Budget drama summary, part 2

In the months preceding the comptroller's announcement of the Biennial Revenue Estimate (BRE), the Legislative Budget Board (LBB) works with state agencies to write a first draft of what will be the budget bill introduced in each chamber of the legislature. The agencies submit appropriations requests to the LBB, and the LBB in turn makes recommendations for each agency's funding level.

One of the first things to happen in each legislative session is committee assignments. Two of the most powerful are the Senate Finance Committee and the House Appropriations Committee. For this year's legislature, the chairs of these committees are Steve Ogden (R- Bryan) and Jim Pitts (R- Waxahachie), respectively. The initial draft of the budget gets introduced once these committees are set, and the two work simultaneously but independently to revise it. Revising the budget involves committee testimony from LBB staff, from state agency staff and from the general public.

In spite of rhetoric about the size of the state government, by almost any comparative measure Texas is a low tax, low service state. To the extent that we collect taxes at all, we only spend that revenue on the stuff we have to: public education and health care. This means that when it comes to closing a budget shortfall estimated to be about $27 billion, it's public education and health care that will have to pay for it. The Texas budget spends so little money, in fact, that you could cut all the non-health care, non-education General Revenue spending from the rest of the budget, and still not close the gap.

Given the political climate of the state most years, and the especially conservative cohort of freshmen elected to the House for this session, closing the budget gap via any means other than cuts was off the table immediately. There are other options, though, even aside from raising sales or property taxes (it's not even worth mentioning the possibility of an income tax).

• For one, the state has the Economic Stabilization Fund (or Rainy Day Fund), basically the state's savings account that is fed primarily by revenue from natural gas and oil tax revenues. There was approximately $9.4 billion in the account at the beginning of the legislative session.
• The state also has exemptions on sales and property taxes that could be repealed in order to help balance the budget. The comptroller's office estimates that the value of these exemptions for 2011 is about $38.2 billion.

As budget hearings began for both the Senate Finance and House Appropriations Committees began, cuts were pretty much the only strategy anyone would talk about. To their credit, both Sen. Ogden and Rep. Pitts made it clear to their committees (and their audiences) that everyone needed to understand the gravity of the cuts they were considering. Both held several days worth of public testimony on the effects of, for instance, reductions to funding for nursing homes and assisted living facilities.

The more conservative House passed a budget that has about 12.3% less spending in it than the current biennium's budget. It not only doesn't take any population growth into account, but it cuts spending on public education by about $7.8 billion and health and human services agencies by over $11 billion.

The Senate will vote on its committee's budget bill later this week. While the House is dominated by conservative and tea party-affiliated Republicans (part of an overall Republican majority that already neutralizes the Democrats), the Senate will need support from Democrats to pass its bill. As a result, the Senate's budget bill spends about $12 billion more than the House's, mostly in Medicaid reimbursements to nursing homes and public education.

The differences will be worked out in Conference Committee, and then each chamber will have to pass, without amending, that version of the bill. Either way, the budget will be cut in ways that people are going to notice: government workers and teachers will be laid off, nursing homes will close, there will be less money for roads, etc.

The House and Senate are each vowing to not budge towards the other. Pitts, with the more conservative chamber, says he doesn't expect a lot of support in the House for the Senate's budget. Ogden seems similarly dug in, declaring that the House's version of the budget would "wreck" public education.

Not clear right now how this gets resolved.