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The state spending cap is a stupid idea

And the Republicans want to make it worse.

BagOfMoney

Texas Senate leaders on Tuesday announced another round of efforts to change the way the state determines its two-year spending limit, and keep tax cuts from counting toward the constitutional cap on spending.

Lt. Gov. Dan Patrick joined state Sen. Kelly Hancock, R-North Richland Hills, at a Capitol press conference to announce legislation that would not allow the state’s budget to grow faster than population growth plus the rate of inflation.

State budget leaders in December pegged the state’s economic growth over the next two years at 11.68 percent, based on the projected rate of growth in Texans’ personal income. That means state spending cannot exceed $107 billion for the next biennium, leaving several billions of dollars in state coffers.

Hancock said basing economic growth projections on personal income is “a false measurement.”

“Individual income typically grows at a faster rate than the state’s economy,” he said.

Hancock’s Senate Bill 9 and Senate Joint Resolution 2, assigned low numbers as a sign of importance, would also exempt tax cuts from counting towards the spending limit. That would allow Republicans to provide billions of dollars in tax relief without having to vote to exceed the spending limit.

The proposed constitutional amendment changes the number of votes needed in both houses to exceed the spending limit from a simple majority to a three-fifths majority.

This is a companion to the earlier proposal to exempt spending on tax cuts and reducing debt from the spending cap. It’s not about spending or limiting spending so much as it is about limiting options, and it has nothing at all to do with fiscal responsibility, despite what some people want to believe. If the only things you can easily spend money on are tax cuts and reducing debt, what are you going to prioritize? The Observer points out some of the problems inherent in these ideas.

Hancock’s Senate Joint Resolution 2 and Senate Bill 9 would ask voters later this year to redefine the spending cap and tie it to state population growth, plus inflation, instead of growth in Texans’ personal income, which rises faster. It would broaden the spending cap to apply to all of the state’s spending, instead of just certain kinds.

That would bind the hands of future legislatures even tighter, while ensuring that more and more revenue would be untouchable beyond the cap. Legislators could still vote to bust the cap—though few seem to have the political courage to do that now—but Hancock would make that harder, too. Right now, the cap can be lifted by a simple majority of both houses. Hancock would make it a three-fifths vote.

If passed, Patrick’s two budget proposals don’t technically contradict—actually, they’d be weirdly toxic (or synergistic, depending on your perspective) in combination, since more and more money would end up on the wrong side of the spending cap, and that money could only be used for tax cuts and debt—but it’s still a weirdly incomprehensible mess from a policy perspective, and put together seemingly on the fly. It’s the art of government as outlined on the back of a Gadsden Flag cocktail napkin.

What’s worse—it’s straight out of Sacramento. You know how the recent recession calcified a Texas meme about the Golden State being the worst place on earth? California is doing pretty well lately, though you won’t hear about it in Austin. But one of the ways California got itself into a mess over the last few decades was by tying the hands of future legislatures and restricting the state’s ability to raise revenue, all the while kicking tough (and easy) decisions to voters. All three are becoming more and prominent parts of the Texas model—paradoxically, done in the name of targeting “California-style” spending.

You think the Lege engages in shenanigans and sleight of hand now to meet the constitutional mandate for a balanced budget? (And by the way, doesn’t that already serve as a spending cap?) Just wait till they’re foolish enough to put more obstacles in their own path. Whether they like it or not, ultimately stuff needs to be done. Why make it harder than it needs to be? It’s even more ludicrous hearing anyone talk about this as if it represented “discipline”. Last I checked, being disciplined meant having the restraint to not do unwise but tempting things. If you have to be handcuffed to a pole to ensure you don’t do them, you’re not disciplined.

But there’s another factor to consider as well. The budget is in surplus now, but the state has many documented needs. Roads, water, education, pension funds, and a laundry list of deferred maintenance that’s causing some of the people responsible for deferring it some poetically just problems, and so on. As someone who is old enough to remember the budget crunch of 2011 – which largely turned out to be the fault of a Comptroller who couldn’t do arithmetic – I heard the hoary old “household budget” metaphor dragged out to justify savage cuts so many times that if I’d received a nickel each time, I’d have a bigger surplus than the state does right now. Well, there’s a household budget metaphor for good times, too. When households are sitting on a pile of extra cash, they tend to the needs that they have build up over time. They fix things. They upgrade. They maintain. They invest in the care and wellbeing of their household, both the physical structure and the residents of it. Everyone recognizes such behavior as being responsible and necessary. Putting another artificial constraint on spending, especially now, is the opposite of that. It ensures that the problems we have now, both the ones we try to deal with and the ones we continue to ignore, will get worse and be more expensive to deal with later. How is this a good idea? Republicans are going to do what Republicans are going to do, but any Democrat who signs onto this needs to rethink their priorities. Eye on Williamson has more.

