Monday, February 7, 2011

LATimes: Texas' Finances Not As Rosy As They Seemed

Los Angeles Times: Texas prides itself as a model of conservative spending and responsible budgeting. But, the $27-billion budget gap undercuts Texas' image as a business-seducing, fiscally adaptive state.
The lecturing from Texas leaders about how California wouldn't be in such a budget mess if its politicians did business the way it is done in Austin has been relentless for years. Texas Gov. Rick Perry delights in telling tales of his California "hunting trips" — hunting for businesses ready to flee the Golden State. The $27 billion budget gap puts Texas in the same league as California among states facing financial meltdowns. The gap amounts to roughly one-third of the Texas state budget.

Texas has a two-year budget cycle, which allowed it to camouflage its red ink last year, thanks in large part to [Gov. Perry and conservative law makers taking] billions of dollars in federal stimulus money. Now, however, "someone just turned the lights on in the bar, and the sexiest state doesn't look so pretty anymore," said California Treasurer Bill Lockyer, with evident satisfaction.

In a place where government is already lean, there aren't many areas to make up that kind of cash. The Republicans who dominate the statehouse won't be closing loopholes that emerged in a recently enacted business tax change, costing the state billions in anticipated revenue. Instead, the budget blueprint Texas Republican lawmakers are mulling [that would cut $31 billion from state spending to cover the deficit] means layoffs for tens of thousands of teachers, closure of community colleges, and a severe reduction in state services for the poor and elderly and those with mental health problems.

The Texas budget crisis is prompting some experts to reconsider what had been dubbed the Texas Miracle. The state has much lower unemployment than California, but economists note that many of the jobs are low-paying. One out of three wage earners in Texas earns too little to keep a family of four above the federal poverty level, according to a 2009 study by the Corp. for Enterprise Development, a Washington-based nonprofit. That is double the percentage of similarly low-wage Californians.

Such figures call into question whether Texas' economy has really transitioned into a new 21st century model, or whether it has been buoyed by high oil prices and lots of loosely zoned land where construction of cheap houses endured through the recession.

"You have to separate out what your public policies have done for you and what God has done for you," said Scott McCown, executive director of the left-leaning Center for Public Policies and Priorities in Austin. "People shouldn't be fooled by what is going on here."

Some Texans question whether business leaders will tolerate the resulting deterioration of public infrastructure, particularly in the education system.

Read the rest of the story at the Los Angeles Times.
Texas' budget problems will not go away when legislators eventually sign a balanced budget later this year, senators heard on Monday. A $10 billion budget shortfall will reappear in future legislative sessions again and again unless lawmakers better align how much money comes in and how much goes out, said John Heleman, chief revenue estimator for Comptroller Susan Combs, in testimony before state senators last week.

Pressed by Democratic senators on the Finance Committee, John Heleman said the state will have a $10 billion structural deficit in future budgets.
That structural shortfall comes from a tax cutting "tax swap" measure that lowered property taxes and substituted, or swapped, a new business margins tax to offset the lost property tax revenue.

Even at the time, the swap was projected to be $5.9 billion short of balancing each biennium. That tax cutting measure ended up being at least $14 billion short because the new business tax produced less than half of the needed revenue and the property tax cut cost more than promised. Lt. Governor Dewhurst and others rightly say the 2006 tax swap created a structural deficit.

Up to now it Texas Republican lawmakers covered the shortfall with federal Recovery Act (stimulus) money—all of which is gone.
"We need to not fool ourselves that this is a one-time phenomenon," says state Sen. John Whitmire, D-Houston, who instigated the discussion at the Senate Finance Committee meeting. "We need to be grown up and deal with reality and make plans for the future of Texas."

Republican state leaders have attributed the state’s budget woes to the recession and have dismissed calls to raise taxes, or fix the 2006 tax swap mistake, to deal with the current budget shortfall, saying they can cut their way out of that hole.

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