yet to be written, noting that Texas’ budget must balance: “We don’t have shortfalls in Texas. … You couldn’t spend enough to make some of those groups happy.”

Let me ask again, what is the purpose of the Rainy Day Fund if it never gets used? There’s an old parable about a miser who buried all of his money in a box in his back yard. Every day he’d go dig it up and look at it and celebrate how much it was, then he’d bury it again. One day, someone snuck into his yard, dug up the box of money, and stole it. The miser bemoaned the loss of his fortune to a friend, who told him to bury a rock in its place, since it would do as much good for him as the buried money had done.

The point I’m making is that if we don’t use the Rainy Day Fund, it’s basically the same as not having it in the first place. Remember back when we had a federal budget surplus? The conservative argument was that surpluses are bad, because it was “the people’s money” and should be given back, via tax cuts. I find it strange to see Perry arguing that the state should hold on to all of this money. I guess if it can’t be used on tax cuts it’s not of interest to him.

The good news, if you can call it that, is that Perry’s position so far seems to be not in step with the rest of the leadership.

House Appropriations Committee Chairman Jim Pitts, R-Waxahachie, said a shortfall figure of at least $27 billion is “in the ballpark” when looking at the amount of money needed to provide the current level of services.

The initial House budget proposal that Pitts introduces will be written within available money, without using the rainy day fund or other additional revenues. Lawmakers will decide how to proceed from there, he said.

“We cut education. We cut higher ed. We cut public ed. We cut health and human (services)” in the initial proposal, Pitts said. “We’re just showing the reality of it. … There may be a group that thinks this bill is great. I don’t know what to expect this next legislative session.”


Lt. Gov. David Dewhurst spokesman Mike Walz said that while the fund will not be used in the first Senate version of the budget, Dewhurst “expects both the Senate and the House to dip into the rainy day fund this session in order to fund our priorities and still save a portion to balance the budget again in 2013.”

While I’d want to use the vast majority of the Rainy Day Fund, I’d leave a little bit for the next biennium as well, precisely because I fully expect we’ll be in a deficit situation again, regardless of how the economy does. You could argue that we ought to use it all this session, to show the reality of what our structural-deficit-causing property tax cuts have wrought in 2013, but that may be too scary for some people. While I hope the Lege will avoid disaster on this, it’s important to remember that a minority can prevent the Rainy Day Fund from being used. There’s a lot that can go wrong.

We have a number for the hole

There’s actually more than one number that can be used to accurately describe the state budget deficit, depending on what your perspective is, but however you look at it, it’s big and it’s no longer projected or theoretical.

State Comptroller Susan Combs today said lawmakers will have $72.2 billion available to spend in general revenue over the next two years — nearly $15 billion less than they budgeted in the current period.

Combs’ official revenue estimate sets the limit for how much lawmakers can budget for state services.

Her estimate puts the shortfall in the amount needed to continue the current level of services – taking into account such items as population growth – at least at $27 billion, according to figures from the Center for Public Policy Priorities, which focuses on low- and moderate-income Texans.


Looking at state agency funding requests, the Center for Public Policy Priorities found that the state will need at least $99 billion in general revenue through the next two-year budget period, on top of closing a shortfall in tax collections in the current budget period.

Combs’ estimate includes a prediction that tax collections will fall $4.3 billion short in this budget period. Combs’ $72.2 billion figure takes that shortfall into account.

In addition to having to meet that recession-driven shortfall, lawmakers will be working without two sources of funding that they had last time they met: unspent state fund balances and federal stimulus money.

First things first: The $4.3 billion figure refers to the 2009 biennium budget. The amount of revenue that Combs estimated at that time for the two-year period was short of what we actually collected, so the first order of business will be to appropriate money to make up that gap. How big the hole is for this biennium then becomes a matter of opinion based on how much you think the state needs to spend to pay for what it does now.