Voodoo economics

Also known as Dan Patrick’s budgetary contortions.

FerrisB_VoodooEconomics

Lt. Gov. Dan Patrick, joined by the Texas Senate’s lead budget writers, announced “a new bold proposal” Wednesday morning to allow lawmakers to cut property taxes and pay down the state’s debt without busting the state’s politically charged spending cap.

“Gosh darn, we know our businesses and taxpayers need tax relief,” Patrick said at a press conference. “But because of the cap, we are limited in what we can do.”

Lawmakers entered the session with an estimated $113 billion to haggle over, but are expected to hit the state’s spending cap at $107 billion. Spending beyond the cap would require a simple majority vote in the House and Senate, a move that Republican leaders have repeatedly insisted will not happen this session.

The measures filed Wednesday are an attempt to provide political cover for Texas lawmakers to tap more of the billions of dollars sitting in state coffers without being viewed by voters as freewheeling spenders. Republicans in particular are wary of a vote for breaking the state’s spending cap being used against them in future primaries to paint them as fiscally irresponsible.

“We have more money on hand than we believe any Legislature has ever had at one moment in time dealing with budget issues,” Patrick said. “There is no support for exceeding the spending cap, but that also means that when we leave, we will have approximately $4.5 to $5 billion in the state’s checking account.”

While a simple idea in theory, the spending cap in practice is a complicated measure that even some members of the Legislature have trouble grasping. The Texas Constitution says the government can’t grow faster than the state’s economy. State leaders set a growth rate of 11.68 percent for this session in December, based on the estimated rate of growth in Texans’ personal income over the next two years.

“For 36 years our state spending cap has helped enforce fiscal discipline, and we should be very cautious about any attempt to weaken it,” House Speaker Joe Straus said in a statement responding to Patrick’s proposals.

Well, gosh darn, Dan Patrick categorically refused to consider exceeding the spending cap in 2013 when some people wanted to more fully restore the cuts to public education spending, so right there is your first clue that this is little more than a gimmick and an attempt to hardcode Republican priorities into the state constitution. I’m a bit pressed for time, so I’ll point you to a couple of good analyses of this. First, from Ross Ramsey:

Lots of things would be possible right now without that spending cap in place; this year, it leaves as much as $6 billion in the state treasury that is out of budget writers’ reach. That has lawmakers dreaming of how to get around the cap, and there are ways to do that.

The first one is simple: Vote to spend more. If a majority of senators and representatives agree, they can spend more than the cap allows. This requires some intestinal fortitude from legislators, especially in primaries where voters will want to know how the state budget ballooned so quickly. Price-sensitive voters won’t like the answer unless they can be convinced that the extra money was well-spent.

A second, proposed Wednesday by Lt. Gov. Dan Patrick and Sens. Jane Nelson, Juan “Chuy” Hinojosa and Kevin Eltife, is complicated. They want to change the constitution to exempt spending on tax cuts and debt payments from the calculation of a spending cap. They would be able to take care of other items on their wish lists and keep spending past the cap on taxes and debt. Voters would have to approve, and it would take approval from two-thirds of the House and two-thirds of the Senate to get the measure to voters.

That’s more complicated, but it fits the recent pattern established by the state’s officeholders. They are scared to death of voters — so much so that they rely on a “Mother, may I?” approach to tough votes.

For two Novembers in a row, the state of Texas has gone to voters asking for more money, first for water and more recently for transportation.

Those didn’t involve taxes — lawmakers are allergic to that. But they were nervous about spending money, even on popular things — water projects during a drought and highway money for the state’s perpetual traffic jam — and asked voters for permission instead of just writing the checks themselves.

