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House considers a bigger ask from the Rainy Day Fund

Needs must, as they say.

The proposal from state Rep. John Zerwas, a Richmond Republican and the House’s chief budget writer, would withdraw about $2.4 billion from the Rainy Day Fund as part of a supplemental budget to pay bills coming due for programs like Medicaid, the federal-state insurance program for the poor and disabled, and to pay for repairs to state-run institutions including mental hospitals and the School for the Deaf.

Previously, Zerwas advocated spending about $1.4 billion from the fund, which holds about $10 billion currently. He updated his proposal at Thursday’s meeting of the House Appropriations Committee, saying that without making a “modest withdrawal” from the savings fund, budget writers would be forced to make draconian cuts to public programs.

Entities that face budget cuts absent a cash infusion include the state’s public education system, pensions for retired teachers, and the Texas child welfare and foster care system charged with protecting vulnerable children from abuse and neglect, Zerwas said.

“Some members of our body have said publicly that our situation isn’t really that bad,” he said. “I can’t disagree more with that.”

Most legislative sessions, the Texas Legislature does not fully fund the cost of state programs, so lawmakers must typically pass a supplemental bill to cover the rest. Zerwas’ proposal would net some matching federal dollars, bringing the total value of the bill to $5.2 billion, officials said. About $3 billion would plug funding holes left by lawmakers in 2015, mostly in Medicaid and in a health care program for the state prison system.

The rest would go toward current needs, such as “deferred maintenance” costs at state-run institutions including mental hospitals, many of which are in disrepair.

See here for the background. I approve of Zerwas’ approach and appreciate what he is saying, but I would be remiss if I didn’t point out that a big part of the problem he is trying to solve is self-inflicted. As the story notes, tax cuts passed in the last session, at a time when oil and gas prices were low and the state’s economy wasn’t doing so well, cost $4 billion this biennium, while the referendum to dedicate a portion of sales tax revenue to the state highway fund has taken $5 billion out of the general fund. Zerwas had to file a separate bill to claw some of that money back. These were choices made by the leadership and the Legislature, the former because tax cuts are Republican crack, and the latter because we absolutely, positively refuse to consider raising the gas tax to meet our road needs. Budget gimmicks are just that, and whatever they purport to do, there’s always another gimmick to undo it. As a certain former President once said, reality has a way of asserting itself.

Bill to restore some budget flexibility filed

Call it the Law of Unintended Consequences Act of 2017.

The Texas House’s chief budget writer filed legislation Friday that would allow lawmakers to claw back billions of dollars that voters approved for state highways, freeing them up for other budget needs.

Texans overwhelmingly voted in 2015 to boost funding for the state’s public roadways and bridges, which have strained under a growing population. Proposition 7 amended the Texas Constitution to route some taxes collected on car sales to the State Highway Fund.

But House Appropriations Chairman John Zerwas, R-Richmond, filed a resolution Friday that would cut that initial cash infusion, aiming to free up money at a time when cash is tight.

House Concurrent Resolution 108 could cut the first transfer under Proposition 7 of nearly $5 billion in half, but only if two-thirds of lawmakers in both the House and Senate support such a move.

It’s a prospect made possible by what some lawmakers have called a “safety valve” in Senate Joint Resolution 5, the legislation that the Legislature approved in 2015 to send Proposition 7 to voters later that year.

See here for the background. I don’t expect this to pass – I really don’t think two thirds of the Senate will go for it – but I will be very amused if it does. Whether this is more or less likely to happen than tapping the Rainy Day Fund is now something we can test empirically. If nothing else, that’s a victory for science.

Zerwas proposes using Rainy Day Fund

We’ll see if this goes anywhere.

Rep. John Zerwas

The chief budget writer in the Texas House on Friday proposed using $1.4 billion from the state’s savings account to pay bills coming due for a wide array of the state’s health and human services programs.

The proposal from state Rep. John Zerwas, R-Richmond, would continue pay raises for Child Protective Services workers that state leaders ordered last year. It would also pay for renovations at the state’s aging mental health hospitals and state-supported living centers for people with disabilities.

And it would partially reverse a sweeping $350 million budget cut to a therapy program for children with disabilities ordered by the Texas Legislature in 2015.

The funding would come from the state’s Economic Stabilization Fund, also known as the Rainy Day Fund, a savings account lawmakers may use in tight budget years. That fund currently has about $10 billion.

“Using a small portion of the Economic Stabilization Fund, combined with spending reductions, is the responsible way for us to close out the current budget cycle and respond to the slowdown in our economy,” Zerwas said in a prepared statement.

This is for the supplemental budget, which is to say the budget passed by the 2015 Legislature, not for the one this Lege is working on. It will free up some money for the current budget if Zerwas’ proposal is adopted, in the sense that current revenues would not have to be used to close out the previous budget. Given the emergency that everyone agrees CPS is and the outcry that followed the cuts to the therapy program for children with disabilities, you would think this would be a relative no-brainer, but don’t count on it. The Rainy Day Fund morphed from being a tool to use to smooth out economic bumps to a lump of gold buried in the backyard that is never to be touched unless there’s a natural disaster, with the 2011 session in which cutting $5 billion from public education was seen as the better choice as the turning point. A supermajority is needed to tap the Rainy Day Fund, and I have a hard time believing Dan Patrick and his Senate sycophants will go for that. But at least someone had the guts to bring it up, so kudos to Rep. Zerwas for that. Keep an eye on this, because it may be a precursor of the larger budget fight between the chambers. If Zerwas gets his way, that bodes well. If not, things could get ugly.

Turns out a little budget flexibility is a good thing

Some lessons have to be learned the hard way.

More than a year after Texas voters approved routing billions in state sales taxes to roads and bridges, some lawmakers are questioning whether the first payment of $5 billion should move forward as planned.

Texans voted in 2015 to boost funding for state’s public roadways and bridges, which have strained under the state’s growing population. Proposition 7 — loudly cheered by top Texas leaders and supported by 83 percent of voters — changed the constitution to route some taxes collected on car sales to the State Highway Fund.

But in an unusually tightfisted legislative session, some Texas lawmakers are raising the prospect of reducing that initial cash infusion to the State Highway Fund scheduled for this year to free up money for other state programs.

No one has publicly backed such a move, but key budget writers have privately discussed the option. And at a Senate Finance Committee hearing Monday, Sens. Kirk Watson of Austin and Charles Schwertner of Georgetown asked Legislative Budget Board staffers about how it might work.

It turns out that the enabling legislation for that referendum included an escape hatch, in which a two-thirds vote can be used to divert some of that $5 billion for other purposes. That probably won’t happen, though I presume it’s no less likely than a vote to tap the Rainy Day Fund to get through this session and hope that things will be better in 2019. We can certainly debate whether it should happen or not, but my reason for highlighting this is that it’s yet another example of why artificial budget constraints are so often a bad idea, whose main effect is to force budget writers to come up with creative ways around said constraints. I say it’s more honest to just let them have the flexibility to figure it out rather than be forced into certain choices, but that’s not how we do things.

Here’s your 2018-19 revenue estimate

It’s pretty mediocre.

Facing sluggish economic forecasts amid low oil prices along with billions in tax revenue already dedicated to the state highway fund, Comptroller Glenn Hegarannounced Monday that lawmakers will have $104.87 billion in state funds at their disposal in crafting the next two-year budget, a 2.7 percent decrease from his estimate ahead of the legislative session two years ago.

Hegar told state lawmakers he expected a “slow to moderate” expansion of the Texas economy. Still, he said, the amount of revenue they will be able to negotiate over has fallen. That’s largely because lawmakers in 2015 moved to dedicate up to $5 billion in sales tax revenue every two years to the state’s highway fund, rather than being spent on other priorities such as schools, health care or reforms to the embattled Texas foster care system.

“We are projecting overall revenue growth,” Hegar said. “Such growth, however, is more than offset” by the demands of the state highway fund and other dedicated funds.

The revenue estimate does not determine the scope of the entire Texas budget. Rather, it sets a limit on the state’s general fund, the portion of the budget that lawmakers have the most control over. The general fund typically makes up about half of the state’s total budget.

Two years ago, Hegar estimated that the Legislature would have $113 billion in state funds, also known as general revenue. Adding in federal funds and other revenue sources, lawmakers would have $221 billion in total for its budget, as well as $11.1 billion in the state’s Rainy Day Fund, he said at the time. Lawmakers ultimately passed a $209.4 billion budget, which included billions in tax cuts.

On Monday, Hegar estimated lawmakers would have $104.87 billion in general revenue, and $224.8 billion in total revenue to write a budget for the 2018-19 biennium which begins in September.

See here for more on Hegar’s 2015 estimate, which would up being a tad bit optimistic, but not too far off. It won’t be surprising if this one is off a bit one way or the other – this is why 2014 Comptroller candidate Mike Collier called for more frequent revenue estimates during his campaign, so the course can be corrected as needed more often – but again I expect this to at least be in the ballpark. Assuming the economy doesn’t crash and burn and/or we don’t have ten percent annual growth under Dear Leader Trump, of course.

There are a lot of ingredients that go into making the budget sausage, and there are various things that can and will be done to avoid doing anything too painful. We could of course just assume this was a temporary dip and take a few bucks out of the Rainy Day Fund to smooth out the curve – that was its original purpose, after all; now it serves as a hole in the back yard into which we bury sacks of cash for no clear reason – but that isn’t going to happen. We do have your local property taxes bolstering the state’s bottom line, so be sure to send a thank you note to the State Supreme Court for that. And as always, remember that the biggest boost to spending in 2015 was tax cuts, but that’s never what the leadership has in mind when it says we need to “cut back” on expenses. We do things one way in this state, and will continue to do them that way until there are different people running the state. The Chron and BurkaBlog have more.

No bonds this year

Maybe next year.

Mayor Sylvester Turner

Mayor Sylvester Turner

Mayor Sylvester Turner likely will not ask voters to approve bonds this November to replace the nearly depleted debt residents approved in 2012, a move that may delay several projects.

[…]

Having addressed a $160 million shortfall with the unanimous passage of his first budget last month, Turner said he now is focusing on negotiating reforms that will decrease the city’s $5.6 billion pension underfunding and lower the city’s bill for retiree benefits.

Until both cost-cutting measures succeed and are checked off his list, Turner said, he would rather not ask voters to spend more. That likely will delay a bond vote, he said, until November 2017.

“I certainly am not inclined to ask people to approve any bonds or any borrowing until the city’s finances have been handled,” Turner said. “On the budget, we’ve done that. The pension issue, I want that resolved. When we go and ask for something, I simply want to let voters know that we’re doing everything we can to be fiscally sound and prudent.”