Lawmakers budgeted $87 billion in general revenue spending in the current biennium; at least $6.4 billion of that money came from federal stimulus funds which aren’t available to budget-writers this time. Public and higher education and health and human services spending accounted for $73 billion of that; without the stimulus money, that leaves just over $7 billion that’s not in those two major categories.

The comptroller’s official biennial revenue estimate sets the limit, effectively, on what lawmakers have available to spend during the two-year period that will begin in September. There’s a shortfall between what’s available and what’s needed, but estimates of the size of that shortfall depend on the size of what’s needed. For instance, the Center for Public Policy Priorities, a think tank that advocates for the poor, estimates it would cost $99 billion over the next two years to maintain the services the state provides now; they put the size of the shortfall at about $27 billion. Former Appropriations Chairman Talmadge Heflin, now with the Texas Public Policy Foundation, a think tank that advocates for small government and free markets, estimates the shortfall at “$15 or $16 billion.”

In other words, the slash-and-burn TPPF is basing the shortfall on Texas not spending any more than it did two years ago. Thing is, Texas is a growing state – you might have heard about those four shiny new Congressional seats we’re going to get because we’ve been growing like gangbusters – and with all that growth comes added expenses. Much of the state’s increased population comes from children, which means we need to spend more on schools just to keep up. A lot of it comes from lower-income folks, which means things like Medicaid and CHIP need more revenue to keep up. That’s the reality of the situation, and it’s what the Lege will have to deal with.

Now the good news is that after more than a year of declining sales tax revenue, economic indicators are pointing in the right direction again. The next two years will be better for the state, and who knows, maybe in 2013 we’ll hear that this biennium’s budget came in under cost because we took in more money than we initially thought we would. But let’s not lose sight of the fact that the system we have in place now isn’t equipped to keep up with the state’s growth. Too many things are exempt from the sales tax. The property tax cut of 2006 created a structural deficit. We’re going to face many of the same problems in two years’ time even if the economy recovers to a large degree. In the meantime, we’ll be shortchanging schoolchildren and pushing the sick and the needy onto local governments.

Finally, it must be said that Combs’ figures, which you can see in detail here, stand in stark contrast to the denial and Pollyanna-ism that Rick Perry displayed all last year, as Greg and ThinkProgress document and BOR pointed out before the election. He can’t hide from it any more. For more, see statements from Rep. Mike Villarreal, Rep. Lon Burnam, and Sen. Wendy Davis; Vince has more as well.

The coming fight over class sizes

We’ve discussed the looming cuts to public education, in which the focus of the battle will be class size limits, which are currently mandated at 22 students per classroom. That was part of the sweeping 1984 overhaul of the education code that was spurred by Ross Perot, which included the no-pass no-play law. Research since then has shown a benefit to students resulting from the lower student/teacher ratios, though much of that research is now several years old.

Maintaining these class size limits is expensive, however, so as this DMN story reminds us, it’s a natural place for legislators to look to for cost savings. And it makes me wonder about something.

[Comptroller Susan] Combs, a Republican, renewed attention on the issue recently after recommending that lawmakers scrap the 22-student limit in kindergarten through fourth grade and switch to an average class-size standard of 22.

In practical terms, that means an extra three students per class on average in those five grades. The current average with the 22-pupil limit is 19.3 students per class, according to figures gathered by the comptroller’s office.

Combs, noting that many school superintendents support the idea, said the change would save an estimated $558 million a year – primarily through elimination of thousands of teaching jobs.


The class-size standard has been in place since the Legislature approved a landmark school reform law in 1984. Among the highlights and other results:

•The law included the no-pass, no-play rule, pre-kindergarten for low-income children, and the state’s high school graduation test. It was passed under the leadership of Perot and former Democratic Gov. Mark White.

•There is no doubt the 22-pupil limit is costly because every time a class in the five affected grade levels hits 23 or more students, a new class must be created with an additional teacher and classroom. One superintendent from the Houston area said each new class costs his district $100,000 to $150,000.

•The law allows school districts to get a state waiver if they can’t find enough teachers or have insufficient classroom space. The state rarely turns down waivers, and last year 145 districts received waivers that allowed larger classes at 548 elementary schools. The Dallas school district had waivers at 31 campuses.