The state had the money it needed, sitting in the so-called Rainy Day Fund, but lawmakers didn’t want to just write a check themselves, for fear they would be labeled spendthrifts in the next round of primary elections.

Those would be Republican primary voters, of course, since those have always been the only voters Dan Patrick cares about or listens to. I’m old enough to remember back in 2011, during the (now known to have been mostly phony) budget crunch, when everyone compared that situation to households that cut back and tighten their belts and all those other virtuous things during hard times. Well, I don’t know how it is at your house, but at mine if the roof starts to leak or if the water heater breaks, I spend what I must to get it fixed. Somehow, that part of the household-as-budget-analogy never gets brought up.

And from Christopher Hooks:

The proposal makes a certain sense from the Democrats’ point of view—busting the spending cap probably means more money will go to state needs like education, even if Patrick wins his tax cuts. And it makes a certain sense for somebody like Eltife, who won’t have to stand in the way of tax cuts while other fiscal needs get attention, too.

But from Patrick’s POV, it’s a weirdly craven move. For one, he’s proposing to bust the spending cap—a sacred cow among conservatives—while saying loudly that he’s proposing to preserve it. And it contains a certain measure of political cowardice; if legislators wanted to, they could vote to bust the spending cap this session with a simple majority vote. Instead, they’re asking voters to make the hard choice for them, a move that seems eerily reminiscent of the dreaded Sacramento style of governance.

Furthermore, the amendment, if it passed, would privilege tax cuts over other kinds of spending. If the Lege ends up with $6 billion in additional revenue over the spending cap next session, it would virtually assure that that money would produce more tax cuts rather than, say, go back to schools or health care or roads.

Finally, it’s a move that’s emblematic of Patrick’s emerging leadership style—impulsive, seemingly thought-up on the fly and done with little consultation with his legislative partners. House Speaker Joe Straus gave an exceptionally cool statement in response: “For 36 years our state spending cap has helped enforce fiscal discipline, and we should be very cautious about any attempt to weaken it.”

But Patrick’s proposal points to a reality about the new era in the Lege: Patrick and the generally suburban-oriented senators who represent the new vanguard are not amenable to government spending and value tax cuts above almost all else.

Yes, that’s what this is about. It’s what basically all of the budgetary tricks and sleights-of-hand are about, including the spending cap itself. It’s a convenient excuse for not doing what you didn’t want to do anyway, like restoring cuts to public education, and it’s an opportunity to restrict the terms of debate further by forcing certain priorities ahead of others. I feel the same way about things like proposals to dedicate certain taxes that have otherwise been for general use to specific purposes. I get why Sen. Hinojosa is playing along, but I fear he’s being suckered. This is a bad deal, and we should hope the House rejects it.

Abbott denies his pre-k plan means standardized testing for 4-year-olds

Glad we cleared that up.

Still not Greg Abbott

After questions were raised about language in a policy proposal that appears to call for the biannual testing of pre-kindergarten students, Republican gubernatorial candidate Greg Abbott’s campaign is clarifying his early education plan, saying he is not calling for such tests.

The proposal — the first detailed glimpse at Abbott’s education policy — aims to increase accountability for pre-kindergarten programs in the state by tying their funding to academic outcomes. Announced a little more than a week ago, it asks Texas lawmakers to require school districts with such programs to “administer assessments at the beginning and end of the year.”

After Democrats and education advocates said Abbott’s policy opened the door to standardized testing for pre-K students, the Abbott campaign said Tuesday the language in the attorney general’s proposal would not amount to standardized exams for 4-year-olds.

“Suggestions to the contrary are absurd,” spokesman Matt Hirsch said in a statement.

[…]

Abbott’s proposal would provide an additional $1,500 in state funding for each student enrolled in half-day pre-K programs  — which the state currently funds for children who cannot speak English or are from homeless, low-income, foster or military families — if those programs meet state-set “gold standard” performance requirements. The biannual assessments are necessary, the proposal states, to provide the state with “data necessary to properly evaluate” whether districts would qualify as “gold standard.”

In the section describing how the state should monitor pre-K performance, the proposal cites a 2012 report published by the Educational Testing Service, a nonprofit organization that develops and administers tests worldwide, that details policies related to “assessing preschoolers’ learning outcomes.” It explains that there are three methods of evaluating pre-K students: through “norm referenced standardized tests,” observations based on predetermined checklists and scales, and portfolios of children’s work. Most states use either the first or second approach, and Texas, it notes, is one of four states that do not require any kind of assessment for pre-K programs.

