Texas Budget Source

Curt W. Olson
Texas Budget Source Investigative Reporter

Texas is $4.3 billion shy of making its current biennial budget balance, according to the biennial revenue estimate issued on Monday morning by Comptroller Susan Combs.

Combs anticipates revenues, taxes, and fees to generate $77.3 billion for the 2012-13 biennium, of which more than $800 million would be set aside by law for the Economic Stabilization Fund (a/k/a the rainy day fund).

That leaves $76.5 billion in net general revenue. However, Combs projected that the state would have a $4.3 billion negative ending balance for the current biennium, which ends August 31. Barring current-year budget cuts by the Texas Legislature, that would leave only $72.2 billion available for general-purpose spending during the 2012-13 biennium.

Combs’ Monday morning press conference marked the required pre-session revenue announcement by the comptroller. The Legislative Budget Board will release the base budget within five days – possibly as early as Friday. That initial budget bill will give leaders of state agencies a better idea of how the state’s financial situation will affect them.

“The weakened economy had an impact on sales taxes and other major revenue sources the past couple of years,” Combs said.

In signaling “moderate growth,” the comptroller said the recent increases in sales tax revenues would continue. Meanwhile, the state will recover the remaining lost jobs during this recession by mid 2012, Combs said. About 220,000 of 431,000 have already been recovered.

Combs predicts the 6 percent drop in sales taxes from the current biennium, will be followed by an 8 percent increase in 2012-13.

The forecast is not more robust because the state still has not seen the housing market bounce back. Combs said there has been a 40 percent decline in the housing market, putting it at 2000 levels. She said the housing slow down has impacted sales taxes as slower home construction means less companies buy construction materials.

“The housing sector has yet to show any real improvement,” Combs said.

All of this led the left-leaning Center for Public Policy Priorities (CPPP) to declare there was no way that Combs’ BRE would suffice in funding state government the next two years. The CPPP insists $99 billion from the Legislative Appropriation Requests (LARs) will be needed for state government.

“When increased population and higher costs are taken into account, Texas is at least $26.8 billion short of the General Revenue needed to provide for current services into the next biennium. In other words, we are short by at least 25 percent,” said CPPP executive director F. Scott McCown.

The problem with this analysis, according to Talmadge Heflin, director of the Center for Fiscal Policy at the Texas Public Policy Foundation, is that the Legislature doesn’t issue a blank check for the LARs.

“These requests are almost never fully funded – even at the start of the budget process – because they include many unnecessary spending items that appropriators recognize and quickly weed out,” Heflin said.

Combs admitted these times could be considered a “rainy day,” but she cautioned lawmakers against jumping at the opportunity to spend the entire $9.4 billion.

A high-ranking legislative aide who spoke on background revealed the need to maintain the cushion in the rainy day fund as high as possible beyond this biennium.

Combs added that while the Economic Stabilization Find exists for emergencies, it is not a reliable revenue source.

Combs’ estimate is important because it tells Texas legislators how much money is available for the state budget. It will be important in June when she reports later whether the state has the money to certify the budget lawmakers passed.

Leaders in the executive and legislative branches say they will deliver a budget that keeps Texas on strong financial footing now and in the future.

The responses of Gov. Rick Perry, Lt. Gov. David Dewhurst, House Speaker Joe Straus and State Rep. Jim Pitts, R-Waxahachie, who serves as House Appropriations Committee chairman, sound a consistent theme: the tough choices will be made to keep Texas on strong financial footing.

“Comptroller Combs delivered a revenue estimate today that shows the Texas economy continuing to grow steadily ahead of the nation, yet, as expected, is also reflective of the national recession’s lingering impact on state revenue,” Perry said.

“To ensure Texas continues to lead the nation’s economic recovery, state leaders must remain good stewards of taxpayer dollars, continue strategic investments and stand by the proven fiscal principles that have helped us balance our state’s budget when facing similar challenges in the past. As families and employers are doing all across this state and nation, we will separate the wants from needs, and then cut spending.

“I am confident we will meet our state’s needs within this revenue estimate by prioritizing spending without raising taxes, laying the foundation for our state’s future prosperity.”

“At this point, we know that the budget shortfall for the current 2010-2011 biennium is $4.3 billion, but any further speculation about future spending is just that – speculation,” Dewhurst said in his statement.

“Unlike Washington, the Texas Legislature prioritizes spending based on available revenue, not from an infinite wish list of earmarks and automatic spending increases.

“I think that when we pass the final budget, it will be reminiscent of 2003 when people said there was a $10-16 billion shortfall because some wanted $10-16 billion in new spending. Yet, we balanced that budget, increased funding for public education, covered our obligations under Medicaid, and still cut the budget by $2 billion.”

“The Comptroller’s revenue estimate reflects a conservative, cautious outlook on the economy, which is consistent with the expectations we used in developing the base budget bill,” Straus said. “We have serious challenges, but I look forward to working with Gov. Perry, Lt. Gov. Dewhurst, the Senate and the House to address the will of the voters and pass a fiscally conservative, balanced budget with no new taxes.”

“Comptroller Combs’ estimate provides a clear picture of the budget challenges the Legislature faces during the 82nd Session,” said Pitts. “Texas remains strong, and we will make the tough choices necessary to ensure that we have a balanced budget and that our state remains the best business climate in America.”