Off the Kuff Rotating Header Image

Another reason why spending caps are a bad idea

There are many reasons why, but this is one we haven’t encountered before.

Several political observers well-versed in the state’s finances say that lawmakers could hit the state’s spending limit this session, complicating efforts to access the $11.8 billion in the state’s Rainy Day Fund.

The Texas Constitution says the government can’t grow faster than the state’s economy. That growth rate is always set ahead of the session based on the estimated rate of growth in Texans’ personal income over the next two years. Passing a budget that busts the limit requires support from a simple majority of the House and Senate.

While it’s a simple idea, in practice, the constitutional spending limit is about as clear as mud. The exact amount of the spending limit for the next budget remains a moving target, and there is disagreement on some aspects of how the limit is meant to be applied, particularly whether any spending from the Rainy Day Fund is subject to the limit.

“Apparently there’s a lot of confusion out there about what counts and what doesn’t,” said Eva DeLuna Castro, a senior budget analyst for the liberal Center for Public Policy Priorities in Austin.

This year, lawmakers find themselves contending with reaching the limit largely because of the Texas economy’s rapid swing from a recession to a robust recovery. Cuts made in 2011 were based on estimates from the comptroller’s office that revenue would come in at low levels. The rebound happened faster than expected, leaving the current Legislature with a large surplus and calls to spend some of it on a range of expensive proposals, including tapping the Rainy Day Fund to restore billions in education cuts made last session.

“One can argue that we really didn’t need to make many of the cuts in the budget that were made in the last legislative session, including the $5 billion in cuts to public education,” said education finance expert Lynn Moak. “But to get it back, you have to bust the spending limit.”

[...]

In November, the LBB voted to set the growth rate in spending at 10.71 percent. Several people watching the budget process predict that rate should lead to a final spending limit that will allow lawmakers, if they choose, to spend virtually all of the available general revenue this session, expected to be roughly $95 billion after lawmakers pass a supplemental budget for 2012-13.

The $11.8 billion projected to be in the state’s Rainy Day Fund is a different matter. House officials have said the limit applies to most types of spending that lawmakers have proposed for the fund, though certain kinds of tax relief would be exempt. Dale Craymer, president of the Texas Taxpayers and Research Association, helped write the legislation that created the Rainy Day Fund in the late 1980s, and he said that’s not what the lawmakers who originally approved it bargained for.

“It was never the intent that the spending limit apply to the Rainy Day Fund,” said Craymer. He agreed the issue is now a point of debate.

Well, this is the sort of thing that happens when you let ideology override policy. Surely no business would allow itself to be handcuffed by the inept forecast of an incompetent financial officer, but that appears to be the position Texas has put itself in. The good news, as the Statesman notes, is that so far at least legislators don’t appear to be willing to tie themselves down in this fashion. Rep. Donna Howard has filed a bill to clarify that the Rainy Day Fund is not subject to this spending cap; the bill in question is HB652. There’s hope that we can work around this without anything too dumb happening.

This assumes that Rick Perry doesn’t make the situation worse by pushing through an even tighter cap, because doing stupid and harmful things like that is his job. Scott McCown explains why this is such a bad idea.

If a family budgeted this way, no matter how much money the family made, it could never improve its life. Imagine sitting down to write your first family budget. Naturally it is lean, but you have dreams of a better future — a safer neighborhood, a graduate degree. Under the governor’s proposal, though, even as your income increased, you would be stuck living under that lean budget adjusted only by family growth and household inflation. You could never make your life better.

Not being able to make things better would be a big problem for Texas. However you measure it, Texas ranks low in spending. Our systems for education, water, transportation, mental health, child protection, and many others are struggling. If we could adjust our current lean budget only for population and inflation, we could never make major new investments to improve our state.

The governor’s proposal has another big problem: Not only could a family not improve its life, periodically things would actually get worse. As the Great Recession reminded us, income doesn’t always go up. Sometimes breadwinners suffer a pay cut or lose a job, and a family has to cut its budget. Under the governor’s proposal, this lower level of spending would become the new base.

For a family, that would mean if it made $35,000 last year, but only $30,000 this year, its budget for next year would have to be based on the lower figure even if it made $40,000. Yes, even after the family’s income recovered, it couldn’t increase spending. No family would budget in a way that prevented recovering from a setback, and no state should, either.

The governor’s formula also uses the wrong measures of population and inflation. A family budget isn’t based merely on family size, but on family composition — whether the family is budgeting for a baby, for a child in college, or to care for grandma matters a lot to the bottom line. Likewise, a state can’t merely consider growth in total population; a state must consider who it is actually serving. For example, in Texas the rate of elderly who potentially need assisted living through Medicaid is projected to grow twice as fast as our total population between now and 2040.

And just as a family wouldn’t base its budget on government inflation, a state shouldn’t base its budget on household inflation. Families and governments buy different “baskets” of goods and services. A much higher portion of the state budget, for example, goes to buy health care, which is increasing in cost faster than household inflation. By using the wrong measures of population and inflation, year after year, the governor’s proposal would force Texas to do less and less for fewer and fewer.

As far as Perry and his cronies are concerned, doing less and less for fewer and fewer is a feature, not a bug. As always, now is an excellent time to let your State Rep and State Senator know that you want them to work on solving Texas’ problems, not making them worse. It’s not their job to tell future legislators what they can and cannot do. EoW has more.

Related Posts:

One Comment

  1. [...] and revenue caps are stupid and destructive? This is another illustration of why. The issue here is whether appropriating money from the Rainy Day Fund would count towards the revenue cap, which mandates that spending can only grow so much from one biennium to the next. Use of the Rainy [...]

Bookmark and Share