Whether or not we think 22 is a magic number for class size limits – Rep. Rob Eissler has said that you don’t really see a benefit from smaller class sizes until you get considerably under 22 per class – there is broad agreement that student performance benefited from the 1984 reforms. I have yet to see any claims about what the effect of larger class sizes might mean, but it seems to me that with all the waivers that have been granted in recent years, there ought to be enough data to allow us to draw some conclusions. Why not commission a study to compare the districts that have received waivers to similar districts that have not, and see what it tells us? And if such a study has already been done, please show it to us. Why fly blind when we don’t have to?

Which leads to a second question. Given that we don’t necessarily know what the effect of undoing the 22:1 ratio will be, and given that school districts have been able to get waivers to that whenever they’ve needed to, why make a permanent change? Why not just suspend the rules related to getting waivers for two years, and let the school districts work it out as best they can? Because otherwise it sure looks to me like the goal here is to force school districts to fire a bunch of teachers – for which superintendents and school board members will be blamed, not the Lege – while using the discussion of the class size limit as a distraction. If the Republican intent is to increase unemployment, the least they can do is be honest about it.

The coming cuts to public education

We know that public education is a huge part of the state’s budget, and in the absence of any willingness on the part of the Republicans to ensure that it’s properly funded, we know there will be cuts coming. How deep, and what form they take, no one is sure yet.

First, expect fewer teachers in classrooms. For most Texas school districts, personnel costs — employee salaries and benefits — account for 80 percent to 90 percent of total expenses. While the goal for belt-tightening districts will be “to stay as far away from the children” as possible, says Wayne Pierce, the executive director of the Equity Center, which advocates for increased funding to districts, there’s only so much they can do without touching such a large chunk of their budget.

With the specter of the 2011 shortfall looming, many districts have already stripped what they can from administrative and custodial positions, he says. And delaying routine maintenance like fixing leaky roofs until better times can only take them so far. That leaves spending on teachers, which in turn means cutting salaries and, in some cases, eliminating positions. “You have to have electricity, you have to have gasoline for the buses, you have to have teaching supplies,” Pierce says. “So bottom line, you have to cut personnel.”

It’s important to remember that school districts have been operating on tight budgets for years now thanks to the 2006 property tax cut, and that they’ve already been cutting back on things like school bus service. As is the case with Texas’ budget, there’s just not that much fat to cut in many cases.

More cost savings could result from lawmakers lightening the regulatory burden on districts. “The Legislature says we’re giving you less money, but we’re not going to make you do this, so you figure out how to spend it,” explains Sheryl Pace, a senior analyst at the Texas Taxpayers and Research Association.

For instance, state Sen. Dan Patrick, R-Houston, has proposed lifting the cap on class size. A state law passed in 1984 requires no greater than a 22-to-1 student-to-teacher ratio in pre-kindergarten through fourth grade. If the Legislature decided to temporarily remove that mandate, it would relieve districts from the burden of creating a new class with an additional teacher and classroom every time the number of students in the class hits 23 — something Patrick has said would save them “millions and millions of dollars.”

Teachers’ groups oppose that approach. They question whether the benefit will outweigh the detriment to students’ educational experience, and if it will actually help reduce costs. Districts can already apply for a waiver if they lack the space or qualified teachers to create a new class. Brock Gregg, a lobbyist with the Association of Texas Professional Educators, says his organization is “very focused” on making sure the lawmakers understand how essential small class sizes are to effective public education. “If cuts occur,” Gregg says, “the priority should be on keeping experienced, qualified teachers in front of each student in an appropriate-sized class so students can receive individual attention.”

Let’s be clear about what this would mean.

Nearly 12,000 elementary school teaching jobs would be slashed – for a total annual savings of $558 million – if the state scraps the current 22-pupil class size limit in elementary grades, Comptroller Susan Combs recommended Wednesday.