November 2017 also is when Turner has proposed asking voters to lift a 12-year-old rule that limits what the city collects in property taxes, again presuming pension reform passes during next year’s legislative session.

Of his vision for the 2017 ballot, Turner said, “I want to be able to say, ‘If you vote for this, this will take the city to the next level,’ that it will be transformative in nature.”

I agree with the Mayor’s assessment of this. He’s made clear the need to revise the stupid revenue cap we live under, but he’s packaged that as a part of an overall financial fix that includes dealing with the immediate budget issues and putting the pension funds on firmer footing. He can claim progress on the first item, but he needs to have tangible results on pensions to complete the sale. By the same token, more bond money would be a much easier ask next year, when these items can be crossed off the to-do list, and pairing a bond issue with a referendum to change the revenue cap ought to make for a compelling pitch. There are some items from the 2012 bond referendum that are still not started, and the city needs to do all it can to keep the promises that were made in that issuance. Beyond that, I think this is the right decision.

Council unanimously passes Turner’s first budget

Good job.

Mayor Sylvester Turner

Mayor Sylvester Turner

Mayor Sylvester Turner achieved his goal of securing unanimous passage of his first general fund budget Wednesday morning, a month ahead of the typical schedule and after an unusually brief and uncontentious discussion of council members’ proposed changes.

The $2.3 billion general fund budget, which pays for most basic city services with revenues from taxes and fees, represents only the second budget cut for Houston in two decades. The first came after the 2008 nationwide financial crisis.

“It’s not my budget, it’s our budget,” Turner told City Council. “There are fewer than 20 amendments today, which I think speaks to the collaborative nature of the partnership we have. I want to thank you for the trust you’ve placed in me.”

[…]

Turner’s budget proposal in general , which spends $82 million less than was budgeted in the current fiscal year, despite an additional $27 million for employee raises and an increase of $29 million in pension payments, cuts 54 vacant positions and includes roughly 40 layoffs.

The document pulls $10 million from reserves, makes $56 million in permanent changes, mainly cuts within departments, and relies on $94 million in one-time fixes to bridge the $160 million gap the city had faced between its revenues and expenses.

The Mayor’s press release is here, and a longer version of the Chron story is here. This is the “easy” budget, in the sense that it doesn’t yet do anything related to pensions, and was able to use a number of one-time items to help boost revenue and mitigate the need for deeper cuts. Next year will be harder, especially if sales tax revenue continue to sag. The relative ease and widespread harmony with which this budget was passed gives Turner some momentum and a fair amount of political capital to deal with that budget as it comes. The Press has more.

Trash subsidy will not be trashed

From the inbox:

Mayor Sylvester Turner

Mayor Sylvester Turner

After weighing the budgetary impact and obtaining input from City Council, Mayor Sylvester Turner has decided not to pursue elimination of subsidies to homeowners associations that opt out of City trash collection services.

Under the program, which began in the 1970s, the City pays a monthly $6 per household subsidy to homeowners associations that contract for more expensive trash collection service from private haulers. Elimination of the subsidy was predicted to save the City $3.5 million annually, but only if the homeowners groups stuck with their private haulers.

“Many of the neighborhood associations have indicated they will request City collection if the subsidy is abandoned,” said Mayor Turner. “As a result, we are now looking at increased costs as opposed to the savings that had originally been anticipated. Therefore, it no longer makes sense to pursue this at this time. We can balance the budget without it.”

Elimination of the trash subsidy was one of several options put forth to help close a projected $160 million budget shortfall in Fiscal Year 2017, which begins July 1. City Council will consider the budget on May 25, a full month earlier than normal. Mayor Turner has requested early approval to send a strong message to the credit rating agencies about the attention the City’s fiscal challenges are getting from City Hall.

See here for the background. I was rooting for this to be killed, but if the numbers say it will cost more than it will save, then so be it. That doesn’t mean we can’t plan to phase it out over the next few years, however. I’d like to see that on the table going forward. The Chron story has more.

So far, so good for Mayor Turner

That’s the general consensus of his first four-plus months in office.

Mayor Sylvester Turner

Mayor Sylvester Turner

Faced with a $160 million budget shortfall that would leave some wringing their hands until deadline day, Mayor Sylvester Turner presented his plan a month ahead of schedule. The proposal being reviewed by City Council includes a few one-off gimmicks, by Turner’s own admission, but would close Houston’s budget gap without huge layoffs or service cuts.

Four months into the job he dreamed of for a quarter century, the former lawmaker has eschewed the traditional pressure to sprint into office with a laundry list of policy objectives. Instead, Turner has concentrated primarily on formulating next year’s budget, the first of several fiscal hurdles.

Turner’s bet? Hitting targets such as next-day pothole repair and balancing the budget early will earn him the political capital to take on Houston’s longer-term problems, namely rising pension and debt costs.

Eager for unity in that process, Turner has kept his goals broad – for which he has drawn some criticism – and invested in bettering mayor-City Council relations, laying the groundwork for a first term built on corralling Houstonians around the painful task of shoring up city finances.

“We resolve the pension issue, we get the revenue cap removed, we satisfy Moody, S&P and Fitch, the credit rating agencies, oil prices start to go back up, this city will take off,” Turner said during a recent interview, laughing at the apparent simplicity of his plan.

[…]

A creature of the state Legislature, which starts slowly and builds toward the end, Turner has approached the mayor’s office with a similar rhythm, Houston lobbyist Robert Miller said.

“Those who are saying he’s not moving quickly enough or are not satisfied with the progress are missing that he knows exactly what he wants to do, and he knows exactly the timing in which he wants to do it,” Miller said. “The most important issue he had to deal with was the budget, and he’s doing that. … Then you will see him begin rolling out the other initiatives and personnel changes that he thinks need to occur.”

There’s not a whole lot in the story that will come as a surprise. As I said when writing about Mayor Turner’s State of the City address, he has stuck very closely to the things he spoke about on the campaign trail. A big part of his strategy to achieve some of the goals he has laid out is to build trust by getting certain things done first so that the tougher items can be done later, when everyone feels comfortable that he’s doing what he said he would do. One of the metrics to watch for is the amount of dissent and pushback he gets from Council members. On that score, there’s so far been very little – no public criticism of his budget proposals, no challenge to his standing firm against Uber’s ultimatum, no complaints about how his office handled flooding issues. Those things will come because they always do, but until then the harmony we’ve had so far is at least an indicator that everyone feels like they’ve been listened to. Whatever else you think, that’s a big accomplishment.

Mayor Turner delivers State of the City 2016

Here’s the press release.

Mayor Sylvester Turner

Mayor Sylvester Turner

Flooding, pensions, City finances and public safety were front and center as Mayor Sylvester Turner delivered his first State of the City before the Greater Houston Partnership. In a major move designed to produce tangible results and instill confidence among residents, the mayor announced the selection of Stephen Costello to fill the new position of Chief Resilience Officer, or Flood Czar. Costello, who is a civil engineer who has worked on numerous drainage projects, will report directly to the mayor and will have the sole responsibility of developing and implementing strategies that will improve drainage and reduce the risk of flooding.

“The April 18 floods had a dramatic impact on our entire region,” said Mayor Turner. “Hundreds of people sought rescue in hastily opened shelters, hundreds more elected to stay in their flooded apartments and homes. Nearly 2,000 homes in Houston flooded and some flooded for the second, third or fourth times. Property owners throughout our area have become weary of flooding in the Bayou City, impatient with elected officials who offer explanations with no practical solutions, and some have and others are close to packing up and leaving our city unless we can convince them that we are going to do exponentially more than what they currently see.”

The mayor also announced that he will soon unveil a plan to put 175 more police officers on the street, called for repeal of the revenue cap self-imposed on the City by voters in 2004 and detailed his plan to address the City’s unfunded employee pension liabilities, a growing obligation that is stressing the City’s overall financial stability.

“There are certain realities that cannot be ignored: the increasing costs to the City simply cannot be sustained,” said Turner. “As we look to 2018, City services will be adversely affected, hundreds of employees will be laid off, and our credit rating will most likely be damaged. But this is a course we need not travel. My mom said, ‘Tomorrow will be better than today,’ and as mayor of this City, I still believe what she said.”

The mayor is already in productive discussions with the employee pension groups about reigning in costs in a way that is least burdensome to employees, reduces the City’s escalating costs and avoids unintended consequences. He has laid out three objectives for those discussions:

  • Lower unfunded pension obligations now and in the future;
  • Lower annual costs for the city now and in the future; and
  • An agreement by the end of the year to present to the legislature for consideration in the 2017 session.

The mayor noted that the revenue cap, which was cited as one of the reasons for a downgrade of the City’s credit rating, puts Houston at an unfair advantage and hinders the City’s ability to meet the needs of its growing population. No other governmental entity in Texas is under similar constraints.

“The revenue cap works against creating one Houston with opportunity for all and the ability to address pressing needs like flooding, transportation and mobility, parks and added green space, affordable/workforce housing and homelessness,” said Turner. “We are competing not just against Dallas, San Antonio and Austin; not just against New York, Los Angeles or Chicago, but against Vancouver, Berlin and Singapore. We are an international city speaking 142 languages, with 92 consulates and two international airports within our city boundaries.”

The mayor concluded his speech with a commitment to leading the nation in addressing homelessness and a personal appeal for Houston businesses to join his Hire Houston Youth summer jobs program. Information on the program is available at www.hirehoustonyouth.org.

The full text of the speech is here, and a Chron story about the additional patrol officers is here. It’s a concise reiteration of things Mayor Turner has spoken about often, with no new directions or surprises. You know what he wants to do, it’s a matter of doing it. If you’re wondering how Mayor Turner might be successful at getting the Lege to pass a pension-related bill – as you may recall, I was deeply skeptical of some other candidates’ approaches last year – the answer is that he intends to have an agreement on what changes should be made with all the relevant stakeholders. The Lege may not be interested in solving Houston’s problems, but they will ratify a solution that Houston itself comes up with. That’s the plan, anyway. As I said, the important part is doing it. If nothing else, we’ll have a pretty good idea of how it’s gone by the time of the 2017 State of the City address. The Chron and the Press have more.

Kill that trash subsidy

Works for me.

Mayor Sylvester Turner

Mayor Sylvester Turner

Mayor Sylvester Turner, working to close a $160 million budget deficit, has proposed scrapping payments that scores of Houston neighborhoods served by private trash haulers receive to help offset the cost of their waste contracts.

The idea when the program started in the 1970s was that residents should not have to pay property taxes for city trash services they were not receiving – particularly because they were already paying for waste pickup in their homeowner association dues. The city also came out ahead because the $6 monthly per-house subsidy was cheaper than the cost of the city serving each home itself, now estimated at $18 per home per month.