On Tuesday, Hirsch said that the assessment methods mentioned in the plan were “there for informational purposes only.”

“They are not part of Greg Abbott’s policy recommendations,” he said. “As the plan states, TEA should publish a list of approved assessments that districts may use.”

Under the plan, local school districts would chose from a list of approved assessments to be published by the Texas Education Agency, which it states should avoid “granting any one testing organization a monopoly.”

Asked whether the attorney general would call on the TEA to not include standardized testing as an approved assessment, Hirsch said Abbott “would discourage the use of standardized testing for pre-K students.”

See here for the background. The TSTA, no fans of Abbott’s, remain skeptical. All I can say is that when your education-related plan uses words like “assessment”, people are naturally going to think you’re talking about standardized tests. Abbott’s plan may not actually lead to such testing, but if people think it will, he’s going to have a hard time convincing them otherwise. Sucks to be you, dude.

On a related note, Lisa Falkenberg covers the subject of pre-k education with a candidate comparison.

There’s been a lot of talk in recent weeks among Texas gubernatorial candidates about pre-K, and how the state should invest in it. Yes, I said “how,” not “if.” It’s a good thing that both candidates, Texas Attorney General Greg Abbott, a Republican, and state Sen. Wendy Davis, a Democrat, can agree that early education is a priority. One that deserves time on the campaign trail. One that deserves a pledge of funds in support.

So far, the biggest difference between the candidates’ proposals seems to be that Davis wants to expand access to full day pre-K to all 4-year-olds in Texas, while Abbott wants to channel limited state funds into the highest quality half-day programs that meet what he calls “the gold standard.”

In general, I side with Abbott on spending limited resources on quality programs, as long as they serve the neediest students. Only high-quality pre-school programs have been shown to produce initial academic gains and long-term character and social benefits that make at-risk kids less likely to commit crimes later in life and more likely to graduate from high school and hold down a job.

Davis’ vision of a Texas where “every eligible Texas child has access to quality, full-day pre-K” is noble, as was President Barack Obama’s similar goal. Davis’ idea about a sliding scale that would allow families to pay what they can is tempting. I’d love to stop paying a second mortgage for private tuition.

But let’s face it. Texans, in our current political incarnation, are simply not willing to make that investment. While the state spent about $727 million on pre-K in the 2012 school year, Davis has estimated her plan would cost an additional $750 million per year.

We don’t even adequately fund our current programs.

The Legislature’s decision in 2011 to cut $200 million from a grant program that helped school districts provide full-day pre-K had disastrous effects. Only $30 million was restored, which is one factor in a lawsuit against the state. And state-funded pre-K seems to be dropping in quality.

In its “quality standards checklist” for 2012, the National Institute for Early Education Research found that Texas meets only two out of 10 benchmarks for pre-K. Teacher education and training, class size and staff-to-child ratios were not among those met.

Abbott’s plan to boost good half-day schools, meanwhile, would cost an estimated $118 million for the years 2016 and 2017. That’s far less than the amount the state once provided for expansion. So, while his strategy is smarter, if he really wants us to believe early education is a priority for him, he needs to put his money where his mouth is.

We can easily afford Davis’ plan. The state is awash in revenue right now, with $2.5 billion left unspent from the last biennium on top of rising projections. We have so much revenue that the usual greedhead fat cats are calling for tax cuts, because they don’t care about spending money on the things Texas needs. This isn’t about making hard choices, it’s about making good choices. Davis’ plan, which amounts to less than two percent of the revenue that will be available in 2015 for the biennium, will likely wind up costing less overall, as schools will be able to spend less money on remediation in the early grades. Abbott’s plan, once you get past the Charles Murray issue and the testing questions and the bizarre animus towards Head Start, still at its maximal amounts to a 40% cut from 2009 spending levels. How much clearer a choice do you need?

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.

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.

Another reason why spending caps are a bad idea

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

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

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

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

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

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

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

[…]

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

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

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

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

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

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

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

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

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

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

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

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

Here come the tax cut proposals

When the sunny revenue forecast came in, we immediately got one crappy tax cut idea, to eliminate the margins tax at a cost of $4.5 billion. The Texas Association of Business didn’t care for the idea, at least at first, but are now warming up to it, because this is what they do.

