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System Benefit Fund

It’s always time for a tax cut

I have three things to say about this:

A corndog in every pot

A corndog in every pot

With less than two months remaining in the 83rd legislative session, Gov. Rick Perry on Monday called on state lawmakers to find $1.6 billion to give Texas businesses relief from the state’s franchise tax.

Perry’s proposal consists of four parts: reducing the overall franchise tax rates by 5 percent, making permanent a $1 million deduction for businesses with up to $20 million in gross receipts, lowering the rate for businesses that file their taxes using the state’s simplified “EZ form” and allowing out-of-state companies that relocate to Texas to deduct their moving expenses.

Perry said Texas needs to invest in more tax relief because other states are considering cutting their taxes to match Texas.

“The idea that we can just sit here and think we can stay at the top of the heap is just not correct,” Perry said Monday at a news conference at the Austin Chamber of Commerce.

1. All through the session, as Democrats have called for restoring the brutal cuts that were made to public education in 2011, one of the main arguments made by Republicans for not doing so is that we ought to wait and see how the Supreme Court rules on the school finance lawsuit, since it won’t be until that point that the Legislature will know what (if anything) it needs to do to comply. One would think that the same logic would apply here. In particular, if the Court upholds the ruling on adequacy, the Lege will have to find several billions of dollars in new revenue for the schools. Seems like a bad idea to be cutting one of the primary sources of that revenue before you even know what will be needed. Not that Rick Perry cares about such trivia, of course.

2. Speaking of the schools, as we know the margins tax has consistently fallen well short of replacing the revenue lost to the schools when the property tax rate was cut in 2006 in response to the previous school finance lawsuit. I don’t see that fact being mentioned in any of the stories I’ve seen so far.

3. As with the other form of tax relief being offered so far this session, the benefits are going (exclusively in this case, primarily in the other) not to individuals but to businesses. If you think tax relief is what is needed this session – I don’t, but it takes all kinds – wouldn’t you at least like to actually see some of that relief? Unless you happen to be a business owner affected by the margins tax, you won’t. Too bad for you.

Still more dedicated funds not being dedicated

I keep wondering when we’re going to discover the last dedicated fund that is not being used for its original purpose but for general revenue. All I know is that we keep finding more of them, in this case fees collected from defendants in the criminal courts.

While courts assess fines to punish defendants, in theory, the dizzying array of fees and court costs, which can reach more than $600, is meant to ensure that those who use the judicial system help pay for it. But an American-Statesman analysis shows that’s not the case.

Over the years, legislators have used tens of millions of dollars collected from criminals to fund a slew of projects, many with only the faintest connection to the courts. Texas judicial administrators estimate that 1 in every 3 dollars raised through such state fees is spent on projects outside the court system — a practice critics say amounts to an undeclared tax on the state’s poor that might violate the law. Cities and counties whose courts raise much of the state money, meanwhile, complain that their courts are drastically underfunded.

Today, court costs pay for the rehabilitation of patients with head injuries. They fund research on obesity among minority children in Houston and cover the salaries of game wardens. They support three academic centers at state universities and after-school programs for kids. And they were used to pay a private company $2 million to install cameras along the Mexico border so citizen “virtual deputies” could watch online and report illegal crossings.

Last year, elected officials raided a $20 million pot collected from criminal defendants to pay for state employee pensions.

Thanks to such maneuvering, in Texas courts, a “DNA collection fee” does not necessarily pay for DNA tests, a “breath alcohol testing fee” does not always cover breath alcohol tests, and people judged guilty of victimless crimes contribute millions of dollars every year to “victims compensation.”

“We have a ‘school crossing fee’ that nobody — nobody — can tell me what comes of it,” said state Sen. John Whitmire, chairman of the Senate Jurisprudence Committee.

Some say requiring defendants to cover so many expenses makes sense because crime creates broad social costs encompassing police work, prisons and social programs.

“Courts do not stand alone,” said Rep. Jim Jackson, R-Carrollton, chairman of the House Judiciary and Civil Jurisprudence Committee.

