Off the Kuff Rotating Header Image

Eva DeLuna Castro

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 business lobby’s guide to balancing the budget

Bill Hammond, the president and CEO of the Texas Association of Business, pens an op-ed with his preferred approach to the budget. The main thing to note is right here:

The state has $72.2 billion available for general-purpose spending during the 2012-13 biennium, leaving a $15 billion gap from the current general revenue spending of $87 billion.

How do we close that gap?

It will take grit and courage to address the shortfall without raising taxes, creating new fees or increasing existing ones.

Difficult? Yes. Doable? Absolutely.

First, let’s hold the line on general revenue spending at its current level of $87 billion for the biennium.

Given that the Pitts and Ogden budget drafts held the line at $72.2 billion, holding it at $87 billion – the amount spent in 2009 – would be a major step forward. It’s still not good, it still doesn’t acknowledge the state’s growth, it still shortchanges education because as Hammond would have it the structural deficit caused by the property tax cut and insufficient business margins tax continues to be ignored, but it’s a hell of a lot better than what’s currently being discussed.

Hammond’s methods for closing the $15 billion gap between what we spent in 2009 and what the draft budgets propose to spend now are a bit shaky. He starts with $6 billion from the Rainy Day fund, throws in another $2.5 billion from the Available School Fund, about which I confess I know very little, and grudgingly agrees to expanded gambling, which he says would generate another billion for this biennium. From there, he suggests some savings, delaying some payments by a day to put them in the next biennium, and waves his hands at “some of the thoughtful recommendations laid out in recent days by organizations like the Texas Higher Education Coordinating Board and conservative think tanks”, none of which suggests more revenue to me. I don’t have a problem with finding legitimate savings, though my opening bid for that would be the LBB recommendations, which do include revenue ideas as well, nor would I object to an accounting trick or two as a last resort, but these suggestions are not compatible with finding enough revenue to “hold the line” at $87 billion.

I don’t want to be too critical, because to me the main point is that Hammond is moving the chains in a direction I favor and is giving the Republicans his organization supports rhetorical cover for using the Rainy Day fund. It’s not where the state needs to be, but I’m more than happy to debate how to spend $87 billion instead of how to spend $72 billion. I hope that by writing this, Hammond is acknowledging that the mainstream consensus position is not with the Pitts/Ogden budget. That by itself would mean a lot.

Hammond’s op-ed can now also be seen in the DMN and at the Trib, where it’s accompanied by counterpoints from the CPPP’s Eva de Lina Castro and Talmadge “Kick Grandma to the street” Heflin. Wonder if he feels weird being in the “center” of this debate. Burka has more.

We have the beginnings of a budget

And with it, some idea of how deep the hole is.

Maintaining basic state services over the next two years will cost Texas almost $84 billion, $3.7 billion more in general revenue than the state expects to raise during that period, according to the Senate budget introduced Tuesday.

To close that gap, lawmakers will have to choose between cutting costs, raising more money or dipping into a rainy day fund that is projected to have $9.1 billion available.

The key words in those paragraphs are “maintaining basic state services”. In other words, if we just do what we did two years ago, we’re $3.7 billion in the red. Keep that in mind when you hear people talking about cutting spending.

That gap could also grow considerably because the base budget, prepared by the Legislative Budget Board staff, will serve as the starting point for the Senate and House to begin hammering out the nitty-gritty of the 2010-11 budget.

Nor does the proposal cover increased demand for services in all areas, said Eva DeLuna Castro, a budget analyst with the Center for Public Policy Priorities, which advocates for low- and moderate-income families.

Lt. Gov. David Dewhurst said in a statement that the budget meets his priorities of “holding the line on state spending, continuing the record local school property tax cuts and funding essential services for the most vulnerable in our society.”

But Talmadge Heflin, a former House appropriations chairman, said more spending restraint was needed.

“The Texas Legislature needs to get to work on pruning the next state budget back within the available revenue,” said Heflin, director of the Center for Fiscal Policy at the Texas Public Policy Foundation, an advocate for limited government.

Heflin had more to say than that – Burka has his statement, along with a suitable reply. Heflin is delusional, but he’s got a lot of company. I hope that people will associate him and his positions with the budget disaster that came out of the 2003 session and will at least consider other possibilities.

The Morning News has more details:

The Senate’s version spends $171.5 billion over two years – 1 percent more than in the current two-year budget cycle; the House, $170.8 billion.

The key differences between the two chambers’ plans were that the Senate’s would spend $200 million to fix state schools for people with mental retardation; $148 million to expand teacher merit pay programs; and $200 million to maintain current financial incentives for better performance by state universities and colleges.

Both versions would leave intact most of the $9.1 billion that Comptroller Susan Combs last week predicted would pile up in the rainy day fund by September 2011.

The Senate plan proposes $3.7 billion of spending that’s not covered by Combs’ revenue estimate – of which $1.4 billion would occur only if textbook money can’t be distributed from the Permanent School Fund, battered by recent stock market dips.

The House’s base budget would draw down the rainy day fund by $3.3 billion, or maybe only $1.9 billion if the textbook money is freed from the school fund.

Both bills include a provision spelling out how cuts would be made to balance the budget, if lawmakers balk at tapping the rainy day fund. Spending the money, derived mostly from oil and natural gas production taxes, requires a supermajority in each chamber.

So if all goes well and there’s enough votes to tap into the rainy day fund, we’ll spend about $2 billion of the $9 billion that it contains. That doesn’t seem like too big a withdrawal to me. If not, if there’s enough Heflin acolytes to insist that we leave all that money under the mattress, then we get to cut basic services again. Which will be just a dandy thing to do in an economic turndown. The fun begins next week when both chambers reconvene. You can see both proposals on the Legislative Budget Board‘s website, and you can see Sen. Ogden’s SB1 here. Thanks to Eye on Williamson for the links.