There's One Huge State Budget Crisis That Everyone Is Refusing To Talk About

Talking Points Memo 1/3/11
There's One Huge State Budget Crisis That Everyone Is Refusing To Talk About

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But there's one state, which is fairly high up on the list of troubled states that nobody is talking about, and there's a reason for it.

The state is Texas.

This month the state's part-time legislature goes back into session, and the state is starting at potentially a $25 billion deficit on a two-year budget of around $95 billion. That's enormous. And there's not much fat to cut. The whole budget is basically education and healthcare spending. Cutting everything else wouldn't do the trick. And though raising this kind of money would be easy on an economy of $1.2 trillion, the new GOP mega-majority in Congress is firmly against raising any revenue.

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So why haven't we heard more about Texas, one of the most important economy's in America? Well, it's because it doesn't fit the script. It's a pro-business, lean-spending, no-union state. You can't fit it into a nice storyline, so it's ignored.

But if you want to make comparisons between US states and ailing European countries, think of Texas as being like America's Ireland. Ireland was once praised as a model for economic growth: conservatives loved it for its pro-business, anti-tax, low-spending strategy, and hailed it as the way forward for all of Europe. Then it blew up.

Texas Observer 1/7/11
Krugman Gets It Right on Texas Budget Crisis

If you haven't seen it, New York Times columnist Paul Krugman has a kick-ass column today, "The Texas Omen," taking down the myth that Texas is doing just fine and dandy under Republican economic ideology. It's taken a while for the national media to get hip to the massive budgetary crisis here – though the Observer has been hollering from the hills on this topic for months – but we're glad to see Krugman do it justice. (Hat-tip also to Forrest for the Trees' friend Joe Weisenthal at Business Insider for taking our advice and writing this post last week.) Here's Krugman:

Texas is where the modern conservative theory of budgeting — the belief that you should never raise taxes under any circumstances, that you can always balance the budget by cutting wasteful spending — has been implemented most completely. If the theory can’t make it there, it can’t make it anywhere.

How bad is the Texas deficit? Comparing budget crises among states is tricky, for technical reasons. Still, data from the Center on Budget and Policy Priorities suggest that the Texas budget gap is worse than New York’s, about as bad as California’s, but not quite up to New Jersey levels.

The point, however, is that just the other day Texas was being touted as a role model (and still is by commentators who haven’t been keeping up with the news). It was the state the recession supposedly passed by, thanks to its low taxes and business-friendly policies. Its governor boasted that its budget was in good shape thanks to his “tough conservative decisions.”

NY Times 1/6/11
The Texas Omen

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Wait — Texas? Wasn’t Texas supposed to be thriving even as the rest of America suffered? Didn’t its governor declare, during his re-election campaign, that “we have billions in surplus”? Yes, it was, and yes, he did. But reality has now intruded, in the form of a deficit expected to run as high as $25 billion over the next two years.

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How bad is the Texas deficit? Comparing budget crises among states is tricky, for technical reasons. Still, data from the Center on Budget and Policy Priorities suggest that the Texas budget gap is worse than New York’s, about as bad as California’s, but not quite up to New Jersey levels.

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What about the budget? The truth is that the Texas state government has relied for years on smoke and mirrors to create the illusion of sound finances in the face of a serious “structural” budget deficit — that is, a deficit that persists even when the economy is doing well. When the recession struck, hitting revenue in Texas just as it did everywhere else, that illusion was bound to collapse.

The only thing that let Gov. Rick Perry get away, temporarily, with claims of a surplus was the fact that Texas enacts budgets only once every two years, and the last budget was put in place before the depth of the economic downturn was clear. Now the next budget must be passed — and Texas may have a $25 billion hole to fill. Now what?

AAS 1/8/11
Details of Texas' budget challenge about to emerge

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Amid the election year barnstorming, projections of a budget shortfall now topping $24 billion were often downplayed, dismissed or glossed over with platitudes.

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Others argue that the draconian spending reductions will leave Texas — and Texans — starving and weak.

Public school classrooms will be teeming with more students and fewer teachers, college tuition will rise just as financial aid plummets, and the state's most vulnerable disabled residents will be warehoused in state institutions, according to Texas Forward , a coalition of social service, education and labor groups calling for fewer cuts.

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But the balance between state revenue and expenses was knocked out of whack long before the onset of the recession.