And nobody disputes that many of the programs are worthy of government support.

At worst, though, such under-the-radar diversions of so-called dedicated court money could be against the law. Some judges have ruled that using fees for purposes other than that for which they were collected is unconstitutional. At that point, the money is more accurately described as a general tax.

At the very least, it is dishonest for the government to tell taxpayers it is collecting money for one thing and then use it for another, said Jim Allison of the County Judges and Commissioners Association of Texas.

“If we’re not going to use a fee for a particular purpose,” he said, “we shouldn’t collect it.”

Of course, we do this all the time. See once again the System Benefit Fund that gets frozen, hunting and fishing license fee funds, the sale of specialty license plates, and red light camera funds. I’ve beaten this horse over and over again, so other than the specifics of this case – you should definitely read the story for the details – there’s nothing new here. The budget is all sleight of hand and misdirection because the Lege is desperate to avoid having to confront the real problems, our tax system is screwed up, and people are paying for things they’re not getting. Same story, different dedicated fund. Grits has more.

State not appropriating red light camera funds to trauma centers

Stop me if you’ve heard this one before.

Not in Houston any more it's not

Sandy Greyson drove away from an Arlington meeting eight years ago, and 2 tons of irony wiped her off the road.

A red-light runner struck her passenger side, pushing the Dallas City Council member’s car into a field. Greyson suffered a broken wrist and a head wound that required 19 stitches.

She was taken to an emergency room similar to the 128 trauma centers in Texas that are supposed to benefit from the state law that allowed red-light cameras.

The law directs a portion of fines generated by the cameras toward trauma centers. But instead of helping hospitals, the money is simply piling up in Austin.

The $46 million pot earmarked for hospitals is helping lawmakers certify a balanced budget even though much of the money in state accounts can’t be used for general expenses. It’s an accounting trick that has been used for years and defended by budget writers who say such maneuvers are necessary in lean times.

Budget writers face a choice: They either have to cut spending or reduce appropriations, said Steven Polunsky, spokesman for Sen. John Carona, R-Dallas, who wrote the bill that set aside red-light camera funds for trauma centers.

“In the past, the state has appropriated trauma funds,” Polunsky said. “However, the state was in a difficult budgetary situation.”

In their last session, lawmakers set a record by refusing to spend $4.1 billion raised from earmarked fees and taxes. The programs that suffer include electricity discounts for the poor and, in the case of red-light ticket revenue, trauma centers.

That would be the System Benefit Fund that gets frozen, along with such exotica as hunting and fishing license fee funds and the sale of specialty license plates. It’s the oldest trick in the budget-writer’s playbook, because dedicated revenues count as general revenues for budget “balancing” purposes. If you don’t have enough general revenue, just stop appropriating dedicated revenues until everything evens out. You can then declare yourself fiscally responsible, and the only people who get screwed are the ones who thought those revenues that were supposed to be dedicated to them. Everyone else just gets hoodwinked. People like Mr. Polunsky, who conveniently overlook the fact that there is in fact a Door #3 from which to choose to deal with this situation, help to ensure that it persists. The only truly remarkable thing about this story is that it gets written so long after the session. This was as true at the time the budget was printed and posted as it is today, but for whatever the reason it doesn’t make the news until later on. While I seriously doubt it would change the outcome, stories like this should be written before the budget gets passed. At least then no one could say they didn’t know what was about to happen.

Don’t expect the next budget to be any better than this one

Continuing a theme I’ve harped on here, if state legislators thought that they solved Texas’ budget issues this year they are sadly mistaken.

Some experts say Texas tax revenues must zoom far above forecasts, if we’re to escape another miserable budget session in 2013. But the state’s leading forecaster on Wednesday offered little hope that will happen.

“The year of ’12 is not going to be a great recovery year,” John Heleman, chief revenue estimator for the Texas comptroller’s office, testified at the House Ways and Means Committee. He was referring to the fiscal year that began this month and ends Aug. 31, while answering a question from Kerrville GOP Rep. Harvey Hilderbran, the panel’s chairman.