In scraping together a balanced budget for the fiscal year that starts in July, however, Turner felt the program was expendable. In many cases, the subsidies go to residents who have chosen to pay for more extensive services than those the city provides, such as having the trash picked up more frequently than once a week, or having workers walk up a resident’s driveway to retrieve the trash rather than the homeowner rolling a bin to the curb.

Cutting these “sponsorship” payments to the 48,000 homes participating would save the city $3.5 million.

“When I drilled down in every department and every line item and I saw that line item sticking out, my question was, ‘Is this one that people can give up without hurting them and the core services, things that are essential to the city?'” Turner said. “I decided this was something the city at this particular point in time was not in a position to continue to sponsor.”

City Council will begin hearings on Turner’s proposed budget on Monday, leading up to a final vote that could come as early as May 25.

[…]

“If they end up saying it’s that big of a difference, that they will give up their contracts and will turn to the city, then yeah, OK, more than likely I’ll remove it,” Turner said. “I’m not trying to make their situation bad, I’m simply trying to balance a budget that’s $160 million short, and I’ve asked people to engage in shared sacrifice.”

The mayor also suggested, wearing a slight grin, that reporters examine the subdivisions now receiving trash subsidies.

The three City Council districts home to 83 percent of the city’s sponsorship agreements, records show, also are the three districts with the highest median household incomes in the city: District G on the west side, District E in Kingwood and Clear Lake, and District C, which covers much of the western half of the Inner Loop.

[CM Dave] Martin acknowledged that he and many of his neighbors receiving private trash service in District E can cover a $6-per-month increase in their civic association dues.

“If you’re used to getting your trash picked up twice a week and you’re used to backdoor service, most people are probably going to say, ‘Keep my six bucks,'” Martin said. “They’re mostly the people that have the means to pay an extra $6 a month.”

Yes indeed. And now is the time for the city to say to these folks that we can no longer afford to subsidize their premium trash collection service. We all have to make sacrifices in these lean times, don’t you know. The irony is that if enough people decide that the sacrifice they’d prefer to make is the higher level of service, in return for saving a few bucks a month, then it won’t be worth the city’s effort to make them make that sacrifice. I suspect that the vast majority of them will take the original deal, of keeping the service but paying full price for it. If nothing else, it will allow those who are so inclined to piss and moan about how hard they have it now. Surely that’s worth the six bucks a month to them. KUHF has more.

First look at how HISD will balance its budget

Seems to be fairly well-received.

Ken Huewitt

The Houston school district’s interim superintendent on Thursday rescinded his proposal to reduce funding for gifted students amid concerns from parents and board members.

At the same time, Ken Huewitt proposed bolstering the budgets of schools with significant concentrations of low-income students, using $21 million from federal funds. Schools with the highest percentage of poor children would get the most extra money – an attempt to address the academic challenges at what Huewitt called “hyper-poverty” campuses.

Huewitt’s plan calls for revamping how campuses are funded at the same time as the Houston Independent School District faces an estimated $107 million budget shortfall in the coming year. The financial woes stem from the district expecting, for the first time, to have to send tens of millions of dollars back to the state because it is considered too property wealthy.

“This is about funding the needs of our kids,” Glenn Reed, general manager of budgeting for the school district, said after the board’s budget workshop Thursday.

To balance the budget, Huewitt has proposed several cuts, including ending the $10 million bonus program for teachers and other school staff, and cutting $11 million in contracts with outside vendors.

He also would eliminate the $19 million that went to help a few dozen low-performing schools, as part of former Superintendent Terry Grier’s “Apollo” reform program.

See here and here for some background, and remember again that this is not HISD’s fault, it’s the Legislature’s fault. I don’t know how the search for the next Super is going, but if the search firm/screening committee isn’t asking every candidate detailed questions about how they would have handled this situation, they are not doing an adequate job. I hate that HISD is having to go through this, but from what we have seen so far, Interim Superintendent Huewitt seems to have done a pretty good job of it. We’ll see what comes out when the Board votes on the budget.

Turner announces his budget

From the inbox:

Mayor Sylvester Turner

Mayor Sylvester Turner

Utilizing a shared sacrifice approach, Mayor Sylvester Turner today unveiled a proposed Fiscal Year 2017 General Fund budget that eliminates a projected $160 million shortfall that was the result of cost increases, voter imposed revenue limitations, a broken appraisal system and the economic downturn. The budget totals $2.3 billion, which is about $82 million less in spending than the current FY2016 appropriation. The decrease was accomplished while still meeting $60 million of contractual and mandated cost increases the City is forced to cover in FY2017. The mayor is unveiling his preliminary budget plan more than a month ahead of the normal schedule and has requested accelerated City Council approval in an effort to send a positive message regarding City budget management.

“This was the largest fiscal challenge the City has faced since before the Great Recession,” said Mayor Turner. “By bringing all parties to the table to engage in shared sacrifice, we have closed the budget gap and started addressing the long-standing structural imbalance between available revenues and spending. Each City department, the employee unions, the Tax Increment Reinvestment Zones, City Council and various other parties have worked together to identify cost savings and efficiencies while preserving a healthy fund balance, minimizing employee layoffs and maintaining the City services our residents rely on and deserve.”

Due to an arrangement negotiated by the mayor, the City’s tax increment reinvestment zones will send $19.6 million back to the City to help cover increased operating costs citywide. The rest of the budget gap was closed utilizing a combination of savings from debt restructuring, spending reductions, revenue from anticipated land sales and a small contribution from the City’s fund balance. Even with this fund balance contribution, the City’s savings account will remain well above the threshold necessary to satisfy the credit rating agencies.

The budget includes the elimination of 54 vacant positions and 30 to 40 layoffs, most of which the mayor hopes to accomplish through attrition. There are no significant reductions to park and library operations, which have been hit hard in the past and there will be no layoffs of police officers or fire fighters. There is funding included for an additional police cadet class, for a total of five classes and the mayor continues to look for ways to streamline operations to get more officers back on the street.

The budget was balanced using both recurring and non-recurring initiatives. If non-recurring items had been taken off the table, there would have been drastic cuts in City services and another 1,235 City employees would have lost their jobs.

The recurring initiatives mark the start of institutionalizing a new way of running City government. The elimination of redundancies and increased efficiency in operations has generated $36.2 million in recurring annual savings. In addition, the TIRZs will continue to contribute at least $19.6 million in subsequent years. Yet to come is a new approach for the City’s pension liabilities. Productive discussions are underway with stakeholders and I am committed to having an agreement ready to take to the legislature by the end of this year.

“I strongly urge City Council to resist the urge to tinker with this budget,” said Turner. “Even one small change will upset the delicate balance we’ve achieved as a result of shared sacrifice and put the City at risk for a credit rating downgrade. This plan prepares us for the additional fiscal challenges anticipated in FY18 while also improving public safety, increasing employment opportunities and meeting the critical needs of the less fortunate in our city.”

City Council is scheduled to vote on the budget May 25, 2016, nearly a month ahead of last year. The new fiscal year begins July 1, 2016.

Details are here, and the Chron story on the budget is here. I confess, I’ve only scanned the details so far – sorry, but it was a long week, and it’s been a busy weekend. I am sure there will be plenty of opportunity to discuss the details between now and May 25. Have a look for yourself and feel free to tell us what you think.

Have I mentioned lately that the revenue cap is stupid public policy?

Because it is.

BagOfMoney

Sales taxes are Houston’s second-largest source of revenue for the general fund, which pays for most core services.

Just as concerning for city officials, however, was more news about the city’s largest general fund revenue source: property taxes.

Mayor Sylvester Turner, as he did in February, criticized what he said is an unjust and inequitable system that lets commercial property owners abuse legal loopholes to successfully challenge their property appraisals and pull millions out of local governments’ budgets.

As of February, the hole created by those tax lawsuits was to be a projected $16 million for the current fiscal year, which ends June 30. By Wednesday, Turner and his finance director, Kelly Dowe, said that projection had risen to more than $32 million.

Council cut the property tax rate last fall to ensure the city would not collect more property tax revenue than is allowed under the city’s decade-old, voter-approved revenue cap, which limits growth in property tax collections to 4.5 percent or the combined rates of population growth and inflation, whichever is lower.

Companies’ successful lawsuits are pushing tax collections below the cap, however, with no way to adjust the rate back up to fill that hole.

“It’s a double hit. Last year you all lowered the tax rate based on the revenue cap. Had we known then we were going to be down another $32 million, I don’t think you would have lowered it that low. You cannot budget that way,” Turner said. “I will again ask the Legislature to remedy this situation. Taxes from hard-working homeowners should not effectively subsidize wealthy commercial property owners.”

But hey, look on the bright side: The system is working exactly as designed.

Mayor Turner releases transition team report

From the inbox, a glimpse of what to expect in the near to medium future from Mayor Turner.

Mayor Sylvester Turner

Mayor Sylvester Turner

Mayor Sylvester Turner has released a 17-page report that details the work of his transition team chaired by businessman and long-time civic advisor David Mincberg. More than 250 Houstonians from all walks of life participated. They have submitted policy recommendations on 13 different areas:

  • Comprehensive Financial Reform
  • Criminal Justice
  • Economic Opportunity
  • Education
  • Housing
  • Houston Airport System
  • Public Health
  • Public Safety
  • Public Works
  • Quality of Life
  • Rebuild Houston
  • TIRZs
  • Traffic and Transportation

“I want to thank this group for their hard work,” said Mayor Turner. “They dedicated countless hours of their personal time to this process. Some of these recommendations can be implemented sooner than others. They are constructive suggestions that will be helpful as I continue to put together my plans for Houston.”

The Chron story on this is here, and the full report is here. It’s worth your time to look at. It’s mostly a checklist, with the current status (“done”, “in progress”, or “under consideration”) for each item. Some of these items, like the Public Health category, have gotten very little attention before now. Those of you that want to see the TIRZ system overhauled will find much in there to contemplate. I don’t know what the time frame is for these things – obviously, for stuff like financial reform, the horizon is much shorter than for some others – and it’s not clear just how much “consideration” some of these things will get, but keep this handy for when you hear of a new initiative or proposed ordinance. Most likely, it’s on here somewhere, so we can’t say we haven’t been advised.

Lawsuits and low oil prices

Both are threatening the next Texas budget.

BagOfMoney

Last week, lawyers for the state of Texas got the latest in a string of bad legal news.

A lawsuit challenging the state’s foster care system as inhumane appeared to gain steam when an appeals court rejected the state’s request to stop the appointment of two “special masters” to recommend reforms.

The overhauls that have been discussed so far would be pricey to implement — as much as $100 million per year, according to rough estimates from the state comptroller’s office. But they actually are on the lower end of all the extraordinary legal expenses the state is facing at a time when stubbornly low oil prices are simultaneously threatening to blunt its coffers.