For Bill Hammond, president of the Texas Association of Business, it’s a simple formula: Keep taxes low and the Texas economic engine keeps on chugging. Hammond says making permanent the business tax exemption for companies that bring in less than $1 million in gross receipts would fuel the economy, as would allowing those making more than that to exempt their first $1 million.

“Currently if you do $900,000 in receipts, you pay no tax,” Hammond said. “If you have $1.1 million in receipts you pay tax on the entire amount.”

With a million-dollar exemption, the latter company would pay taxes on just $100,000.

Hammond also wants to lower the franchise tax rate by a quarter of a percent. And lest consumers feel left out, the proposal includes a sales tax exemption for college textbooks.

[…]

Hammond’s proposals would cost the state more than $4 billion, money he says should be off limits to lawmakers, because spending it would put the state over a constitutional cap on state budget growth.

“Unless there’s a vote of two-thirds of both bodies to bust the constitutional cap, that money will either be sitting in the treasury forever maybe, or, as we believe, it should be returned to the taxpayers,” he said.

But Hammond’s numbers don’t exactly add up. The $4 billion would be off limits based on the current size of the 2012-13 budget. But lawmakers are expected to add about $7 billion to that budget in a supplemental appropriation early this spring. That would increase the cap for the new budget and erase that $4 billion overage.

Hammond calls his proposal a starting point and expects more tax cut ideas in coming weeks.

Well, the margins tax was born on fuzzy math, so it would be somehow poetic if its demise began with more fuzzy math. The Statesman has more:

Hammond said the rate cut proposed by TAB could be the the first step in phasing out the franchise tax.

Until the latest revenue forecasts, Hammond had said he doubted the state would have the revenue to phase out a franchise tax that has accounted for about 10 percent of all state tax revenue. But he said Texas Comptroller Susan Combs’ forecast for the next two years changed his mind.

“We needed to see how much money was available,” Hammond said. “There’s money to fund some or all of it.”

Dick Lavine with the Center for Public Policy Priorities, which advocates for low- and middle-income families, disagrees.

Lavine said state funding for education is $500 per student less than before the 2011 cuts. He also noted Texas’ needs for water and transportation infrastructure.

Although the Legislature is expected to be even more conservative this year than in 2011, Lavine said he’s begun talking to GOP lawmakers and they aren’t in lock step for tax cuts.

“Not all of them are enthusiastic about tax cuts because they realize the state has higher priorities,” Lavine said.

Priorities, remember those? You know, like water and transportation and Medicaid and weaning the budget off of accounting tricks and paying off all those bills the Lege deferred from 2011. Those things. Oh, yeah, and public education, which the Lege won’t address this session beyond maybe funding enrollment growth but which Lt. Gov. Dewhurst wants to set some money aside in anticipation of a court ruling that more must be spent. This is why if you think in terms of what Texas actually needs, we’re falling well short of what we should be spending. Even without that, it’s hard to see where the room for a multi-billion dollar extravagance like this comes from. You can pay for the things Texas needs, or you can throw a bunch of money down the tax cut drain. You can’t do both.

And as a reminder, it’s not just the big ticket items that are clamoring for their fair share of the pie, it’s the smaller line items, too.

The Texas Parks and Wildlife Department would close seven state parks during the 2014-2015 biennium under preliminary budget proposals from the House and Senate, and at least one group is ready to fight to keep them open.

In discussions before the legislative session began, the parks and wildlife department requested that the Legislative Budget Board allocate an additional $18.9 million from the sporting goods sales tax to keep all parks operational. The preliminary House and Senate budgets, released Tuesday, call for only an additional $6.9 million over the next biennium from that tax.

Ian Davis, the directof of Keep Texas Parks Open, said parks improve Texans’ quality of life and stimulate local economies, especially in smaller counties. His organization will hold town hall meetings around the state and organize Texans online to advocate for additional funds so the department can keep all its parks open.

“We are trying to mobilize people across the state so they understand that it could be their park that closes,” Davis said.

Here’s their Facebook page if the idea of not spending less than 0.1% of the revenue we have to keep Texas’ parks open offends you. We have a choice to make. We really ought to try to make a good one.