“It’s still going to be flattish [and] soft,” Heleman said.

That could mean, if you check out the bottom half of this post I had earlier this month, that we’re sailing into fiscal headwinds in trying to keep up with the education, health care and transportation needs of a growing state. True, as Hilderbran pointed out, recent revenue numbers have looked good. Final but unofficial figures for fiscal 2011 show sales tax receipts increased by 9.4 percent over the previous year, which was — in a word — ugly. Fiscal 2010 included December 2009, which “marked the low point in Texas employment” during the Great Recession, Heleman said in a written presentation. In the just-ended fiscal year, Texas consumers and diners spent about 5.5 percent more on retail and restaurant purchases, he testified. The reason overall sales tax receipts leapt by 9.4 percent was “supercharging” from a burst of oil and gas drilling activity, some decent manufacturing growth and a bit of an uptick in at least parts of the construction industry, said Heleman.

This fiscal year, though, he sees “probably a little bit less than” 5.5 percent growth in retail and restaurant sales. As for the energy exploration and production sector’s purchasing, “it’s actually just going to flatten out — at higher levels,” he said. But that won’t grow, in percentage terms, the way it did last year.

Click on that link referenced above, and you learn the following bit of cheery news:

In the 2013 session, the budget gap may very well turn out to be as large. The economy’s recovery is slow, and lawmakers this year exhausted many of the available, one-time-only fiscal remedies — such as delaying state payments and speeding up tax collections. They also punted a $4.8 billion Medicaid IOU to next session. Yes, this time they could do that because they left about $6 billion in the rainy day fund. But next time? Probably a non-starter.

If revenue doesn’t run well ahead of forecasts for the next two years, and keep growing strongly for the two years after that, then “2013 will pretty much be a re-run of the 2011 revenue shortfall – with a 24 percent gap, instead of 27 percent,” said Eva DeLuna Castro, budget expert at the center-left Austin think tank the Center for Public Policy Priorities. That’s “back of the envelope,” but still pretty alarming, she said.

But don’t worry. The legislators will always have flim-flammery available to them.

In a report released this week, Comptroller Susan Combs illustrates the trickery that legislators and Gov. Rick Perry used to get there. That’s because lawmakers assess fees under the guise that they will be used for a specific purpose — to help low-income residents pay electric bills, for instance — but then leave much of that money unspent to balance the state budget.

Combs’ report shows the problem is getting worse. The state will leave $4.9 billion unspent in its dedicated accounts over the next two years, up from about $4.1 billion in the previous budget.

The unspent balances include $851 million that comes from fees on electric customers and is supposed to help low-income Texans defray their utility costs, $654 million meant to improve air quality and $388 million in an account for improving trauma facilities and emergency medical services. Technically, these dollars don’t get spent on other programs. But by sitting there unspent, they allow the state to show on paper that it has enough money to pay for the amount it budgets for education, health care and other high-cost programs.

That $851 million is of course the System Benefit Fund, which I’ve mentioned several times before. There’s also hunting and fishing license fee funds, which are supposed to go to the Parks and Wildlife Department, and there’s funds from the sale of specialty license plates, which are supposed to go to various non-profits. All that money is just sitting there, not being used for its intended purpose, because to do so would mean that it couldn’t be used to “balance” the budget. The end result is that these are stealth tax increases, passed because the purpose they were intended to serve was seen as worthwhile, but then not used for that purpose so the funds can then be counted along with general revenue even though they can’t be used as general revenue. A more honest approach would be to admit that we need more general revenue, not only for the things that general revenue provides for, but also so that these dedicated funds can actually be used for their intended purpose. Just another thing to think about when you go to vote next year. EoW has more.

No funding for long term water needs

We know what we need to do, we just don’t want to pay for it.

On paper, at least, Texas is well-prepared to meet the water needs of its rapidly expanding population — even when Mother Nature lays down a harsh and lengthy drought.

The price tag on the plan: $53 billion. State money allocated: $1.4 billion.