In 2006, the Legislature reduced local school property taxes after a Texas Supreme Court decision that the school finance system was unconstitutional. The revamped business tax intended to pay for much of that cut failed to live up to expectations and has left a big hole that needs to be filled each budget.

Burnt Orange Report
Rick Perry's Cover-Up and Corruption: Texas' $25 Billion Budget Shortfall

Ed. Note: This is the tenth and final part of a ten-part wrap-up of Rick Perry's history of cover-up and corruption that will run on Burnt Orange Report today.

There has not been a bigger or more important cover-up this election cycle, and perhaps for decades in Texas, than Rick Perry's refusal to come to grips and be honest about the $25 billion budget shortfall facing the state of Texas. Our state's budget crisis is going to devastate the future of our economy for years, if not longer, unless Texans do something about it immediately.

For months, Rick Perry has done his best to cover-up the state’s $25 billion budget shortfall, which is now “proportionately larger” than California’s. From the Dallas Morning News, "Legislature likely to cut deep to meet possible $25 billion budget gap."

AAS 1/10/11
Revenue estimate puts shortfall at $27 billion

Texas is expected to collect $72.2 billion in taxes, fees and other general revenue during the 2012-13 budget, down from the $87 billion used in the current two-year budget, Comptroller Susan Combs announced Monday.

That puts the shortfall at $27 billion given that maintaining services would run $99 billion for biennium.

Collections for the current budget will come in $4.3 billion less than budgeted.

Dallas Morning News 1/9/11
How do you cut $25 billion from Texas' budget?
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Texas-size budget gap

At the Capitol, senior legislative staff members have said the budget gap could be $25 billion between anticipated revenues and expenses. That amounts to more than a quarter of the $87 billion in current spending of state funds that have no strings attached.

With the downturn lingering and no prospects of additional federal aid, Texas also faces troubles because of its heavy reliance on sales tax.

Some economists say it's possible revenue will never rebound to 2006-08 levels, as recession-stung residents may have throttled back household spending for good.

Democrats, while outnumbered, have chided GOP leaders for believing they can write a budget that doesn't assume growth in school enrollment and Medicaid numbers.

"If we are bragging about our ability to attract people from all over the country because we've got such a strong economy ... then we actually have to admit those people are here," said Senate Democratic Leader Leticia Van de Putte of San Antonio. "I love fantasy, but I don't want this trip to Neverland."

AAS 1/10/11
Texas' revenue still lagging despite economic recovery

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But state revenues will continue to sputter because Texas relies heavily on sales taxes to pay for its operating expenses, and consumers are saving rather than spending their dollars, she said.

Combs defended her overly optimistic estimate from 2009 that contributed to a deficit in the current budget of $4.3 billion, noting that no one expected the recession to be as severe as it was.

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One possible source of money for dealing with the deficit is the state's $9.4 billion rainy day fund, though Combs urged caution because it will not be a recurring source of money.

Perry said he doesn't want any of those dollars spent.

"Why spend the money during a period of time when we see a national recession having an impact on the state?" Perry said. "Why in the world would we want to spend dollars just because they're sitting there, when those are going to be ongoing expenses?"

PolitiFact Check 1/11/10
Statements about the budget shortfall fall short

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Perry: "We have billions in surplus."
Before he won the GOP nod for governor again, Perry boasted in a February TV ad about his "tough conservative decisions" that resulted in "billions in surplus" for the state. Perry’s campaign pointed to a report by Combs estimating that the state would have $8.2 billion stowed in its rainy day fund, which lawmakers can tap to balance the budget. Unsaid: John O’Brien, director of the Legislative Budget Board, which advises legislators, had already estimated that spending would exceed incoming revenue by $11 billion — more than the rainy day fund alone could cover — by the time the 2012 fiscal year starts next September. We rated Perry’s statement Barely True.

Perry: In 2003, Texas cut "$10 billion out of the entire budget, yet we put $1.8 billion more into public education. We put $800 million more into health and human services."
Responding to an April question about the predicted $11 billion shortfall, Perry pointed out that the state had closed a similar gap in 2003. We rated that Barely True: The Legislature closed the $10 billion revenue shortfall, but actually cut only $3.2 billion from the budget. And that extra money that the state put into public education and health and human services? Federal dollars.