Wednesday, April 20, 2011

Budget drama summary, part 1

I got to work this morning on the 41st-to-last day of the Eighty-second Texas legislative session, and right not all signs are that I won't be going home until after the 40th-to-last begins. A huge amount has to happen in the next six weeks, and possibly the most vital is passing a budget. At the moment, it also seems like one of the most difficult.

State governors and legislators like to compare their budget process to regular people's: they can't spend more than they take in (though, to be fair, state governments are allowed accounting tricks not afforded regular people; they're also allowed to be wrong in their budgeting and make up for it later, but never mind). Before each Texas legislative session, held for about 4 months every odd-numbered year, the comptroller releases the state's biennial revenue estimate (BRE), the official estimate of how much tax revenue the state will have over the next two years. This is how much money can be in the budget. The comptroller estimated the state would have about $72.2 billion* for writing the 2012-13 budget.

*This doesn't include federal fund (such as Medicaid and block grant funding, nor some other sources of state revenue that are dedicated for specific purposes).

This budget has been controversial since before the legislative session began. Democrats began calling on the comptroller to give some indication of what the BRE would be back in the fall, while the governor was running for re-election on the supposed strength of the Texas economy.

Though the governor never mentioned it during his campaign, everyone has seen this year's budget problem coming. Part of the problem was obviously going to be the economy. The main sources of state revenues in Texas are the sales and property taxes, both of which bring in less money when the economy is hurt. The bigger problem, the more predictable one, was what's called the structural deficit.

The structural deficit was created in 2006, when the legislature cut property taxes and tried to make up the difference with a new business tax (called the franchise tax). The comptroller at the time warned the governor the latter wouldn't generate enough revenue to offset the former and urged him to veto it, but he didn't. The next, regular session was in 2007, when a revenue surplus made everything seem okay. The next session, 2009, had a budget shortfall but the state didn't have to deal with it, federal stimulus money closed the gap for us.

Back to present day, and the $72.2 billion BRE. There is no official estimate of the size of the budget shortfall. There are several ways to measure it, but the one that is most often cited (possibly because it either the biggest or the first one someone had ready) comes from the Center for Public Policy Priorities. They compared the BRE to the spending needed to hold maintain current service levels and put the shortfall at about $27 billion.

Going back to work now, more later.

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