If there were funds, Texas would be able to build the dams, reservoirs, pipelines, wells and other infrastructure that would ideally avoid tight water-use restrictions imposed on residents, farmers and ranchers during times of drought while also guaranteeing there would be enough water for the state’s rapidly growing population — even in 2060.

Instead, now, more than four years after the latest blueprint was published, deadlines have passed with some work barely begun, and many projects never started. Meanwhile, lakes are shrinking, rivers are drying up and temperatures are rising.

“The longer you delay implementation, the costs are going to go up,” said Carolyn Brittin, a planning official at the Texas Water Development Board, which must publish a revised plan by January.

The Lege, of course, failed to do anything about this. As Forrest Wilder wrote back in May, there was a bill in place, there just wasn’t enough support for it.

Even as an historical drought grips the whole state, a measure to pump money into the underfunded state water plan has failed at the Texas Legislature. Rep. Allan Ritter, a Democrat-turned-Republican from rainy Southeast Texas, said the legislation died in the Calendars Committee because it included new fees unacceptable to the Republican supermajority in the House.

“We’re fighting so many fiscal battles,” Ritter said. “I just can’t get the members to lock onto it.”

Ritter’s idea was to finally come up with a permanent source of funding for a backlog of water-supply projects contemplated by the state water plan. By 2060, it’s estimated that Texas will need to spend $52 billion to avoid water shortages. But Ritter’s approach, consisting of two funding sources, never had a chance.

One, he wanted to impose a new monthly “tap fee” on people and businesses – an extra $1 per month for residential water bills. Two, he wanted to take $500 million from the System Benefit Fund, a much-abused pot of money that was supposed to help poor people pay for their utility bills. Now it mostly just sits in an account to help the Legislature balance the budget.

The proposed changes would’ve been put to the voters in November as a proposed constitutional amendment. The money would’ve helped finance hundreds of proposed projects, including new reservoirs, water conservation efforts, pipelines, and desalination.

I disagree with raiding the System Benefit Fund, but that sort of chicanery was par for the course this session. Is there anyone out there who thinks Ritter’s plan would not have been ratified by the voters? Is there anyone who thinks that if the Lege knew then what it knows now about how bad this drought would be that they wouldn’t have taken this more seriously? Nothing like looming catastrophe to focus the mind, I guess. Maybe we’ll get lucky and the next Lege will finally tackle this.

Thanks for helping us balance the budget, fishermen

The Chron’s Shannon Tompkins explains how budgetary shenanigans have an adverse effect on Texas’ hunters and fishers.

Every year, tens of millions of dollars in hunting and fishing license fees are left sitting in the state account used to fund Texas wildlife, fisheries and boating programs. Those millions of dollars in Fund 9 account balances – $31 million at the end of this month, jumping to an estimated $48 million this time next year and as much as $64 million by Aug. 31, 2013 – are there because the Legislature holds those millions hostage in the scheme used to produce, on paper at least, the balanced budget that it is required to fashion.

[…]

For a state to qualify to receive the federal funds, it must pass a state law prohibiting using hunting and fishing license revenue for anything other than wildlife and fisheries programs.

If a state legislature dips into hunting and fishing license accounts to pay for, say, roads or hospitals or any other program, the state stands to lose all of its federal excise tax reimbursements.

So, as much as the Texas Legislature might be tempted to stick its hands into a flush Fund 9, particularly in times such as these when the state faces crippling general-revenue shortfalls, the prospect of losing that $40 million in federal money is incentive enough to prevent such plundering.

But the Legislature has found other ways of using that Fund 9 money without actually spending it.

For TPWD to spend money from the Fund 9 pot, that money has to be appropriated by the Legislature through its budget and appropriations acts.

By appropriating only some of the license money, the Legislature can count the “unappropriated balance” in Fund 9 on the positive side of the ledger when calculating the overall state budget.

This tactic is not restricted to hunting and fishing license revenue. It happens with revenue generated from the sale of vehicle license plates (horned toad, bluebonnet, etc.) benefiting state parks, wildlife, hunting and freshwater fishing.