Three other lawsuits against the state — two of them pending before the Texas Supreme Court, with rulings expected soon — could cost the state billions if it ends up on the losing side. Experts say the state may have the cash to cover one of them in a single budget cycle, but probably not any more than that — especially if low oil prices persist, dampening the state’s stream of tax revenue. That could mean budget cuts when lawmakers meet for the 2017 session, at least if the Republican-dominated Legislature remains steadfast in its refusal to tap the state’s nearly $10 billion Rainy Day Fund.

Two of those three lawsuits, both tax cases, could cost the state a combined $10.4 billion in tax refunds and up to $2 billion in collections per year beyond that, according to the comptroller’s office, which is closely monitoring them.

Potential cost estimates do not exist for the last case — a high-profile challenge to the state’s public education funding system — but past school finance rulings have cost the state billions.

Such sums would handily eclipse the state’s $4.2 billion projected surplus, which could itself dwindle if oil prices remain low and further blunt tax collections. (Comptroller Glenn Hegar has already lowered projections once.)

“Any of those by themselves are a huge hit,” said Dale Craymer, president of the business-backed Texas Taxpayers and Research Association. “But if you start losing two or three of those issues then, yeah, it’s much more questionable that the state’s general revenue reserves are sufficient to cover that.”

See here and here for some background. There’s not much that can be done about the price of oil, though after years of living it up, and of politicians claiming credit for all that robustness, I doubt there’s much sympathy out there for us. The rest are the result of policy and/or legislative decisions, some of which may well bite us in the bottom line. I’m rooting for the Supreme Court to stick it hard to the Lege on school finance, but the other cases I’d rather see the state win. As much political hay as there is to be made in a chaotic situation, there’s nothing good from a public policy perspective on those cases, and I have little faith the Lege would do a good job cleaning up the mess. But on school finance, all bets ought to be off. We’ll see how it goes.

It’s not easy going green

And by “going green” I mean legalizing pot, at least in Texas.

Zonker

Advocacy groups and lawmakers say marijuana policy reform in Texas could be the fiscally responsible thing to do in light of the state’s decreasing oil and gas revenues.

Texas legislators should look to marijuana policy reform to save, and even make, money in the face of looming budget shortfalls, said SXSW panelist Phillip Martin of Progress Texas, in front of what he called the “wake and bake crowd” Tuesday morning.

“It’s not an ideological barrier,” said Martin. “Anything that’s going to move is going to move because of money.”

The “Turn Texas Green” panel brought legislators and advocates together to to discuss how the Lone Star State could legalize pot for medical or even recreational use.

Zoe Russell, from the Houston nonprofit Republicans Against Marijuana Prohibition (RAMP), said some “establishment” Republicans already “see the writing on the wall” with decriminalization policies at the local level. In 2015, Harris County’s Republican DA implemented a “First Chance” policy allowing non-violent offenders with small amounts of marijuana to be ticketed, rather than arrested.

But so far, few statewide elected officials have been willing to put their names on marijuana legislation, Russell said.

“Behind closed doors, they’re really supportive of ideas like this,” Russell told the audience of around 15 or so. “[But] they’re scared of their shadow.”

As Texas’ oil and gas revenues drop dramatically, panelists said the state’s money woes may override the squeamishness many legislators have about legalizing weed.

With all due respect – and I have a lot of respect for Phillip Martin and Progress Texas – the argument that Texas could make some money by legalizing pot and that this would help with the current budget situation is a complete nonstarter. I say this because advocates for expanded gambling, both the slot-machines-at-horse-tracks and the casinos groups, have been making this same argument for well more than a decade and during the budget crunches of 2003 and 2011, and they have nothing to show for it. If there’s one thing we should have learned from those past experiences, it’s that not only is the Republican leadership in this state unreceptive to proposals that would add new revenue streams in Texas, they are actively hostile to them. They’re not interested in more revenue. Budget crunches are to them opportunities to slash spending. It really is an ideological barrier. I don’t see that changing until the leadership we have in Texas changes. I wish that weren’t the case, but I see no evidence to suggest otherwise.

It also pains me to say that even under the most optimistic scenarios, the amount of revenue Texas would likely gain from legalizing and taxing marijuana is way too small to have any effect on a real budget shortfall. The state of Colorado took in $125 million in pot tax revenue in 2015, which sounds like a lot until you remember that the Texas budget is roughly a thousand times bigger than that for a year. This is like saying that Colorado pot revenue is a penny to Texas’ ten dollars. Putting this into a more workable context, $125 of pot tax revenue represents about two percent of the $5.4 billion that was cut from public education in the 2011 budget. I’m the first to agree that in a crisis situation, every little bit helps. The point I’m making is that this really would be a little bit.

Which is not to say that there are no economic arguments to be made for at least loosening pot laws, if not outright legalizing it. The case that Texas will spend a lot less money, at the state and county level, with smarter pot laws has some traction and a chance to gain ground. You’re still going to have to overcome the fear that not punishing all these potheads will lead to a spike in crime – it won’t, but you’re going to have to convince some people of that – as well as the strong distaste a lot of people have for pot and the people who indulge in it, but the prospect of spending less will help. (You also have to overcome the fact that some of our legislators are complete idiots, but that’s more of an electoral issue.) Here I think the short-term potential is greater at the county level, since as Harris County has demonstrated some of what can be done is a simple matter of discretion on the part of one’s police department and District Attorney, but the Lege is where it’s at for the longer term, and the real gain. I wish everyone involved in this fight good luck, and I hope we all remembered to vote for candidates who will pursue smarter laws and strategies regarding marijuana in the primaries.

Prepping for the city budget

Mayor Turner gives a brief preview of what is to come.

Mayor Sylvester Turner

Mayor Sylvester Turner

Mayor Sylvester Turner said Friday that he expects to lay off 40 city employees and eliminate 54 vacant positions as he seeks to close a budget shortfall of as much as $160 million, his first public estimate of the personnel reductions required to balance Houston’s books.

Turner did not specify which departments would bear the brunt of the cuts, but said he would not lay off police officers or civilians working in the Houston Police Department. He added that he would be resistant to trimming the parks or library departments.

The mayor emphasized that if City Council members alter his proposed budget, more layoffs are likely.

“Until this budget is voted on and approved by the members of City Council, it is very, very preliminary,” Turner said. “If there are any changes that reduce the shared sacrifice that is embedded within my budget that I will propose, the layoffs will exponentially increase.”

Turner said he intends to submit an executive summary of the budget to council members no later than April 15, with the goal of approving the budget in early May. The city must finalize its budget by July.

Houston’s financial shortfall had been projected to be $126 million, but Turner has revised that figure to as much as $160 million.

I’m very curious to see what the executive summary will look like. As the story notes, Mayor Parker wound up cutting a lot more jobs back in 2010. I’m not sure what Mayor Turner has in mind that will allow fewer jobs to be lost – maybe more of them are higher-paying jobs, who knows – but I can’t wait to see. Perhaps the “shared sacrifice” aspect of this includes some use of TIRZ funds, or concessions on how much the city pays into pension funds. Any guesses out there?

Recycling contract impasse

Uh, oh.

The city of Houston’s curbside recycling program could be put on hold after negotiations between Waste Management and Mayor Sylvester Turner’s office reached an apparent impasse over a new contract Tuesday.

Though Turner said he remains committed to recycling and his office said he will be “pursuing any and all available options” before the current contract expires March 16, the standoff could see Houstonians’ recyclables trucked to a landfill as early as next week.

The mayor acknowledged the breakdown Tuesday after Waste Management rejected Turner’s attempt to shorten a proposed four-year contract extension to one year.

“They control the market. It’s like a monopoly,” Turner said of the Houston-based Fortune 500 company that long has held the city’s recycling contract. “I support recycling. But asking people to accept a bad deal now and in the future is not good business, and I’m not prepared to allow the city to be hijacked by Waste Management or any one company. I want a good deal, but I also expect people to be good corporate citizens and not utilize their monopolistic status.”

[…]

Waste Management for years has been processing and reselling Houstonians’ recyclables, taking a $65-per-ton fee from those revenues and giving 70 percent of any money left over to the city. If the firm’s costs exceeded the fee the city paid, Waste Management swallowed the difference.

With plunging oil prices dragging commodities below $50 per ton, however, the firm has been renegotiating contracts. The deal before council, which was being negotiated before Turner took office, would see the city pay a processing fee of $95 per ton for at least four years. Turner’s office said he now agrees with council that such a term could trap the city in an unfavorable rate even after the market recovers.

Turner instead had sought to shorten the deal to one year in exchange for a higher, $104-per-ton fee.

Waste Management rejected that deal Tuesday, shortly before the mayor faced residents pleading with the council not to end the city’s recycling program only one year after it was expanded to give all homeowners the popular 96-gallon green bins.

|
See here for the background. The Press has an explanation for why we are in this predicament.

Melanie Scruggs, program director for the Texas Campaign for the Environment, says a major pratfall with Houston recycling is Waste Management’s monopoly over the city.

“Dallas owns its own landfill and they have a recycling facility at the landfill, so it’s a win-win for them,” says Scruggs. “Austin, in addition to a citywide recycling ordinance, has two different companies: one on the north side of [the Colorado River], and the other on the south side.”

“There’s not a competitive market for recycling in Houston. Waste Management is the only one in town and it puts the city in a difficult decision,” adds Scruggs. “The city of Houston is trying to put as much pressure on Waste Management for a shorter and cheaper contract because they want to save money.”

I don’t know what the solution to this is if Waste Management won’t go for a shorter-term deal, which I think the city is correct to pursue. Not recycling isn’t an option, unless you really want to see Houston get another large round of negative national publicity. The timing of this just couldn’t be worse, and we’re a week away from the current contract expiring. It’s a mess. For those of you who want to do something that might help, the Texas Campaign for the Environment has a customizable email message you can send to the city. Calling your Council members (district and At Large) is never a bad idea, either.

RIP, One Bin For All

It had a good run, but at the very least the timing was all wrong.

The One Bin For All program would let Houstonians throw all trash in the same bin, to be separated for recycling later. The hope was to push up Houston’s low recycling rate. But now the city could end up with no recycling at all.

The city council on Wednesday delayed a vote on a new contract with Waste Management, which would cost the city about $3 million more per year because commodity prices for recyclables are low.

Several council members are calling for suspending recycling until that changes.

The One Bin program was not mentioned at all in the discussion.

It turns out Mayor Sylvester Turner is not a fan.

“I’ve looked at and read the paper that’s been presented from what was done,” he said. “I’m not convinced that that is something I want to move forward with right now, if at any time, but it’s not a part of this conversation.”