Meet the new budget

Same as the old budget.

Republican leaders in both chambers of the Legislature on Monday offered spare first drafts of the state’s next two-year budget that continue $5.4 billion in cuts to public education made last session and freeze funding for an embattled state agency set up to find a cure for cancer.

Upending recent tradition, the Texas Senate is starting off with the leaner budget this session, one that’s about $1 billion smaller than the House budget but spends nearly the same amount in general revenue, the portion of the budget that lawmakers have the most control over. General revenue typically makes up around half of the total budget, with much of the remainder coming from federal funding.

The Senate proposed a $186.8 billion budget, a 1.6 percent drop from $189.9 billion, the amount the current budget is estimated to grow to after lawmakers pay for some unpaid bills in the current budget this session. General revenue spending makes up $89 billion of the budget, up 1.5 percent from the current budget.

The total House budget will be $187.7 billion, down 1.2 percent from the current budget. General revenue spending makes up $89.2 billion, a 2 percent increase from the current budget.

Both proposals drew swift criticism from Democrats and education groups, but Republican lawmakers in both chambers stressed that the budgets are merely starting points.

Let’s just say that they’ll have to show it to me before I believe it. The first time House Appropriations Chair Jim Pitts or Senate Finance Chair Tommy Williams starts talking about “tax relief”, I’ll know the fix is in. The debate over the supplemental budget, which will need to pay off some IOUs on Medicaid and school funds, will give us an indication of how this is going to go.

The embedded graphic above is from the Better Texas blog, which is a product of the CPPP and which you should be reading. Their point is that even with the higher revenue estimate, we’re still way below what we’d need to be spending to cover population growth and cost increases. It’s going to take a change in government to get to that point.

Still, some things do change, and the Statesman notes one of them.

One relatively small-dollar change will have an out-sized political effect. The House provided no money for the state standardized testing system, a $98 million reduction in state dollars, while the Senate fully funded the program.

Frustration has been building over the testing system, known as the State of Texas Assessments of Academic Readiness, and parents and some business leaders are pushing for major changes. The House appears ready to force the issue.

“It will at least force the discussion,” said Dineen Majcher, an Austin lawyer who helped found Texans Advocating for Meaningful Student Assessment, a parent group seeking an overhaul of the state testing system. “I think it was a very bold move.”

It’s unlikely that the final budget will zero out funding for the STAAR test, but I do agree that this will prioritize the debate over just how much standardized testing we need. Keep an eye on that.

Here are responses to the budget from Rep. Mike Villarreal and the Texas AFT. So far everyone is taking Pitts and Williams at their word that what they’ve put out now is just a starting point. If we want to end up someplace better, now is an excellent time to let your Rep and Senator know what your priorities are. It’s also a good time to note that the first Save Texas Schools rally for the session is on the calendar:

In the face of underfunding, over testing and proposed vouchers, get ready to join thousands of concerned Texans as we stand up for quality education for ALL Texas students.

DATE: Saturday, February 23, 2013

TIME/PLACE: March: 10:45 a.m. on the Congress Avenue Bridge to the Capitol.  Rally: Noon – 1:30 p.m. at the Texas State Capitol on the South Steps, Congress Ave. & 11th St.

AGENDA: Speakers include Supt. John Kuhn and Diane Ravitch. More soon!

Organizing in Your Area: Click here to be an organizer in your area.

Transportation: We have scholarships available to local groups to help with buses this year. Click here to apply. Please contact Save Texas Schools as soon as possible!

Let us know you’re coming! Click here to sign the Save Texas Schools petition and to register for the rally.

As always, speak now or forever lose the right to complain about the end result. Burka is dumbfounded by it all, Grits says that “on the criminal justice front they’re not off to an inspiring start”, and EoW, Sen. Kirk Watson, and the Observer have more.

The revenue estimate is in

And under normal circumstances it would be very good news.

Texas Comptroller Susan Combs, laying out the parameters for state spending on the eve of the legislative session, said Monday that the rebounding Texas economy gives lawmakers $8.8 billion unallocated in state coffers for this budget period and an improving picture for the next two years.

The extra money has been eagerly anticipated by state lawmakers who two years ago slashed spending in the face of a budget shortfall.