All of these “unappropriated balances” – money Texans spent believing all of the dollars would be used to fund programs they voluntarily support by paying additional fees for the specialized license plates – are rat-holed and left dormant in accounts as a way to offset negative balances in other state programs.

Couple points here. First, if you’ve been paying attention you know that this sort of prestidigitation is as old as the Texas constitution itself. It’s easy to do and it’s mostly painless, unless you’re directly affected by a program whose revenues are held hostage. State Sen. Kirk Watson has advocated legislation that would mandate using dedicated funds only for their intended purpose, but for a variety of reasons they mostly haven’t gone anywhere.

Second, the hunters and fishers are lucky in that the fee revenues they generate will eventually be used for their intended purpose. They’re not being actively re-appropriated into general revenue like some other dedicated funds. As I’ve said before, just go say the words System Benefit Fund to Rep. Sylvester Turner, then stand back and watch the fireworks. It could be worse, that’s all I’m saying.

Finally, the main point that you need to take away from all this is that the underlying cause for this kind of trickery is the pernicious idea that budgets need to be “balanced” as of some arbitrary date. All that really matters, all that really should matter, is whether or not current and future cash flow can accommodate current and projected expenses. The fact that we claim to “balance” our budgets by deferring payments, pretending that certain things will cost less than we know they will, and shuffling funds from one pocket to another should convince us that this model is a complete fiction that does us far more harm than good. I don’t expect that to happen, of course, so we’ll continue to get the kind of budgeting we’ve asked for. Just don’t act surprised or outraged when it happens.

The House finds a few extra bucks

Where has this been all along?

State Rep. Rob Orr, R-Burleson, introduced two bills to the House Appropriations Committee that could add several million dollars to the public schools budget over the next two years.

HB 2646 proposes allowing the School Land Board to transfer at least half of the net revenue it collects from a land trust it oversees to the Available School Fund (ASF), an endowment that puts money directly into public schools in Texas. Orr said that pot of money has risen to more than $2.5 billion in market value and contains more than $1 billion in cash. If that trend continues, the fund could supply the state with an additional $500 million in the next biennium.

“I think it’s irresponsible to have that much cash sitting around when our public schools need that money,” Orr said.

Getting this measure to pass requires companion legislation, so Orr is also sponsoring HJR 109, a constitutional amendment that would allow the General Land Office, which oversees land that belongs to the Permanent School Fund, to distribute revenue directly to the ASF. The resolution would be placed before voters during the Nov. 8 election.

I’m not terribly familiar with the details of these funds, but judging by the reaction to Orr’s bills, which range from “sounds OK to me” to “praise Jeebus!”, I welcome the legislation and hope there’s more where it came from.

There’s also this.

The House’s chief champion of giving poor, elderly and disabled Texans discounts on their utility bills is so frustrated, he wants to kill a surcharge funding the program and use all unspent money as a one-time fix for gaping holes in the state’s social services budget.

“The surcharge needs to be ended. You cannot redirect it … and be honest with the people who are paying,” Rep. Sylvester Turner, D-Houston, said Thursday.

Turner reacted coolly to Senate budget chief Steve Ogden’s suggestion earlier Thursday that the fee money could help pay for Texas’ Medicaid program, presumably on a continuing basis.

“Either you end it or you rename it and call it what it is — a utility tax,” said Turner, vice chairman of House Appropriations.

This is the System Benefit Fund, which is supposed to be used for the purpose of helping the needy pay their utility bills in the summertime but which never gets appropriated for it; the sizable balance of the fund is used to certify the budget. That would be one of the usual accounting tricks the Lege is known for. I too would prefer to see the SBF used for its intended purpose, but if that isn’t going to happen, and history strongly suggests it won’t be, then putting it to use elsewhere is far better than pretending it’s general revenue so it can help balance the budget.

On a more general note, Burka examines the role that House GOP Caucus Chair Larry Taylor may play in determining how far the House will go with ideas for extra revenue. None of this stuff will matter if the slash and burn crowd decides that it’s not really about “living within our means” but about cuts for the sake of cuts.