“This is the typical penny-wise and pound-foolish arithmetic that this state has engaged in for decades,” said Richard Kouri of the Texas State Teachers Association. “It’s no surprise that if you put more kids in classrooms and fire a bunch of teachers, you’ll save money. And you don’t save $558 million a year without firing thousands of elementary school teachers.”

Brock Gregg of the Association of Texas Professional Educators said the class size limit is one of the main reasons that Texas elementary school students have done better on national standardized tests than most of their peers.

“The question is whether we should eliminate a program that we know works and helps give students the best opportunity to succeed,” he said.

Texas American Federation of Teachers President Linda Bridges noted school districts can now easily obtain waivers from the class size limit – and 145 districts did so last year, citing lack of classroom space or enough teachers.

That’s an awful lot of lost jobs for a fairly modest amount of savings; if the numbers cited in the Trib story are accurate, you’d still be looking for $2.5 to $4.5 billion more to cut. Maybe allowing for an average class size of 22 instead of a maximum won’t have a negative effect on student performance, but it seems unlikely to be a net positive. Other than a demonstration of just how far the Republican Party is willing to go to defend their ginormous unaffordable property tax cut from 2006, what does this accomplish?

Also on the table is more charter schools.

The [Senate Education Committee] recommendation on charter schools would remove the cap of 215 charter school operators – a limit that has been in effect for several years. Republican lawmakers have generally favored the allowance of more charter schools, while Democrats have called for stronger state oversight of existing charter campuses.

Committee members also recommended that the state’s Permanent School Fund be used to guarantee construction bonds for charter schools and that their state funding be increased to match what regular public schools receive.

The four Democrats on the committee voiced objections to some of the charter school recommendations, saying the state cannot commit more funding to charter schools at a time when regular public schools are facing possible cutbacks.

Well, at least this might provide a landing place for some of the 12,000 teachers the Republicans want to fire. I don’t necessarily oppose this particular measure. On the whole, I don’t believe charter schools are any better or worse than public schools – there are good ones and bad ones – and I’m willing to give some help to the good ones in return for some assurance that we’ll do a better job of policing and closing down the bad ones. If that’s on the table, then I’m open to hearing more. I fear that the basic plan will be simply to swap in more charter schools to pick up the slack, and as with the class size limits I don’t see how that’s going to help student performance.

The city’s financial picture looks grim

It’s ugly.

A draft of the fiscal 2012 budget, which begins in July, shows a projected shortfall of at least $118 million. For fiscal 2012 through fiscal 2015, the shortfall is an estimated $542 million.


Several City Council members sharply criticized the administration in an acrimonious budget meeting last week in which many of the stark details were revealed, particularly the amount of time Parker spent on updating the city’s historic preservation ordinance in the wake of the financial challenges.

Mayor Pro Tem Anne Clutterbuck, who chairs council’s Budget and Fiscal Affairs Committee, said council members are prepared to make tough decisions, but they need time to weigh the various austerity measures Parker is planning.

“It is the sincere desire of council to see the administration bring something forward so we can act on it,” she said.

Much of the frustration was over a $9 million increase in expenses and the fact that efforts to cut the budget through departmental consolidations or better management of the city’s fleet have not yet been realized.

“The feeling is, we’re going in the wrong direction,” Clutterbuck said.

The city has reeled for several years as revenues from sales and property taxes have declined, even exceeding worst case scenarios.

The good news, if you can call it that, is that sales tax revenues are finally bouncing back. Just not fast enough to really help much.

Last month’s collections of $1.6 billion, which come from sales in September, were up 6.6 percent compared with October 2009, Comptroller Susan Combs said Wednesday.

But September 2009 was near the bottom of the 14-month descent in sales tax revenue, so the strong uptick doesn’t necessarily indicate a robust turnaround is afoot.


Sales taxes this year have been higher than year-ago numbers for seven months in a row, Combs said.

But while collections for the current fiscal year might be tracking Combs’ original projection, they haven’t made up any ground for last year.