In the 2014-2015 budget period, the state’s general revenue from taxes, fees and other income is estimated to reach $96.2 billion, with $3.6 billion earmarked for future transfers to the rainy day fund, Combs said.

The total $101.4 billion available for general-purpose spending through 2015 – taking into account the predicted $8.8 billion balance and future revenues – is 12.4 percent greater than the corresponding amount of funds available for the current budget period, according to the comptroller’s office.

To clarify what this means, Comptroller Combs is forecasting that the state will generate $96.2 billion in revenue for the next biennium. Of that, $3.6 billion is earmarked for the Rainy Day Fund, which leaves $92.6 billion. However, Combs is also saying that her forecast from two years ago was too low by $8.8 billion. You may recall that two years ago she predicted there would be $76.5 billion in revenue for 2012-2013, with $4.3 billion needed to close a shortfall from the 2009 budget; the Rainy Day Fund was used to cover most of that shortfall. In actuality, there turned out to be $85.3 billion. Oops!

You may wonder why Combs was so far off in her estimate. The DMN tries to be sympathetic.

Nobody is blaming Combs, but all recognize a two-year revenue forecast is not, by any means, an exact science.

“You’re always wrong,” said Billy Hamilton, revenue estimator when Bob Bullock was comptroller. “It’s just a matter of by how much.”

The Texas Constitution requires a balanced budget, so lawmakers can plan to spend only as much as they’re projected to bring in. A large portion of revenue comes from state taxes, which until recently had been on a relatively stable 40-year pattern, said fellow number cruncher and retired fiscal analyst Stuart Greenfield.

But in the last four years, the state’s economy has been especially volatile. Greenfield said tax collections have declined four times since the new millennium, most recently in 2010, but has been higher than average the last couple of years.

Hamilton, now the interim chief financial officer for Capital Metro, Austin’s public transportation provider, estimates Combs was off by $6 billion to $8 billion in the tax revenue estimate for the current biennium. Greenfield says it’s worse, predicting tax revenue will be closer to $11.5 billion more than what Combs suggested.

Officials from the comptroller’s office declined to weigh in on Greenfield or Hamilton’s forecast, but spokesman R.J. DeSilva said that with growth in the oil and gas industry and car buying, the revenue for fiscal 2012 is up $3.7 billion from her forecast, and lawmakers will have the most up-to-date projections when they convene.

Greenfield said tax collections have held at 10 percent since the beginning of fiscal 2011, peaking in October 2011 at close to 16 percent. Hamilton says the result is “we’ll be swimming in money.”

“It’s going to be a big number because the sales taxes are going like gangbusters and performing at a rate that nobody in their right mind would predict,” Hamilton said.

This is all well and good, but the bottom line of Combs’ misfire is that the Lege cut billions of dollars from the budget that ultimately didn’t need to be cut. We may be able to do something good with this extra money now, but we can’t go back two years and un-fire all those people who lost their jobs as a result of the Republicans’ budgetary chainsaw massacre. We can’t go back and un-shortchange all the school districts and students that took those cuts right where it hurts. It’s all so much bloodstained water beneath the bridge.

Given that we can’t un-screw the past, the best thing we can do is work to make things better going forward. This is what many people, such as State Rep. Mike Villarreal, State Sen. Jose Rodriguez, and the Texas AFT, both of whom are calling for the restoration of the $5.4 billion that was cut from public education last session, are doing. The problem, and the danger, is that some people are saying that what this means is that we have too much money.

Can Texas afford to eliminate its state business tax?

As the federal tax bite grows, there is a nascent movement at the Texas Legislature to phase out the tax, commonly called the margins tax, without replacing it.

Business leaders and some conservative lawmakers say the tax, which taxes gross receipts as opposed to profits, is complicated and not applied evenly. Other critics of the tax say dropping it would make the state’s business climate even more attractive.

At first blush, eliminating the tax without a replacement might seem improbable. The tax raised $4.5 billion in 2012 and accounted for 10.3 percent of the state’s total taxes, according to the comptroller’s office.

Budget writers are already warning that any “surplus” from the rebounding economy must be used to restore $11 billion in cuts to public education and other programs from the 2011 legislative session and to pay for the accounting gimmicks lawmakers used to sidestep more cuts and tax increases. And the courts are hearing another constitutional challenge to the school finance system — similar to the one that prompted the 2006 creation of the margins tax — that could make more demands on the state pocketbook.