See here for the last update. Mayor Turner had spoken in generalities about One Bin before now – I’d have to go back and re-listen to the interview I did with him for the 2015 election, but that’s how I remember him speaking about it then as well – so this is a rhetorical shift for him. It’s not exactly a policy shift in the sense that he had never committed to doing anything with One Bin, so think of it more as a door being closed.

As for the Council action, the Chron story from Wednesday before the meeting suggested some pushback on continuing the recycling contract with Waste Management, but nothing more than that.

Until now, Waste Management would resell the recyclables, deduct a $65-per-ton processing fee and give 70 percent of the remaining revenue to the city. If the firm’s costs exceeded the fee the city paid, Waste Management ate the difference. Those terms meant the city could make $25 per ton two years ago, when recyclables were bringing $100 per ton.

Now, with commodities prices at lows not seen since the 2009 recession, Waste Management has been dropping or renegotiating its contracts with Houston and many other cities.

If City Council approves the new deal, the city next month will begin paying a $95-per-ton processing fee. With commodities now earning $48 a ton, that means each ton of material recycled will cost Houston almost $50, at least in the near term.

That’s nearly double what it would cost to truck the recycled items to the landfill, where the tipping fee is $27 per ton.

And, with Mayor Sylvester Turner warning that layoffs will be needed to close a projected $126 million budget gap by July, some council members are inclined to quit recycling until the market improves.

“As much as we are for recycling, I’m also against cutting people that are actually doing city services,” said Councilman Michael Kubosh. “It’s going to hurt to lay people off and then to tell them we laid them off because, ‘Well, we want to recycle.’ We’ve got to think it through.”

Councilman Jerry Davis, whose District B is home to landfill facilities, disagreed, citing studies showing negative health outcomes for those near dump sites.

“If we stop recycling, we’re going to have more crap taken to landfills in District B,” Davis said. “With the rate we’re growing, we have to find a way to get rid of our waste in an efficient manner. What are we going to do when all our landfills are full? I understand commodities are down, but it’s a cycle. I don’t think we need to steer away from sustainability because the market is somewhat volatile.”

See here for the background. The single-stream recycling program has been pretty popular, so I kind of doubt it’s in any danger, but I’m not surprised that there was some grumbling about possibly having to pay for something we used to make money off of. And if the words “garbage fee” are forming on your lips, you may want to bite your tongue.

If you were concerned Mayor Sylvester Turner could consider pushing a new garbage fee to cover that cost, however, think again.

As Turner put it, when asked at today’s post-City Council meeting press conference:

“No. I have never contemplated a garbage fee. When it’s come up, I’ve said to members of my own staff I’m not going to advocate a garbage fee and I’m not going to support a garbage fee. So, absolutely not, no.”

I don’t agree with that – at the very least, I think we ought to keep the option open – but that doesn’t appear to be the case. We’ll see what Council does with this next week.

Layoffs are coming

It’s gonna suck, though hopefully not as hard as last time.

Mayor Sylvester Turner

Mayor Sylvester Turner

Mayor Sylvester Turner said Wednesday that a still undetermined number of city employees will be laid off in the coming months, making his first formal acknowledgment that Houston’s projected $126 million budget gap can’t be closed by July without personnel reductions.

Though Turner did not provide an estimate of the number of employees at risk, personnel costs comprise more than 63 percent of the city’s general fund operating budget. Because another 19 percent of that money is set aside for debt payments, spending cuts need not go deep before they touch workers.

“It’s going to be very difficult to balance the budget at the end of June without some layoffs,” Turner said. “The question will be, how many there will be. I’ve taken no departments off the table. The only thing I will not do is I will not lay off a police officer.”

[…]

Noting that job cuts inherently mean cuts to city services, Turner sought to assure that his efforts to seek concessions from the leaders of the city’s economic development zones, pension boards and other groups are progressing well. He said he also is examining other ways to cut costs, such as restructuring the city’s debt.

Never missing a chance to repeat the refrain first issued in his inaugural address last month, Turner stressed that he also has asked City Council members to join in this “shared sacrifice.”

Beginning Tuesday and continuing at Wednesday’s council meeting, Turner hand-delivered letters to the 11 district council members. The notes, which he jokingly dubbed “Valentine’s cards,” told the council members he seeks to cut funds they use to support projects in their districts from $1 million to $250,000 in the upcoming budget, saving more than $8 million, in part, to avert additional layoffs.

“My hope is that we can put forth a budget that minimizes the number of layoffs, and that’s why I’ve asked everyone to engage in shared sacrifice,” Turner said. “It’s very difficult to tell people that they’re going to be laid off if we hold on to everything that we have.”

Mayor Turner has already asked Council to clip their discretionary budgets, because a little bit here and a little bit there may make the big pain a little smaller. I assume “economic development zones” means TIRZes, so I’ll be interested to see what that entails, and if the usual suspects start screaming bloody murder about the stupid revenue cap. If Turner can negotiate a minimal cost of living increase for the firefighters’ pension and/or a larger contribution from them as was the case with last year’s pension deal, that’s all to the good as well. We can’t do anything about the revenue cap now, but it will be on the horizon. If the general consensus is that Turner has done what he can to control spending (even though that has nothing to do with the rev cap), that may make it a little easier to get a revision to the cap passed. For now, anything that can be done to minimize job losses will be appreciated. I don’t envy him the task.

Things are tough all over

HISD faces a big deficit:

BagOfMoney

Houston ISD leaders are bracing for a projected $107 million budget shortfall that, in a worst-case scenario, could prompt the district to slash jobs.

During the school board meeting Thursday, however, officials pledged to try keep cuts away from schools.

“We get it,” Ken Huewitt, the district’s deputy superintendent and chief financial officer, told the board. “We’re in the business of teaching and learning.”

Huewitt said he told central office departments to consider not filling vacant positions and asked principals to weigh spending cuts up to $275 per student. His first-draft proposal also would save $10 million by dissolving the teacher bonus program, affecting payouts in January 2018. Money for next year already is in reserve.

He cautioned, however, that the district is still early in the planning process. The board is set to approve the budget in June. District officials typically present the severest financial outlook at the outset, without, for example, using savings to plug the gap.

The looming financial problem stems from the district expecting to reach, for the first time, the revenue level that requires property-wealthy school systems to send significant funding back to the state.

Lawmakers typically change the formula to avoid the so-called Robin Hood payback scenario for the Houston Independent School District and Dallas ISD, but that did not happen in the 2015 session, according to attorney David Thompson. The Legislature is not set to reconvene until January 2017 unless a special session is called.

Which there might be, depending on how the Supreme Court rules in the school finance case. If all goes well for HISD, they would be getting more money out of it. But you can’t count your chickens before they hatch, especially when you don’t know their timetable for hatching. The board has to make a budget, and they can’t make it based on assumptions about things that may happen at some unclear time.

And then there’s Houston.

As if nosediving sales tax revenues and a looming budget deficit were not enough, a swathe of successful lawsuits from business owners protesting their property values have handed Houston City Council another fiscal headache.

Mayor Sylvester Turner lamented what his finance director projects as a $16 million drop in property tax collections during the current budget year, which ends in June.

Granted, that’s not much in a more than $2 billion operating budget. But if all other trends hold, the news means there may be $16 million less on hand to close an already daunting $126 million budget gap for the new fiscal year that starts July 1.

Finance Director Kelly Dowe used new data from the Harris County Appraisal District to make the estimate. That data, said HCAD’s chief appraiser Sands Stiefer, was drawn from November and December, when many judges are trying to clear their dockets.

Turner at Wednesday’s council meeting lashed out at what he said is an “inherently unfair” system that rewards commercial property owners who hire lawyers to argue their properties are worth less than county officials contend.

That hands a higher share of the tax burden to individual homeowners who lack the same means to fight, the mayor said.

“They’re doing it each and every year. When they’re not successful at the appraisal districts, they go to court for relief,” Turner said. “The reality is, that $16 million is a real hit to the city’s budget.”

The hit is particularly harmful, Dowe said, because the city is operating under a cap on property tax collections that voters imposed a decade ago.

So this is the usual story, one part the rigged appraisal system and one part the stupid revenue cap, which does nothing but penalize the city for having strong economic growth, while exacerbating the problem in leaner times. The city has other issues it has to deal with, and the revenue cap is only part of the problem, but if you don’t recognize that it’s part of the problem, then you’re part of the problem, too.

And on that note, a song from the 80s that captures the theme of this post:

That’s John Cafferty and the Beaver Brown Band, who clearly kept on playing after the 80s. Good for them.

Circling back to city finances

I have three things to say about this.

BagOfMoney

This time, [City Finance Director Kelly] Dowe insists, the $126 million deficit he projects for the budget year that starts next summer is not going to disappear, as past projected shortfalls have. There are no more payments to defer, he says, no more valuable city-owned land to sell.

As a result, the city could be facing layoffs and cuts to services within a year – perhaps pool closures, restricted library hours and parks going to seed, and perhaps worse.

“We have an unsustainable financial model,” Councilman Dave Martin said. “We cannot continue to do this. If we continue down this path, we’ll be belly up.”

Dowe and his boss, Mayor Annise Parker, know Houstonians are confused as to why their government would face layoffs and service cuts while the region’s economy booms.

There are several reasons for this, all a decade or more in the making.

The city has been spending more than it brings in for years, a structural gap driven chiefly by soaring pension costs and, in recent years, a spike in debt payments. Houston typically bridges this gap by budgeting conservatively, being happily surprised when tax revenues exceed projections during the year, then using those “extra” dollars to balance the next year’s budget.

To balance the current budget for the fiscal year that started last week, council approved taking $86 million from last year’s leftover savings, the largest such transfer in a decade.

“Obviously we carry the reserves over from year to year. That’s money that’s not generated or not expected to be generated in the next budget cycle,” said Controller Ronald Green, the city’s elected financial watchdog. “Clearly, if you want to be technical, it is not a structurally balanced budget.”

This history of disappearing deficits has made some council members skeptical of just how dire current projections are. Dowe acknowledged that he originally projected an enormous shortfall for the current budget, which wound up being balanced without layoffs or service cuts.

But he also ticked off a litany of reasons that he says will make another easy fix harder in the future.

First, the city has run into a cap on property tax revenues that voters imposed a decade ago. Houston can collect more property taxes each year than the year prior, but is limited to the combined rates of inflation and population growth.

The city now knows exactly what it will collect each year from its largest source of revenue, and no number of new skyscrapers or townhomes will change that. The typical way the city has wound up with “extra” money at the end of each year is thus gone. Without the cap, the city would have had another $53 million to spend this year.

