The state of the state

Things were pretty busy for me this past week, so I haven't had much time to write any analytical stuff. I'm finally getting things back to normal, so in that spirit let's take a look at the state of the Texas budget.

As we know, Texas is staring down a $10 billion deficit. It's a little misleading to say that without any qualifications, since Texas budgets are biennial. What we've really got is a $1.8 billion shortfall for this fiscal year, which ends in August, and a projected $8 billion or so shortfall for the following year.

You may recall that last year, Comptroller Carole Keeton Strayhorn insisted that Texas was short about $5 billion for its budget, despite warnings that her projections were based on optimistic growth estimates. Only recently, in particular after the November election, did Strayhorn change her tune. This has caused some Democratic legislators to accuse her of sandbagging.

"Y'all held it back," [Sen. John] Whitmire [D-Houston] told Strayhorn's staff at the first meeting of the Senate Finance Committee on Wednesday. "To quote you, you didn't want to create a crisis in fall. You just wanted to drop it on us in January. If they give an award on accuracy in projections, you better hope they grade on a curve."

[...]

Rep. Scott Hochberg, D-Houston and a current member of the House Appropriations Committee, said trouble was obvious by last summer and that Strayhorn might just be "the world's greatest optimist."

He said instead of sales taxes growing at the projected 4 percent for the biennium, they began sloping downward last spring, particularly in May. In order to meet the projection, the sales tax would have to grow even faster to catch up.

In May, they would have needed to start growing 6 percent and by early December they would have needed to grow 11 percent, Hochberg said. Yet, the gap just kept widening.

The real problem now is the $1.8 billion that comes due in August. About $400 million can be borrowed from unencumbered state accounts. State department heads were recently given a directive to cut $700 million immediately from their budgets. That still leaves $700 million with no obvious way to get it. You can be very sure that various accounting tricks, such as deferring payments, will be used to bring the budget into "balance" as mandated by the state Constitution.

While $700 million is a small piece of the overall budget, it's nearly 20% of what's needed just to run the state government:

If the state's 80 general government agencies turned out the lights, locked the doors and completely shut down for the next two years, it would pay for a little more than a third of the shortfall.

If there were no governor, no attorney general, no comptroller, no Public Utility Commission, no Department of Insurance, no judiciary, no Legislature or any other general agency of state government, it would save $3.5 billion in state spending.

In that context, $700 million by August is a huge undertaking.

Long term, of course, the two biggest items in the budget (as I've noted before) are education and Health and Human Services. There's an excellent reason why these line items have boomed: The population that most needs them has also boomed.

The driving forces of state spending since 1992 have been a 21 percent increase in public school enrollment, a 25 percent increase in junior college enrollment, a 23 percent increase in the Medicaid caseload of health care for the poor and a jump in the state prison population from 50,900 in 1992 to 147,157 last year, according to the Legislative Budget Board.

The jump in public school enrollment and Medicaid caseloads reflects the dramatic rise in the state's Hispanic population over the past decade, a population that is mostly young and poor.

There are about 5,000 fewer Anglo students attending Texas public schools today than there were a decade ago, and the black public school population has grown by about 90,000 students. But there are almost 500,000 more Hispanic students in the state's schools today, according to the Texas Education Agency.

The Texas Department of Health and Human Services reports that the number of Anglos receiving Medicaid grew by 30,000 between 1995 and 2002, and the number of blacks in the program declined by almost 20,000. But almost 250,000 more Hispanics enrolled in the state-sponsored health care program.

Thirty-one percent of the state's population was Hispanic in 2000, but Hispanics make up 42 percent of the student population and half the Medicaid enrollment.

Which in my mind neatly demolishes the argument by Republicans like Sen. Florence Shapiro that Texas' spending is "out of control". Texas is like a fast-growing company that needs to make large an increasing capital investments to keep up with the explosion in its work force. Unlike a business, though, we can't initiate a hiring freeze to slow growth down. What we get is a lot of denial about our spending problems instead of our revenue problems.

Even worse, the Legislature is practically designed to be in denial about the budget:

More than two-thirds of the Republican lawmakers come from districts that are more than 60 percent Anglo. Almost all of the Republicans come from districts with family incomes above the statewide mean of $45,861 a year -- with a fifth of the House Republicans in districts with family incomes of more than twice that.

"A lot of representatives who are on House Appropriations or Senate Finance (Committees) are going to have to do a lot of dual thinking of what's good for my constituents and what's for the state as a whole," said [Eva de Luna Castro of the Center for Public Policy Priorities]. "At times, those are going to be at cross-purposes."

So it's really propitious timing for new Speaker Tom Craddick to make wholesale changes in committe memberships.

As he had promised, Craddick made major changes in the appropriations panel after winning a change in the House rules to eliminate seniority as a factor in the committee's makeup.

Only eight of his 29 appointees served on the committee in 2001 under Laney. Seventeen members of the revised panel are Republicans, including two freshmen.

You can thank redistricting for a lot of this, which means it'll be another ten years before demographic changes will be likely to have any effect.

So what we've got, in short, is a rapidly growing population that's increasingly in need of government services, and a Legislature that's largely made up of people who don't represent those people. This is a recipe for disaster. I am not looking forward to the next few months.

Posted by Charles Kuffner on January 31, 2003 to Budget ballyhoo | TrackBack