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Texas Facing at Least $15B Shortfall

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    NEWSLETTERS

    Texas lawmakers will have a revenue shortfall of at least $15 billion for general-purpose spending for the next two-year budget compared to current state spending, according to figures released Monday.

    Some analysts say the true shortfall could be much higher -- closer to $27 billion -- if lawmakers intend to maintain spending at current levels and still pay for enrollment growth in public schools and on Medicaid rolls, cost increases and other variables. That figure amounts to almost a third of discretionary state spending in the current budget.

    Legislature Faces Spending Shortfall

    [DFW] Legislature Faces Spending Shortfall
    Texas lawmakers will have a revenue shortfall for the next two-year budget compared to current state spending. (Published Monday, Jan 10, 2011)

    The Texas Legislature will begin to grapple with the bleak budget picture when the session opens Tuesday.

    "The recent recession has had its impact on the state revenue outlook as major revenue sources, such as the sales tax generated less money in the last couple of years," state Comptroller Susan Combs told reporters. "While we have turned the corner to an economic recovery, the revenue estimate I'm releasing today is for moderate growth."

    The numbers cover the 2012-2013 budget, and include a $4.3 billion deficit in the current state budget.

    Texas also will have about $9 billion in the so-called Rainy Day Fund, but that money can't be used without a two-thirds vote of the Legislature -- a hurdle that may be too high with the new wave of fiscally conservative freshman Republican lawmakers.

    The estimate, which gives the Legislature a roadmap as it embarks on the budget-writing process, has for months been the topic of election-year rhetoric, with Republican incumbents trying to downplay the severity of the budget mess.

    "I don't think we have a budget hole," Gov. Rick Perry said in an interview with The Associated Press on Monday. "I think we have a budget of $76.5 billion and we're going to live with that. . . . It's only a budget hole when somebody has wished that they had more money."

    Because of the recession, state tax receipts for the 2010 budget year have fallen behind projections, leaving a deficit in the current budget. The state is also on the hook to fill a hole of about $11 billion left by federal stimulus money and other state savings that were used last year but are no longer available. Added cost pressures from increased enrollment in public schools and health care programs for the poor and disabled, and spikes in health care costs, will compound the massive hole.

    "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," said F. Scott McCown, executive director of the Center for Public Policy Priorities, which advocates for needy Texans. "In other words, we are short by at least 25 percent."

    In public schools alone, enrollment is expected to grow by more than 153,000 at a cost of about $1.6 billion over the next two years, according to the Texas Education Agency.

    The Texas constitution requires that the budget be balanced and state leaders and many of the new supermajority of conservative legislators elected in November have vowed not to raise taxes.

    Republican Lt. Gov. David Dewhurst said shortfall talk is merely speculation.

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

    The shortfall will be the driving force behind almost every decision the Legislature makes when it convenes for the biennial, 140-day session. From state parks and highways to health care programs for the poor and disabled, state agencies are bracing for the hatchet. With more than half of this year's $87 billion state budget dedicated to education and health care services, those areas are likely to sustain the most severe cuts.

    To put it in perspective, the state could wipe out spending on natural resources, public safety, criminal justice and the judiciary and still not have enough to cover a $27 billion shortfall. A $27 billion cut to state spending on the Health and Human Services Commission, which handles Medicare and Medicaid and is one of the largest state agencies, would eliminate state funding to the agency entirely.

    Republican House Speaker Joe Straus has raised the specter of unpaid furloughs for state employees. Education Commissioner Robert Scott warned the agency last week that he would be studying layoffs to deal with the budget challenges.

    Dick Lavine, a policy analyst for the liberal CPPP, said the shortfall could almost be recovered by using the Rainy Day Fund, eliminating some outdated exemptions in the tax code and small increases in the cigarette, alcohol and sales taxes.

    But conservative analysts urged the Legislature not to spend beyond its means.

    "The decisions of this Legislature will determine what kind of future Texas will have," said Talmadge Heflin, director of the conservative Center for Fiscal Policy. "A budget within existing revenues will keep a light burden on Texas taxpayers, encouraging large businesses and entrepreneurs to create jobs here."

    One Democratic lawmaker called Monday's announcement a "bitter pill to swallow."

    "A $27 billion hole in the state budget means there are no easy answers and no quick fixes," said Sen. Eddie Lucio Jr., D-Brownsville. "This session is going to be about hard decisions."