[…]

Each of the next two years also will bring a $50 million payment to the police pension, triggered under the pension board’s contract with the city because sluggish investment returns have eroded its funding level.

Without an increase in revenue, Dowe said, the only option is to cut services.

“Debt is what it is, pensions are what they are,” he said. “We will continue to get more efficient, we will continue to cut costs where we can, but in the long term it would be hard to say you wouldn’t affect services with the outlook we have.”

Debt payments for past public projects have risen by more than half over the last five years, to $346 million this year, and are projected to reach $411 million by 2020. Pensions are devouring $308 million of the city’s main operating fund this year, nearly three times what is spent on parks and libraries combined.

1. There’s no serious solution to this problem that doesn’t include repealing the revenue cap. Every candidate running for office runs on a promise of promoting economic growth and prosperity. Houston has had that these past few years, but thanks to the cap we’re being penalized for it. Fifty-three million dollars is a lot of money and would do a lot to reduce the scope of the problem we’re facing, and that’s just for this year. You want to argue that we don’t have a revenue problem in Houston I’ll be sympathetic, but that doesn’t mean that throwing away extra revenue like this makes any sense. There is no good reason not to use all available resources.

You may argue that the people won’t go for it, and you may be right. What evidence we have from limited polling certainly suggests that’s a strong possibility. To that I say, how about a little leadership from those who want to be Mayor? Politicians love to talk about “making the tough choices”, yet somehow choices like this never seem to be on the table. To be fair, at least some Mayoral candidates have mentioned this – I know Chris Bell has, I’ll have to check on some others – and Mayor Parker has brought it up as well. Any candidate who says they want to make “tough choices” but doesn’t consider this is to my mind not to be taken seriously.

2. Similarly, I don’t know how anyone can look at the debt figures and not support ReBuild Houston. One of the defining purposes of ReBuild Houston was to pay down existing debt and reduce the amount of future debt needed to pay for infrastructure. Put aside the extra revenue stream that ReBuild Houston represents, why would you want to add to the debt burden at this time? I’m not against using debt to invest in the city’s infrastructure, but now is not a very good time for it. What exactly is the case for going back to a bond-based system of paying for street and drainage improvements?

3. Finally, the pension issue. The choices are the same as they’ve always been – try to convince the Legislature to grant the city the authority to make changes to the pension plan; try to negotiate a different agreement with the firefighters; suck it up and figure out how to pay what we owe. I’m not sure why anyone thinks they’d be more successful at #1 than Mayor Parker has been, and I can’t imagine anyone advocating for #3. Maybe I’m missing something, I don’t know. I don’t know what else there is to say on this.

City deficit not as big as feared

This is a nice surprise.

BagOfMoney

A huge budget deficit looming at City Hall – which has spurred talk of layoffs, service cuts, new fees and higher taxes – has been cut in half, relieving some pressure to scramble together a budget patch but doing little for Houston’s long-term financial health.

The unexpected boost of good news came from city Finance Director Kelly Dowe, who told a City Council committee Tuesday that what recently had been an estimated $144 million gap for the budget year that starts next summer has shrunk to about $63 million.

“That’s no small amount of change,” Dowe said, “but definitely a better picture than $144 million.”

The improvement is thanks mainly to a change in the police pension board’s funding formula that means Houston no longer must pay $50 million into the pension in each of the next two years on top of the $123 million and then $133 million, respectively, the city already is scheduled to pay. Savings in city operations and the city’s health care costs leveling off also helped narrow the budget gap.

Dowe still projects deficits in each of the next four fiscal years, driven largely by a spike in the cost of servicing city debt, rising payments into all three city pension funds and a cap voters imposed a decade ago that limits the property tax revenues Houston can collect to the combined rates of inflation and population increase. Though these coming budget gaps have narrowed, the numbers remain sobering, reaching a projected $112 million deficit in the fiscal year that starts July 1, 2017.

[…]

Rice University political scientist Mark Jones said narrower budget gaps lessen the problem’s urgency and make items like changes to the revenue cap, which would require a public vote, less plausible.

“The strongest case for lifting the revenue cap would be this cataclysmic effect if those revenues were not available for core city services like police and fire,” he said. “As that number gets lower and lower, a doomsday scenario is a much tougher sell.”

Other observers said the new numbers better enable Parker to argue she is pushing the ideas because they are sound policy, not as part of a scramble to close a budget gap.

Needless to say, I agree with that view. Repealing the cap is still the right thing to do. The immediate deficit may be smaller now, but it’s still substantial, and it gets bigger a couple of years out. We can use all available resources to deal with it, or we can be forced to cut taxes and make more cuts than we otherwise would have in years where revenues grew faster than expected. That should be good news in a scenario like this, but only if we repeal the cap first. Let’s not lose sight of that.

Searching the couch cushions for loose change

That’s basically what this is.

BagOfMoney

To say the city of Houston is working to cut a looming $120 million budget deficit one color copy at a time would not be accurate. It’s more like millions of color copies.

Cellphones no one is using, old cars no one is driving, a 50-step process for approving fire alarm permits no one can explain – these are the targets and triumphs of a small team of efficiency experts tasked with burrowing into mounds of data and analyzing city operations to find savings.

While city leaders are looking at some painful ways to close next year’s massive deficit – pension reform, layoffs, cuts in service – the six members of the Lean Six Sigma squad have generated $25 million in savings and better processes in three years, showing there are easier ways to cut.

Next on the list? Perhaps an email to the sixth floor of the Houston Fire Department headquarters at 600 Jefferson. The shared printer there spit out 32,519 color pages in September, the most of any of the city’s networked printers. About 81 percent of the machines’ pages printed in color, nine times the citywide average.

It may sound like small ball, but given the size of city operations – 55 million pages are printed each year – the potential savings can add up quickly.

Finance director Kelly Dowe, who formed the Lean Six Sigma team in May 2011, said the group – named for decades-old problem-solving methods that began in manufacturing – has a broad focus, targeting everything from shortening the time it takes to hire city workers to helping pollution and restaurant inspectors plan better daily routes.

I don’t want to denigrate or belittle this in any way. It’s a valiant and necessary effort, it will achieve real savings, and it will make government work better. These are all very good things. What I do want to do is disabuse anyone of the notion that there’s more of this that can be done to close the rest of the budget gap. In the best case scenario, Dowe’s efforts might shave five percent or so off that projected $120 million deficit. That’s real money, but it’s nowhere close to a solution. The rest of the way there is a lot harder, with the choices a lot less pleasant.

The other point that needs to be made is that we need this level of scrutiny on the whole budget, including the public safety budget. As far as I can tell, that part of the budget has been walled off and the only thing one can do with it is propose to spend more. That’s not something I will accept, certainly not until my questions about HPD’s operations are answered. I’ve said before and I’ll say again, I’m willing to accept the possibility that we really do need to spend more on public safety to get what we want out of it. (Body cameras, for example, I’d absolutely support spending on.) But I want to see the numbers first. I want to know what what we’re spending our money on now is the best and most efficient use of it. Show me we’re putting the same effort into critically examining the public safety budget, and then we can talk. Along the way, we might also make some more progress on that deficit.

McClelland wants more money for more cops

And I want some answers before we go along with this request.

Houston Police Chief Charles McClelland asked city leaders Tuesday for an additional $105 million over five years to hire hundreds of new officers as part of a plan to shore up divisions where thousands of crimes are never investigated and bolster traffic enforcement as automobile collisions citywide are rising.

McClelland’s request comes as Mayor Annise Parker is searching for cuts to address an estimated $120 million budget deficit for the fiscal year that begins next July 1. Rising pension and debt costs, along with a voter-approved cap on city revenues, are fueling the city’s looming budget problems.

Executive assistant chief Timothy Oettmeier said HPD is proposing hiring 540 additional officers over the next five years, part of a 10-year plan to add 1,200 officers to investigative and patrol divisions. The staff increase would include new officers and hiring civilians to free up officers for field work.

Oettmeier said HPD was “enormously sensitive” to the budget situation and is using the hiring plan as a way to start a discussion. “What we’re simply saying is we need additional personnel, but given the current economic climate, can we sit down and figure out how to proceed at a time that’s appropriate for everybody,” Oettmeier said.

[…]

This summer, two independent police research groups hired to analyze HPD’s staffing noted that the department’s division commanders reported they had more than 20,000 crimes with workable leads that were not investigated due to a lack of manpower. That figure included burglaries and thefts, hit-and-run crashes and assaults.

Crime statistics provided to the committee showed HPD’s clearance rate for theft, burglary and auto theft was 11 percent last year.

[Ray Hunt, president of the Houston Police Officers’ Union] blamed a 44 percent clearance rate for rapes on low staffing, adding that HPD has seven detectives working adult sex crimes, compared to 15 deployed by the Austin Police Department.

“There’s no question that we’re struggling in some of the investigative divisions,” Oettmeier said, responding to the union.

I’ve expressed my opinion on that no-investigations report before, and the questions I raised then have not been addressed, as far as I know. I am not willing to spend more money on hiring officers until we get some answers to how well HPD uses the budget and resources it has now. We may well need to hire more officers, and to increase the pay we offer to them. I’m perfectly willing to accept that possibility, and the possibility that we will need to spend more money on police, but I am not willing to accept anyone’s word for it. Show me how HPD has performed in comparison to its own recent past and to other large city police forces, and then we can talk staffing levels. I don’t think I’m asking for too much here.

Endorsement watch: Chron for Collier

Add the Houston Chronicle to the list of papers endorsing Mike Collier for Comptroller.

Mike Collier

Mike Collier

[Sen. Glenn] Hegar knows politics; Collier knows the numbers. In our view the choice is clear: Texas needs the numbers man, not a politician who wants to use the office as a stepping stone to higher office.

Texans know what can happen when a comptroller gets the numbers wrong. In January 2013, the outgoing comptroller, Susan Combs, produced a Biennial Revenue Estimate that showed she had grossly underestimated what the state’s revenue would be in the 2012-13 biennium. That mistake, which prompted Collier to run for the office, played havoc with budget choices during the 2011 legislative session, including a $5.4 billion cut in education funding that didn’t have to be made.

Hegar, who has said he was proud of the education cut, seemed to suggest during the GOP primary that his chief qualifications for serving as comptroller were his opposition to abortion and his enthusiasm for the 2nd Amendment.

Since then, he has offered suggestions about how to run the office more effectively – more transparency, more training, a top-down review of the office’s basic functions – but it’s our impression he’d be learning on the job, and probably biding his time for the next office to open up.

Collier, one of the more engaging and articulate candidates we interviewed during the campaign season, clearly has the experience to run the comptroller’s office. He also has ideas for making it function more effectively – among them, producing quarterly revenue estimates so that lawmakers would have a better understanding of the state’s fiscal health.