Interview with State Rep. Sylvester Turner

State Rep. Sylvester Turner

State Rep. Sylvester Turner is one of the senior members of the Houston-area delegation, having served HD139 since he was first elected in 1988. He doesn’t have a campaign webpage, so let me refer you to his Texas Tribune biography for a brief summary of his career. He was Speaker Pro Tempore under Tom Craddick for three regular and several special sessions from 2003 through 2007. As you know, that was a bone of contention with many of his fellow Democrats, and it was one of the topics we discussed.

Download the MP3 file

This is the first opportunity I’ve had to have an in depth conversation with Rep. Turner. I don’t agree with his evaluation of Speaker Craddick’s merits, but I appreciate his candor and his perspective. And I can’t say he’s wrong about Speaker Straus. See beneath the fold for corroboration of what he has to say on this matter.

You can find a list of all interviews for this cycle on the 2010 Elections page.

(more…)

The biennial budget shuffle

In addition to billions of stimulus dollars, the budget this year relied on some old tricks to get certified as balanced.

Nearly $3.7 billion in levies collected for everything from fighting air pollution to helping low-income people with their electric bills to funding trauma care will instead help balance the state’s upcoming two-year budget.

The money, for the most part, is collected through fees and fines that legally are dedicated for a particular purpose. If lawmakers do not spend the money on the dedicated purposes, however, the balances become available to spend on other programs.

“It’s kind of like having your (household) budget laid out and spending part of your food money on entertainment, or vice versa,” said Dale Craymer, chief economist of the Texas Taxpayers and Research Association, who has worked for a state comptroller, two governors and as the Texas House fiscal analyst. “It’s a backdoor way to undedicate the money.”

It’s pretty much the same thing every two years. We have a bunch of dedicated funds, which levy fees on certain things that are supposed to pay for certain specific items, then for a variety of reasons we decide to use some of that money for other things. It would be more honest to dedicate the money to general revenue, and it would be fairer to admit that we do this sort of thing because we refuse to adequately fund the things we want to pay for via the taxes we already collect and to deal with that, but we don’t. And so the shell game keeps getting played.

In some cases, unspent balances in dedicated accounts have grown to hundreds of millions of dollars over years.

For example, the System Benefit Fund has accrued more than $670 million. The program imposes a fee on electricity customers in competitive retail markets, including Houston, Dallas-Fort Worth and most of the Rio Grande Valley, to provide a May-September discount for low-income customers.

[…]

“We’re generating funds for a good purpose. We’re diverting the funds, without telling people, for general purposes. And then we say we’re not taxing. Well, government is lying,” said Rep. Sylvester Turner, D-Houston, who called such levies amount to “a tax by misrepresentation.”

Turner is a big advocate of the System Benefit Fund, which he tried but failed to restore full funding to in 2007. Especially in a summer like this one, it would have been nice for there to be help available for folks who can’t afford their utility bills, but as has often been the case, it wasn’t a priority.

Senate Finance Committee Chairman Steve Ogden, R-Bryan, said he understands the argument, but “if you are going to criticize that, then go tell me what other parts of the budget I’m supposed to cut. … The choice to complain about it is just hot air.”

Alternatives, he said, would be raising general taxes or dipping into the state savings account known as the rainy day fund, which budget-writers expect to need in the future.

“The long and short of it is, we have to do this in order to balance the budget,” Ogden said. “I guess this was the least objectionable of the four alternatives.”

The situation points up a major public policy issue, he said.

“Our tax and revenue system is pretty messed up, and a case can certainly be made for a major overhaul of our tax structure,” Ogden said.

I would have argued that the rainy day fund was the right way to go, as I was arguing for the budget in general before the stimulus funds saved the day. But Sen. Ogden is correct that our system is broken and needs fixing. He’s not the guy I want fixing it, mind you, but he’s right about the problem. As with many other things, that isn’t going to happen until we get a change not just in leadership but in our philosophy of governing. I can’t say I see that happening any time soon.