There’s clearly a lot of work to be done here. As the story notes, various cost-saving and revenue-generating measures built into this year’s city budget have not been fulfilled yet; doing them needs to be a high priority. I know this is going to go over like the proverbial skunk at the garden party, but I really believe the property tax rate cuts of recent years need to be revisited. But to a large degree, the problems are the result of the economy. When that gets going again, the forecast will be a lot less gloomy. The question is what we have to do to hang on until then, and for how long.

The hole is deeper than we thought, the continuing story

You have to admire the timing on this.

Texas collected $2.5 billion less in taxes in the 2010 fiscal year that ended Aug. 31, than the previous year, state Comptroller Susan Combs said in a new cash report.

The tax collections were nearly $2 billion less than Combs predicted a year ago when she certified the two-year budget (see Table 16).

Specifically, we’re talking about the business margins tax, which was supposed to pay for those ginormous property tax cuts from 2006.

As Comptroller Susan Combs, the chair of the task force, acknowledged: “There is no cure in this report for the budget.”

According to the report, $3.9 billion was collected in the past fiscal year when $6.4 billion was expected — a $2.5 billion gap.

Of that difference, state officials attributed about $1 billion to the continuing recession and the other $1.5 billion to businesses paying less than expected.

State Sen. Kirk Watson, an Austin Democrat who is one of 21 members of the task force, said the dilemma of those short collections highlights why the state needs to reform its budget process from top to bottom.

“For some time, we as a state have masked structural deficits in our budget in recent years and it’s time we stopped doing that,” he said. “We’re going to find ourselves digging the state deeper and deeper into a hole.”

Have fun dealing with that, and with the $25 billion deficit that happened on Rick Perry’s watch, all you Republicans.

How big is the hole, Susan?

You’d think with all of the talk about the budget and the projected shortfall, we’d have heard an opinion from our State Comptroller, Susan Combs, as to just how things look right now. Especially given that Governor Perry has publicly dismissed the $18 billion figure that House Speaker Joe Straus and Appropriations Chair Jim Pitts has cited, you’d think she’d want to weigh in. You’d be wrong about that.

Comptroller Susan Combs, the state’s chief financial officer, has done little to offer a big-picture public assessment of the revenue outlook as the November elections and 2011 legislative session approach. And trying to guess just how large a budget shortfall the state faces has become a popular parlor game at the Capitol.

Seeking clarity, state Sen. Kirk Watson sent Combs a letter last week asking that she update her official estimate of how much money the state will collect during the current two-year budget cycle. He also asked that she offer a forecast of the state’s revenue outlook over the next two years.

“A private business of any size should never fly into a fiscal storm blindly, and neither should Texans or their elected officials,” wrote Watson, D-Austin. “Without a clear picture of the state’s financial condition, we find ourselves in the situation of working on a problem that has not yet been actually defined.”

Watson’s request for Combs to speak up on the budget comes as Gov. Rick Perry, who is campaigning for re-election on an economic climate that encourages job creation, has sought to downplay talk of a coming budget crisis.


Despite the national economic downturn that came to the forefront in the fall of 2008 and began to visibly hit Texas in 2009, Combs has not updated her January 2009 revenue estimate. That estimate said that, during the fiscal year that began in September 2009 and ended last week, state sales tax collections would increase slightly compared with the previous year.

In fact, during the first 11 months of the fiscal year, sales tax collections fell more than $1 billion short of Combs’ projections. The sales tax is the state’s largest revenue source.

Here’s Sen. Watson’s letter. I have to believe that if the Democrats had managed to find a semi-decent candidate to run against Combs this cycle (in other words, someone not named Fred Head), Combs would be under a lot more pressure to get off her tuchus and tell us what’s going on. I will note that eight years ago, which is the last time we were going through this kind of budget crisis, then-Comptroller Carole Keeton then-Rylander spoke publicly about the shortfall. Of course, she later changed her tune about the size of the shortfall, but at least she didn’t have to be prodded to speak about it. Those were the days. BOR has more.