The Chron joins the Statesman and the Caller and recommending Collier. I feel confident they won’t be the last paper to do so. Again, does this mean much? No, certainly not in this day and age, and in a partisan election. But it’s not nothing, and every little bit of reinforcement for the message that Collier is easily the better choice helps. Look for my interview with him on Monday.

Collier keeps up the attack

I really like the way he’s running his campaign.

Mike Collier

Mike Collier

Democratic comptroller nominee Mike Collier says his Republican opponent Glenn Hegar bragged to a Houston-area tea party interviewer last year that he was proud of the Legislature’s 2011 budget cuts to public schools. On Friday, Collier released a web video to prove it.

“It’s embarrassing and unacceptable that Glenn Hegar takes pride in cutting education despite our extraordinary prosperity,” Collier said in a statement.

“Hegar does not share our values, and he poses a profound threat to something Texans have held dear since our founding, … a great educational system,” said Collier, a Houston businessman.

Hegar spokesman David White called Collier’s 40-second video “a distortion.”

Though Hegar, a state senator from Katy, joined other Republican lawmakers in approving $5.4 billion in cuts to schools in the budget-cutting session of 2011, “Senator Hegar believes in adequately funding our education system,” White said.

Collier’s “entire campaign amounts to a distortion of truth and negative campaign commercials,” said White, Hegar’s senior adviser.

You can see the ad and the video from the Montgomery County Tea Party event from which the quote was taken at the link above. Note first that Hegar doesn’t actually deny saying what Collier accuses him of saying. He just says it’s not as bad as Collier makes it out to be. When he says he supports “adequately funding our school system”, he doesn’t say what he thinks “adequate” means. Remember, the state’s argument in the school finance lawsuit is that the current level of funding, which is still billions less than it was before 2011, is perfectly (and constitutionally) adequate. Glenn Hegar isn’t going to argue with that. Funny how these guys will proudly say something to one audience, then try to obfuscate what they actually said when it’s presented to a wider audience, isn’t it? The more Hegar complains, the more you know Collier is hitting the mark.

Bell op-ed for eliminating the revenue cap

More like this, please.

Chris Bell

A decade ago, Houston voters restricted city property tax revenues to the combined rates of inflation and population increases. Like most arbitrary rules that politicians apply to math, this revenue cap sounds like a great idea until it meets the realities of a growing and expanding city.

During the Great Recession, property values remained largely constant while the global economy struggled and revenue to the city fell. City government tightened its belt, cutting spending and reducing its number of employees. Critical investments in our infrastructure, public safety and human services were deferred because we simply couldn’t afford them.

Today, with our strong economy and increased property values, we should be able to make those key investments we were unable to make. The only problem is that the revenue cap prevents us from doing so. We remain in the difficult position of either cutting services, laying people off, or having to seek voter approval to raise the tax rate – because our property tax revenues are capped.

Now, Houston budget writers are trying to recover from those bad choices. The revenue cap has created an artificial crisis for a growing population with rising real estate values. Instead of considering all the choices, Houston faces more hard, if false, choices in the near future.

Managing Houston’s ballooning debt obligations is going to squeeze services that will face an increasing demand. The better Houston does, the worse Houston will become. The revenue cap, as currently written, punishes Houston for its success, antithetical to our city’s core values.

See here for the background. You know I agree with what Bell says, so I’ll keep this brief. As a matter of philosophy, I’m opposed to stupid budget tricks, the vast majority of which offer little more than illusion, distortion, and perverse incentives. I hope to see more people join Bell’s call to repeal this bad law. I just wish more people had spoken against it back in 2004 as well.

TM talks to Mike Collier

He’s a really impressive candidate.

Mike Collier

Mike Collier

What I’ve been surprised by in the past two years is how much farther right the state has gotten, even compared to someone like Rick Perry, who has, I think, been conservative by any normal standard. When Combs came back in 2013 reporting an $8.8 billion surplus—to me, that was a red flag that we cut the schools budget $5 billion by accident in 2011, or perhaps not by accident; perhaps in an abundance of caution that should raise some eyebrows.

Here’s my perspective on that. When the Eighty-second Legislature sat in January 2011, she showed up with a Biennial Revenue Estimate that showed a deficit that surprised everybody. It should have been a red flag to everybody: maybe this estimate isn’t right. If you look at the state’s economy, even in the document itself where she transmits the news, page 1 says we’re going to have less in revenues, which leads to the deficit. Page 2 says the good news is that we grew in 2010 and we’re going to grow in 2011 and we’re going to grow in 2012 and we’re going to grow in 2013. Anybody with any finance sense should have said, “There’s something really wrong here.” And my opponent didn’t say, “I think there’s something wrong here.” I’ve gone back and looked at the revenues coming into the treasury at the time. If you did a quarter on quarter analysis—this past quarter versus a year ago—you would have seen that revenues were roaring in. She should have at least stopped and said, “How do we manage our way through this uncertainty?” I think it was politics, and unacceptable.

I tend to agree with that, although within the Lege, I think there were people on both sides who were trying to maneuver their way through it, because they were logistically constrained by what the comptroller had projected, or maybe they were politically constrained. So they wrote a budget knowing they would backfill the budget. But there were also some who genuinely didn’t understand, and maybe some who felt genuinely cautious because it’s better to have a surplus than a shortfall.

You know, Erica, what I think this all boils down to is that if you’re a politician, you struggle with all the political implications of what you do. But if you’re a chief financial officer and you’re not a politician, it suddenly becomes very simple. You think of it the way a real executive would think of it and say, “These are the numbers; these are the uncertainties; these are the possibilities.” You don’t have to go through all of that political stuff. But you have to have a comptroller who’s not a politician to do that. And that’s, I think, what makes this so compelling to Texas voters. When I tell the story, the response I get—this whole notion of what party am I running for—just dissolves when I tell that story.

Go read the whole thing, it’s worth your time. I believe it’s a bit naive, albeit quite normal for an idealistic first-time candidate, to think that you can remove political considerations from inherently political processes. Revenue forecasts rely on assumptions, and assumptions are colored by one’s beliefs. Be that as it may, some forecasters are justifiably more trusted than others, and that’s a function of transparency and fidelity to verifiable facts. I feel quite confident that anyone who listens to Mike Collier will come away feeling good about his ability to make reliable forecasts. The key is whether he can get enough people to hear what he has to say. I actually got a genuine snail mail fundraising pitch from Collier the other day, and I plan to send him a check. If he can raise $5 million or so, who knows? What I do know is that the more voices like Mike Collier there are out there, the better off Democrats as a whole will be this fall.

More details on the House budget

Consider this to be written in pencil, because it’s going to change.

More than $1.6 billion and disagreements on how much Texas should spend on public education and Medicaid separate the budgets proposed by the House and Senate.

The Senate budget proposal, passed 29-2 by the upper chamber last week, spends $195.5 billion, a 2.9 percent increase from the current two-year budget. The House budget, which is scheduled for a vote on the House floor on April 4, spends $193.8 billion, a 2.1 percent increase.

While the House budget is smaller, it spends nearly $1 billion more on public education. The Senate plan spends $604 million more on higher education.

The Senate also invests $2.1 billion more in health and human services. A large portion of that extra spending, $974.5 million, covers projected growth in costs associated with Medicaid such as more Texans enrolling in the program and general medical cost inflation. The House budget does not address those costs.

“Our bill does not include cost growth, does not include rate increases, and we need to address those things,” state Rep. Jim Pitts, R-Waxahachie and the chamber’s chief budget writer, said last week.

Assuming the House proposal passes that chamber, members from both the House and Senate will meet in conference committee to resolve differences between the two plans.

The final product is likely to be larger than what either side has proposed. Neither budget addresses large shortfalls in transportation or water funding, two issues many lawmakers have discussed tackling this session. Legislators have also said they are considering additional spending on tax reform and further reversing last session’s public education cuts.

Lawmakers are also waiting on an updated revenue projection from Comptroller Susan Combs. If she tells them there is more revenue available than what she estimated in January, lawmakers may feel more comfortable spending more.

As the story notes, don’t be fooled by the graphic for higher education. There was an accounting change that makes it look like there was a cut, but in actuality there’s more money being appropriated, so that’s good. The budget still isn’t where it needs to be to account for growth and need, and we suffered needlessly for two years thanks to Comptroller Combs’ lousy revenue forecast, but things are better and that’s no doubt why this session has been less contentious so far. I do believe the House will account for Medicaid and the Senate will bump up its public education spending, with both being abetted by a higher revenue projection for the biennium. Beyond that, watch for the usual shenanigans in the amendment and rider process.

More on sunsetting tax expenditures

I say again, this is a good idea that really needs to happen.

Sen. John Carona

The Texas tax code is rich with tax breaks. There are tax breaks for industries relocating to the state and for anyone with an Internet connection. Tax exemptions for groceries and bottled water. Tax holidays for back-to-school supplies. Tax exemptions for golf courses at private country clubs.

It adds up to at least $38 billion a year for the state’s major taxes and school property taxes, the comptroller estimates — hardly pocket change in a state that is expected to collect $80 billion in tax revenue in 2012-13. But no one claims to know for sure how much the state is forgoing because, by law, smaller taxes — those that raise $2.2 billion or less — are excluded from a biennial report by the state comptroller.

Sen. Rodney Ellis

“We have so many exceptions to the tax code, none of us really know how many we have, what they cost, if they make sense or they don’t,” said state Sen. Rodney Ellis, D-Houston.

To get a handle on all those tax breaks, Ellis, along with Dallas Republican state Sen. John Carona, has filed legislation to create a “sunset” process that would eliminate any tax break that isn’t renewed by the Legislature.

“I truly believe every conservative in this Capitol ought to be supportive of analyzing those special government giveaways on a regular basis,” Carona said. “And that’s all this bill seeks to accomplish.”

Just as the state now reviews every agency and its programs on a 12-year cycle, Ellis and Carona want every state and local “tax preference” reviewed on a six-year cycle. The comptroller would set the schedule, the Legislative Budget Board would present the facts, and the Legislature would be forced to reaffirm the tax break or it would die.

Both lawmakers expect that the Legislature would reaffirm most of the tax breaks, including the popular homestead exemption and exclusions for groceries, medical and dental services, and medicines, for example.

But a periodic exam invariably would raise questions. Should golf courses at private country clubs be appraised at less than 10 percent of the land’s market value? Should retailers be paid — some say overpaid — for remitting sales taxes on time? Is there still a need to encourage the spread of the Internet by exempting sales tax on the first $25 of your monthly bill?

Then there are the oddities of the sales tax. Soda is taxed; bottled water isn’t. The services of landscape architects aren’t taxed, but landscape services are. Food meant to be eaten at home is exempt, but not food intended for immediate consumption.

