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The hole keeps getting deeper

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

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

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

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

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

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

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  1. Zeke says:

    There is also a story in the New York Times about the costs to the state from the healthcare reforms. Our future deficits will only get worse.

  2. Yes, the state will be on the hook for some Medicaid money as a result of health care reform. But it’s a fairly modest amount in context – the CBO puts it at $1.2 billion over ten years, or about $120 million a year, which is less than a tenth of a percent of the state budget and about one percent of the current deficit – and that spending will be matched many times over by federal dollars. And of course, having more people covered by insurance means a healthier population that uses the emergency room less for routine medical care, which in turn will mean less of a burden on county hospital districts and more work for private health care providers. In short, this is a positive for future state budgets, not a negative.

  3. Daniel Williams says:

    The clear solution to this would be a state income tax, which could drastically lower property taxes and keep more tax money in Texas (since it would be deductable for Federal taxes). Something along the lines of H.B. 1735 from the 81st legislature would result in most Texans paying dramatically less in taxes.

    Of course, even whispering “Income Tax” in Texas will get you tea bagged to death.

  4. […] Kuff on the state budget and school finance problems facing the next legislature, The hole keeps getting deeper. […]

  5. The first duty of the perpetual incumbent politician is to keep the job; anything done will irritate some of one’s constituents. Accomplish multiple things and you’re in jeopardy of being voted out of office. OMG!

    As a candidate for the State Senate, district 5, I’ve proposed to do try two things, initially: A simple (not like the federal version) state income tax, and term limits.

    Nothing passes by one vote, and both items are on the third rail of the aforementioned perpetual incumbent… So, we’ll see!

    First, I have to get elected!

  6. […] unturned is little more than window dressing. Any conversation that doesn’t acknowledge the $4.6 billion structural deficit is a conversation that isn’t dealing with the problem. To his discredit, Straus not only […]

  7. […] the cause of the state’s budget woes. Don’t get me wrong, Rick Perry is directly responsible for a big chunk of the deficit we currently face. It’s just not because of where he’s […]