Texas Struggles to Fill a Texas-Sized Budget Hole

AUSTIN, Texas — Last week, advocates for people with disabilities rallied at the state Capitol here to protest budget cuts. Eleven, including nine in wheelchairs, were arrested and charged with criminal trespass. This week, another group is organizing a far bigger rally that organizers say will draw more than 10,000 education advocates to the capitol on Saturday.

Austin is used to big crowds for college football or the annual “South by Southwest” music festival. It’s more rare, however, for thousands of people to show up to protest at the legislature. But these days, with Texas facing the worst budget shortfall in modern memory, what was once unthinkable has come to be expected.

“Fiscal crises in Texas are rare but not unheard of,” says Dale Craymer, a former top budget official for two governors who now heads the Texas Taxpayers and Research Association. This year, he adds, “the budget gap is bigger by any way you measure it.”

In fact, it’s about the biggest there is. A report this week from the Center on Budget and Policy Priorities found that Texas’ budget shortfall for the current fiscal year as a share of the total budget is the highest in the country. For the next fiscal year, only Nevada and New Jersey have a higher shortfall.

Keeping current services at the existing level for the next two years in Texas would cost billion more than the state is projected to have available. The budget that lawmakers are currently debating for fiscal years 2012-13 would cut about billion of that, still leaving a daunting shortfall. But before lawmakers can even address the shortfall for the coming fiscal years they must first close a .3 billion deficit in the current year’s budget. All this has left the legislature grappling with massive cuts in services in a state that has tended to spend less than other states on services to begin with. 

Strategy is to shrink

Both the GOP-led legislature and Republican Governor Rick Perry have ruled out tax increases. As a result, budget proposals in the House and the Senate contemplate spending almost billion less on K-12 education than is required under current law, which would not only raise class sizes but could cost 100,000 school employees their jobs. Cuts of that magnitude would violate the current school funding formula, which means that policy makers would first have to rewrite the funding structure before making the cuts.

Health and human-service agencies are facing billion in cuts, when the loss of federal Medicaid matching funds is taken into account, according to the Center for Public Policy Priorities, an Austin research group. The proposals also include dramatic reductions in spending for higher education, transportation and prisoner health care. One suggestion would close four community colleges, some in areas where no other institution of higher education is available anywhere nearby. Both the House and Senate plans call for closing a prison in Sugar Land, a suburb of Houston.

The impact of all this has begun to hit home to many Texas residents. Jeannie Partin worries how much her son’s class sizes in Quinlan, a small town near Dallas, might grow. Already, there are 40 to 45 students in his 8 ^th grade class. The school system has also laid off teachers and closed buildings. In Dallas, school officials are getting ready to cut between 3,000 and 4,000 teaching positions.

Bob Kafka, an organizer for Texas ADAPT, a disability rights group, says Medicaid cuts would force many elderly people or people with disabilities into nursing homes and would put thousands of in-home health care providers out of work. “What this governor is doing is devastating the whole infrastructure of health and human services,” he says.

Reservations about reserve funds

Oil and gas revenues have fattened the state’s rainy day fund to more than billion. But in recent weeks, Perry has fiercely objected to tapping into the fund to balance the state’s books on the grounds that using that money would only postpone difficult decisions. Some prominent Republicans have broken with the governor.

State Representative Jim Pitts, a Republican who chairs the House Appropriations Committee, is sponsoring a bill to use the fund to cover the deficit in the current budget, a proposal that has found support among many in his party. 

“I do want the governor to understand if the process is moving along, it may be the position of this House and it may be the position of this committee to use the rainy day fund,” Pitts said during a committee meeting Thursday. 

State Representative John Otto, another Republican on the committee, says the rainy day fund was designed to help the state weather economic downturns. “The choices to me are pretty grim if we don’t use this fund for what it was created for,” he says.

In defending his bill, Pitts has clashed with Perry, who has challenged House budget writers to find more cuts for the current budget year. But Ken Armbrister, Perry’s legislative director, told the committee that the governor had “not drawn a line in the sand” against using rainy day fund money, suggesting a possible softening of his stance.

Revenue plunge

Texas has no income tax and relies on the sales tax for almost two-thirds of state revenue. That dependence left the state exposed when consumer purchases plummeted far more than anticipated during the recession. “I’ve been around the state government since the mid 1980s, and in that time I can’t remember a single month when sales tax declined by double-digits,” Craymer says. During the recession, however, that happened eight consecutive months.

A 2006 revamp of the state’s business tax also brought in .4 billion less than projected in the first two years, compounding the revenue problem. Meanwhile, a court ruling that imposed stricter local property tax caps forced the state to take on more of the burden of financing public schools.

Texas Comptroller Susan Combs says sales tax revenue will grow 8 percent over the next biennium because of the recovering economy. An 8 percent increase “is maybe a little higher than I would have projected but it’s not too high,” says Terry Clower, director of the Center for Economic Development and Research at the University of North Texas. But if the fragile economic recovery stalls, those projections could prove optimistic and force lawmakers to turn to even further budget cuts.

The state’s economy, while down from its pre-recession peaks, has not suffered as much as that of other states. In 2010, the unemployment rate held steady at around 8.2 percent, well below the national average. Sales tax revenues also have ticked back up. January’s receipts came in 10.4 percent higher than the previous year, the 10 ^th straight month of sales tax revenue increases. But massive government layoffs, and perhaps even the threat of them, may be enough to crimp the economic recovery. “I would be very surprised if there were many teachers that were out right now buying new vehicles or refrigerators,” Clower says.

No matter what happens to Texas’ economy, many analysts and advocates think state spending, once cut, will not regain pre-recession levels. The way the state serves its citizens will change for good. “There is a healthy aspect to this,” Craymer says, “and it is forcing states and local government to look at a lot of programs that have been added on in the last several years and ask the question: ‘Is this really a priority for us?'”