And so on and so forth. If it helps, think of these exemptions and exceptions and what have you as expenditures, because that really is what they are. Expenditures get plenty of scrutiny – too much, sometimes – unless they’re tucked into the tax code. We could have recouped about $2 billion from ending unnecessary tax expenditures back in 2011, but of course the Republicans weren’t interested in cutting that kind of spending. It would be nice if there were some more interest in it this time around. If nothing else, we’re almost certainly going to need to find some more money to comply with the latest school finance lawsuit ruling once the Supreme Court has reviewed it. This is a sensible place to start looking. See here for more.

Senate committee restores some money to public education

Emphasis on the “some”.

Texas public schools would get back a chunk of the $5.4 billion in state funding they lost two years ago under a budget proposal adopted by the Senate Finance Committee on Thursday.

But they probably should not expect much more than the $1.5 billion the committee added to the 2014-15 state budget, said Chairman Tommy Williams, R-The Woodlands.

“It is going to be very difficult given the other demands we have in the budget to add any more,” said Williams.

Williams plans to pay for all the demands, including water projects, highways and some form of tax relief, without exceeding the constitutional spending cap. That would leave about $1 billion of projected state revenue over the next two years unspent. Lawmakers could exceed the cap with a simple majority vote in both the House and the Senate, but there is little appetite within the GOP to do so.

Many Republicans are also reluctant to increase education spending until the Texas Supreme Court rules in the pending school finance litigation. A district court judge found the school finance system unconstitutional earlier this month.

“Based on the politics of the state, we will not see the $5.4 billion that was cut last time go back into” education, said state Sen. Royce West, D-Dallas.

More from the Trib:

The money would come on top of the proposed $35.1 billion in general revenue for public education, which unlike the 2011 budget did, accounts for new students expected to enroll in the state’s public schools. The additional funding approved Thursday would also restore some of the $5.4 billion reduction in state funding that lawmakers passed during the last legislative session. The full Senate must still approve the Finance Committee’s recommendation.

During Thursday’s hearing, lawmakers on the committee suggested they might fight for more education funding, including money for measures like early college high school programs and the Student Success Initiative, which provides remedial help for students who fall behind.

The $40 million for pre-kindergarten — which Sen. Tommy Williams, R-The Woodlands and chairman of the committee, referred to as a “down payment” — would replace a fraction of the $200 million in competitive grants the Legislature eliminated in 2011 for full-day programs for low-income children. The funds would be distributed proportionally to school districts based on eligible student populations.

Again, note the partial and incomplete nature of this. The Observer highlights one salient feature.

Finance chair Tommy Williams (R-The Woodlands) said the new amount would mean “no net revenue losses for any school district for 2014.

You may recall that HISD was talking about raising their tax rate to make up for an operational shortfall next year, which was caused by the 2011 budget cuts. If this extra funding, which keep in mind only represents 28% of the $5.4 billion that had been cut in the first place, prevents the need for that, it would at least be something. That question hasn’t been answered yet.

Anna Eastman, president of the Houston Independent School District’s board, called the Senate panel’s decision a step in the right direction.

“It’s good news and I’m glad to see the state making this effort, but I still think it doesn’t come close to restoring the large cuts made two years ago,” Eastman said. “We’re at a place right now where we have a big gap to fill to maintain what we’re doing.”

Until that gap is closed, Eastman said, HISD cannot consider hiring new teachers or taking on additional costs.

Texas State Teachers Association President Rita Haecker said lawmakers can restore all $5.4 billion cut from school spending in 2011 “and meet other important state needs without raising anyone’s taxes.”

Education Committee Chairman Dan Patrick, who also serves on Finance, disagreed, citing other pressing needs, finite dollars and a constitutional spending cap. The $1.5 billion increase is recommended on top of the committee’s starting-point budget, which accounted for student enrollment growth.

“We don’t have those dollars. It’s not a choice,” said Patrick, R-Houston. Asked whether it may be an option to exceed the spending cap, which would require a majority legislative vote, Patrick said, “Not in my world.”

So yes, it is a choice, just not one that Dan Patrick wants to make. But it’s very much a choice, and don’t let anyone mislead you about that.

Assuming this survives the full Senate and the House, this is good in the sense that it’s not bad, but it’s not good in a quantitative sense. How can it be, when schools are still down almost three quarters of the original total? I’ve been trying to come up with a snappy analogy for this, but really, what it comes down to is simply the fact that the Lege cut a bunch of money last time, and has now restored just enough of it to keep things from getting worse, but not enough to make anything better. We’re stuck with this until the Supreme Court rules on the school finance appeal. Just take a look at that chart I embedded above of inflation-adjusted dollars per student, provided by the office of Rep. Gene Wu, and you’ll see how little that $1.5 billion will do.

On a side note:

The committee left just one piece of the education budget in limbo: funding for a new charter school authorizer that would be created under Sen. Dan Patrick’s Senate Bill 2—a seven-member appointed board to oversee the state’s charter schools.

It was a telling diversion in an otherwise agreeable budget meeting to watch a pair of Democratic senators try to make Patrick, the usually tight-fisted tea party favorite, defend the extra cost of his school reform plans.

Dallas Democrat Royce West began by saying he wasn’t convinced Texas should create a separate board for authorizing charter schools. That’s already the State Board of Education’s job, West said. He worried about putting charter school approvals in the hands of an unelected board and questioned how they’d be held accountable.

The move clearly irritated Patrick, who said he wished West had told him about his reservations sooner. (West said he already voted against it once in their workgroup, which should have been sufficient notice.) Members of the charter school authorizing board, Patrick said, would probably need Senate confirmation, and might answer to the State Board of Education—though those details aren’t final yet.

SB 2 is still pending in Patrick’s education committee after a hearing last week. The Legislative Budget Board has estimated Patrick’s bill would carry other huge costs to the state, growing every year—from $24 million in 2014, up to $55 million in 2018. Those costs include students coming from private or home-schooling into a charter school, new funding for charter school buildings, and state employees to oversee all the new schools.

Today’s argument focused on what the new Charter School Authorizing Authority would cost.

“Why would we turn to more government as a solution?” Houston Democrat John Whitmire asked Patrick. “Because I know that’s not your philosophy; I do listen to you closely.”

“Instead of fixing the agency that is in charge of this responsibility, you want to turn and create a new bureaucracy, more state employees, and I promise you this [charter school authorizer] budget will not remain where it is,” Whitmire said.

“I will bet you, whoever evaluates us,” Whitmire said, “this will be a measurement by the folks that advocate less government, that we’re creating another governmental entity. It is what it is.”

I wouldn’t take that bet.

Supplement this!

Time for the Lege to pay a few past-due bills from 2011.

That’s where a supplemental budget comes in. It is literally a second budget added to the original one lawmakers approved in 2011. It’s not an unusual course for lawmakers to take to address lingering IOUs, but this year’s efforts are becoming more complicated and politically fraught than in the past.

For starters, lawmakers are planning at least three bills to address the state’s supplemental needs instead of the usual one. The first measure needs to be signed by Gov. Rick Perry in March so the state can pay billions in upcoming health care bills on time. A second supplemental bill will address the state’s costs from fighting wildfires and providing prisoner health care, but it won’t need to pass so quickly. A third measure, also not a rush item, will reverse $1.75 billion in delayed funds to school districts.

State Rep. Jim Pitts, R-Waxahachie, chairman of the House Appropriations Committee, said separate bills were needed to ensure that the emergency item makes it to Perry’s desk quickly.

Texas has $6.8 billion of unmet costs in the current budget, nearly all of it related to Medicaid and public education, according to the Legislative Budget Board. Lawmakers plan to use most of the extra $8.8 billion the Texas comptroller reported collecting from this biennium to pay those costs.

One way of thinking about this is that if Comptroller Combs had given us an accurate revenue estimate in the first place, we we could have dealt with all this in 2011 instead of pretending it didn’t exist for the purposes of “balancing” the budget. This is also a reminder, once again, that the concept of “balancing” the budget as we do in Texas is a fiction imposed by an artificial deadline.

The House Appropriations Committee passed its first supplemental bill on Monday, and Pitts plans to bring it to the House floor for a vote early next week. The bill, House Bill 10, has “emergency” status, a parliamentary designation that allows legislators to vote on the measure during the first 60 days of the session if Pitts can get the support of 120 of the 150 House members.

“It’s the first time I’ve ever had an emergency supplemental,” Pitts said.

The emergency stems from the last Legislature’s decision to fund Medicaid and the Children’s Health Insurance Program for only 18 out of 24 months in the budget cycle, a move that allowed lawmakers to delay $4.5 billion in spending from state coffers. HB 10 will fund those programs for the full two years with $4.5 billion in state money, which will automatically trigger an extra $6.6 billion in federal funding.

The bill needs to get to Perry’s desk by early March so that health care workers aren’t left in the lurch, Pitts said.

“If we do not pass House Bill 10 for Medicaid, the doctors, the hospitals, the nursing homes will not be paid after the middle of March. … That is the emergency,” Pitts told his colleagues on the House floor Monday. The bill also includes $630 million owed to schools districts.

The emergency is one part the result of Combs’ inaccurate revenue projection, and one part the Republicans’ fanatical refusal to find new revenue. Most likely, these bills (about which you can learn more here) will pass, but you never know what the bomb-throwers in the GOP caucus might try to do. You may be wondering about the issue of school finance, for which Democrats have tried to get the cuts from 2011 restored. That’s not going to happen, but some kind of partial restoration may be possible.

House Appropriations Chairman Jim Pitts, R-Waxahachie, said that lawmakers have just under $1 billion available to spend without hitting the constitutional spending limit on the current two-year budget. He and a group of lawmakers, which includes House Speaker Joe Straus, R-San Antonio, are in talks to add some of that money to a supplemental spending bill expected to reach the full House next month.

“We’re still working on it,” Pitts said Thursday.

State Rep. Donna Howard, D-Austin, said the discussions are looking at adding public education money both to the current budget and the next two-year budget cycle.

[…]

During debate over the rule, Pitts told lawmakers the second supplemental bill may include funding for public education. That bill is also expected to address unexpected costs related to recent wildfires and prisoner healthcare.

State Rep. Mark Strama, D-Austin, urged Pitts to make clear publicly as soon as he could how much more money school districts could expect so they could properly plan to use it before the end of the fiscal year. He said many districts might use some of the funding to hire tutors for students who need to retake the STAAR end-of-course exams.

“There is time for us to make a meaningful difference in the resources available to them,” Strama said.

The rule in question was one that forbade any amendment to HB10 that added to the total cost without any offsetting cut elsewhere. We’ll see what comes of this. EoW has more.