UPDATE: Here’s part of the answer:

Texas’ sales tax collections closed the budget year short $1.5 billion, or 6.6 percent, of the projected total for 2010, according to figures released Thursday by state Comptroller Susan Combs.

To hit Combs’ revenue estimate for the two-year budget, sales tax collections would have to increase 15 percent over the $19.6 billion brought in during 2010.

But if August is any indication, a sharp rebound is not imminent.

Last month’s sales tax collections came in at $1.8 billion, up 0.8 percent compared with the same month a year earlier and the fifth consecutive month of positive yet tepid growth.

“Overall, state sales tax collections appear to have stabilized, but solid growth has not yet resumed,” Combs said.

The state could end the 2010-11 budget a year from now with $3.6 billion less in sales tax revenues than assumed, according to revenue projections Combs recently provided to bond rating agencies.

It ain’t pretty, that’s for sure.

Sales tax revenues inch up

It’s better than the alternative, but still nothing to write home about.

Sales tax receipts in July were up 2.2 percent compared to the same time the previous year, [Comptroller Susan] Combs said. Revenue increased $1.69 billion from July 2009, when Texas was in the middle of an unprecedented slowdown, she said.

The gains since April have been minimal — ranging from 0.1 in May to 2.2 percent in June and July — and not enough to erase the $1.39 billion year-to-date deficit in sales tax revenue compared to the first 11 months of the previous fiscal year.

“It’s still on top of a very bad summer last year,” said Dale Craymer, president of the Texas Taxpayers and Research Association. “It’s a signal of a continuing, very slow recovery, but … sales taxes are still well behind where it needs to be. Two percent doesn’t change that.”

Combs said earlier this week that she didn’t expect another downturn.

But even with the apparent turnaround, the state has far to go to come up with the $1.2 billion gain in sales tax that had been predicted and was built into the current two-year, $87 billion budget.

Combs said she doesn’t think she will have to revise the state’s revenue estimate, however, thanks to continued growth coupled with better-than-expected performance in the oil and natural gas taxes.

So we’re doing better than we did in the worst year ever, which is something but not much. As I said before, the hole is still pretty deep, but at least it’s not getting deeper. Maybe this will be a catalyst for the Lege to take the idea of removing some sales tax exemptions a little more seriously.

Where have all our sales taxes gone?

The Lege would like to know.

“The situation is not good,” said Rep. Jim Pitts, R-Waxahachie, who has asked representatives of Comptroller Susan Combs to testify before his Appropriations Committee.

State revenues remain “well short” of predictions, although sales tax receipts showed a modest gain last month, Pitts, the House’s chief budget writer, said Monday.

“The members of Appropriations need to know what they’re facing next session,” he said.

Pitts said sales tax receipts in April increased by 1.4 percent over the same month a year earlier, ending a string of 14 consecutive months of decreases.

“We’re now comparing this year to a bad year. April 2009 wasn’t good,” he said.

“But at least it’s in the up direction,” Pitts said of last month’s gain. “We hope it sustains.”

Clothes and electronics are responsible for much of the uptick, with car sales improving as well. Remember, comparisons to this time last year are a comparison to a month in which we were in a recession. We’d darned well better be ahead of that! As such, the current trend will have to do a lot more than just maintain to avoid anything but the high-end deficit projections for the next biennium. We’re still in a pretty deep hole.

Collecting sales tax on Internet purchases

Tax revenues are down in nearly every state. Most states rely on sales taxes for a significant portion of their revenues. Purchases made over the Internet are generally exempt from sales taxes. You do the math.

In recent weeks, legislators in Maryland and Connecticut held hearings on whether to force Internet stores to collect local sales taxes. Last month, Colorado’s $1.3 billion deficit led legislators to pass a law requiring e-commerce sites to tax. New York, North Carolina, Rhode Island and others states took or tried to take action last year.

Texas is looking at a two-year budget shortfall of as much as $15 billion. Speaking recently in Austin, Texas Comptroller Susan Combs said the state is losing almost $600 million a year in state and local sales taxes from online purchases.

