Most Texans Don't Know This, But They Should

For many, 2003 is remembered as an especially ugly budget year. The economy had taken its post-September 11th dive, and top leaders responded with severe cuts to services and programs that many Texans relied on. Hundreds of thousands of Texas children lost their health coverage, tragedies followed deep cuts to the state's Child Protective Services, and politicians still nurse battle wounds from the elections that followed.

So it took me aback yesterday morning, at a meeting for all the coalitions for children that Texans Care convenes, when the Center for Public Policy Priorities' senior fiscal analyst Dick Lavine said, "2003 was minor compared to what next year will be like, I'm afraid. The better comparison is the eighties."

Not everyone in the room had been around for Texas' financial crisis from 1982-1992, when the state budget cratered following an oil-and-gas bust. Those who remembered it, though, could appreciate the grim analogy. To get through that era, Texas had no choice but to make structural changes--finding new ways to draw down more federal funds, for example, and using new taxes to replace lost oil and gas revenue. The state also was motivated to be forward-thinking, setting up an Economic Stabilization Fund for future budgets, what we now call the "Rainy Day Fund," so in bad budget times, there would be savings to ease the need for cuts.

So will Texas restructure and be forward-thinking now? At Texans Care for Children, we are committed to more than simply preventing harmful budget cuts. We want to be part of the solution--to help our state emerge from a period of economic decline and move on to better times, without sacrificing its own people and their needs along the way. We believe this will happen if enough Texans join together to speak with one voice in support of a balanced approach, beyond just service cuts.

What followed all those changes that seemed so revolutionary in the eighties and early nineties, Mr. Lavine pointed out, was a boom. Texas came out of the recession and grew in prosperity, after raising taxes and taking more federal funds. Finding revenue to replace what the recession has taken away for this upcoming budget cycle is key to keeping Texas and Texans on stronger economic footing for years to come.

Mr. Lavine's presentation demonstrated how badly Texas needs that stronger foundation. Consider:

• Most general revenue in Texas comes from a sales tax, which fluctuates a lot based on how people spend in response to the economy. For example, sales tax revenue this year is only a fraction of what the state collected in 2008. By contrast, the services that require general revenue respond to changes in the population, which, of course, has grown since 2008. The end result is more kids in Texas schools, more people in need of services like health and mental health, more cars putting wear and tear on our highways, more Texans, period—even as there are fewer state funds to respond appropriately.
  
  
• In addition to the recession-induced hole in our state coffers, Texas dug a hole of its own in 2006. When a state Supreme Court ruling deemed an aspect of Texas's property tax-based school finance system unconstitutional, lawmakers opted to reduce revenue from property taxes and make up for it, in part, with a change to some other taxes. The problem was (1) even in the best-case scenario, the change left Texas about $6 billion behind where it had been before; and (2) the change didn't even live up to its own best-case plan. A "franchise” or "margins” tax on businesses was supposed to result in between about $7 billion and $8 billion for each of the past two budget cycles. Instead, each time it brought in closer to $3 billion. These things are still on the books and cost the state in every budget cycle; they will continue to do so until they get fixed. (With one-time funds from the federal stimulus and elsewhere, Texas was able to fill the hole in the last budget cycle. But "one-time” means those options aren't available next year.)

• We do not yet know the size of the next budget gap, though a range of $15 billion to $18 billion has been called "reasonable” by people who should know. Texas can fill the gap using a balanced approach, as most states have: using savings, federal assistance, taxes, and fees--not just cuts (which, of course, also cost Texans, in the end). What few Texans understand is: even if every one of the proposed dreadful service cuts identified to date gets enacted, the state would save only around $4 billion, a far cry from what is needed to balance the budget. Lavine suggested there is some easy money for a balanced approach, including possibly more than $1 billion in the Permanent School Fund; $2 billion in accounting adjustments; and new revenue that will materialize naturally as the economy rebounds. A little less easy but still preferable to cuts are over $9 billion likely to be in the Rainy Day Fund savings and up to $1.5 billion in outdated special interest tax exemptions that can be eliminated, according to the chair of the House Ways and Means Committee.

As bad as 2003 was, Mr. Lavine noted, lawmakers wound up using a balanced approach. After all, the Legislature did not rely only on cuts but instead spent all the available Rainy Day Fund savings, accepted federal relief, and acted to bring in new revenue from Texans. That is what we must ask for now, as we stave off devastating reductions in services. Together we can demand better, not only for those services we care most about but for the state we share. Refusing to get into battles with one another and committing to working together toward a solution will help move Texas forward.