State leaders are also talking about weaning themselves from $5 billion of dedicated taxes and fees diverted from their intended purposes over the years to help balance the state budget.

Finally, more business leaders are expressing concerns about the need to invest in education, workers’ training, water, transportation and other long-term needs essential for a good business climate.

Despite those hurdles, Will Newton, executive director of the Texas chapter of the National Federation of Independent Business, or NFIB, argued that public services can’t expand without a growing economy.

“We’re starting the debate in the wrong way,” Newton said. “We need to ‘invest’ in the private sector to grow (state) revenue.”

Let’s be clear here and state that the NFIB, which was and continues to be a rabid opponent of the Affordable Care Act – they were, in fact the named plaintiff in the lawsuit that sought to declare the ACA unconstitutional – is acting solely in its own interest. They’re seeking a tax cut, as we all do, and hoping that we’ll forget that the margins tax, however flawed and kludgey it may be – was designed to help pay for a one-third cut in property taxes. How do they expect us to fund that massive expenditure now? By assuming, in the words of Molly Ivins, that it’s nothin’ but good times ahead. I mean, sure, we’ve had two ginormous revenue shortfalls in the last decade, but seriously, who expects that to ever happen again? No amount of empty blather about “investing” should distract from this point.

One more point: As the Trib notes, even with this healthy revenue forecast, we’re still behind where we ought to be.

“$108 billion is what it takes to actually undo the last session and get us back to where we used to be,” said Eva DeLuna Castro, senior budget analyst for the Center for Public Policy Priorities, a left-leaning Austin-based think tank.

Early in the session, lawmakers are expected to commit several billion dollars to paying off bills that were purposely left unpaid at the conclusion of the 2011 session, including nearly $5 billion for Medicaid. That leaves the actual size of the surplus unclear.

“A lot of that gets sucked up right away just paying for the last session,” Castro said.

One hopes that the nearly-as-fat-as-it’s-allowed-to-be Rainy Day Fund would be tapped for that, since that’s what it’s there for, but the odds that the votes are there for that are basically nil. But this is the way we need to drive the discussion. We’re on more favorable turf now, let’s take advantage of it. Trail Blazers, the CPPP, and TM Daily Post have more, and you can see the official estimate here.

The budget mess that awaits the next Governor

We already know that the next Legislative session will be a whole lot of no fun thanks to declining revenue estimates and our structural deficits. Here’s a further illustration of the problem.

The current state budget is financed with $12 billion of one-time money (add to the stimulus money several billion the Legislature wisely socked away two years earlier). Some refer to this as our “structural gap.” That gap will have to be filled. On top of that, add several billion for Medicaid growth (and perhaps much more depending on what happens with national health care reform), a couple hundred million for prisons, and a few hundred million more for employee health insurance and retirement. Higher education won’t be left empty handed, either, so throw in another half billion dollars.

Add another billion to public education to pay for the promises in last session’s education bill, and maybe even more. Since the state bought into a system of equalized funding, state aid rises and falls as local property values change. With the economy now suffering, property values will likely stagnate or fall (although your local chief appraiser may disagree). School districts won’t be as wealthy. The demands on state aid may actually increase, driving up the state’s public school budget even more.

Granted, there should be some revenue growth, but with most economists projecting a slow, jobless recovery, it may be muted. If so, revenue growth at best may cover spending growth. That leaves the nagging problem of how to deal with that “structural gap.”

Tax hikes? Not likely.

A simple rollback of the budget-busting property tax cuts from the 2006 special session would suffice. Heck, you probably wouldn’t have to roll it all the way back – the business margins tax does take in some money, just not nearly enough. That’s not likely, either, but it is the simplest and most straightforward solution. Remember, the billions that the Lege “wisely socked away” earlier was general revenue surplus whose sole purpose was paying for those tax cuts. No surplus, no money to pay for those tax cuts. Seems to me anyone who wants to call themselves “fiscally responsible” would demand deficit neutrality from the actions taken in 2006 by the Lege. The alternatives are unacceptable. I sure hope we have a nice, long debate about this as part of the gubernatorial campaign. As of right this minute, we have just barely enough revenue to cover all our expenditures. It’s time to start talking about what the plan is for if and when that is no longer the case.