Over the next decade, online shopping is forecast to grow five times as fast as brick-and-mortar retail, according to a Goldman Sachs research report. It predicts online shopping will go from 4.4 percent of all U.S. retail sales today to 14.6 percent by 2020.

These trends “should create a more favorable climate for leveling the playing field and, in fact, efforts to move forward with legislation have intensified over the past year,” said Wayne Zakrzewski, associate general counsel at J.C. Penney Co.

As I recall, the justification at the time for not imposing sales taxes on Internet purchases was that e-commerce was a new and fragile thing and it needed a little help to ensure that it would survive and hopefully thrive. Mission accomplished, I daresay. I have to say, I can’t see why buying a CD at Cactus Music is subject to sales tax but buying the same CD on is not. In the 1990s it sort of made sense, but not now. says it shouldn’t have to collect sales taxes from customers in states where it doesn’t have a physical presence, the long-standing criterion for catalog and Internet sellers from a 1992 U.S. Supreme Court decision. It’s been collecting local sales taxes in New York since 2008 while it uses that defense in its court battle.

In Texas, has operated a distribution center in Irving since 2006 without collecting sales taxes from its Texas customers. says a subsidiary owns the distribution center, which exempts it from the Texas law.

This is just silly. The fact that such a ridiculous loophole exists is by itself sufficient reason to put aside the pretense that there’s something special about buying stuff over the Internet and start treating it like any other act of commerce. We’ve known for a long time that Texas’ sales tax system is largely outdated because it is mostly focused on sales of goods and not services, which as a share of the economy is now larger and growing faster than goods. That’s one reason why there is now some lip service about reviewing the tax code so that obsolete deductions and exemptions might be reviewed and removed. (There was similar talk a few years back about doing the same for property taxes, but that ultimately went nowhere.) Segregating the economy like this makes no sense.

Sales tax collections keep going down

That sound you hear is the budget writers gnashing their teeth.

In more grim news for Texas’ budget, state Comptroller Susan Combs said Friday that monthly sales tax collections are down again, the eighth straight month of double-digit declines.

Collections for January — the period that reflects December holiday shopping — were down by 14.2 percent compared with a year ago.


“Eight consecutive months of double-digit declines — there is no parallel for what we’re seeing with the sales tax,” said budget expert Dale Craymer, president of the Texas Taxpayers and Research Association.

You wonder what effect all this will have on the Governor’s race. Is Governor Perry going to keep running ads that proclaim what great fiscal shape Texas is in? How are any attacks he’s going to make on Houston’s fiscal shape going to play when contrasted with this?

Speaking of Houston’s fiscal shape, I forget where I saw this, but Houston’s sales tax collections were equally crappy in January, and we got back a smaller amount from the state than last year. Expect the next communication from Controller Ronald Green to be a glum one.

Combs has predicted the state will collect $21.2 billion in revenue from the sales tax in the fiscal year that began Sept. 1, slightly more than the $21 billion collected in fiscal 2009.

So far, however, collections are about $1.2 billion below the amount that had been collected by this time in the last fiscal year.

For the sales tax to bring in as much this year as originally projected, Craymer said, it “would have to grow by 11 percent for the rest of the fiscal year, and clearly that’s not going to happen.”

Sales tax collections represent more than 56 percent of the state’s tax revenue and more than 24 percent of overall revenue.

Lawmakers already expect to face a funding gap of at least $12 billion to $13 billion when they meet in regular session in 2011 to write the next two-year state budget. That figure does not account for new spending to meet the demands of a growing population.

It’s gonna be ugly. And all this is without taking into account the long-term structural deficit that was created by the irresponsible, unaffordable property tax cut of 2006, for which the business margins tax is a completely inadequate replacement. Somebody needs to be talking about this, because it is not sustainable.

One small glimmer of hope:

Craymer said Texas could be eligible for some additional stimulus money if federal legislation passes.

The irony of that just kills ya, doesn’t it?