R.G.'s Take: Businesses want the state spending, but how do they want to pay for it?
Fri April 1, 2011 11:25 am

The open-air rotunda in the Capitol extension is the demarcation line between business and government. South of the rotunda are the numerous committee rooms where businesses settle disputes using the Legislature as an “honest broker.” North of the line, the business of government is conducted as the state budget is written in the House appropriations and Senate finance committee rooms.

This year business lobbyists are whistling Dixie and staying south of the rotunda lest their clients be asked to raise their hands and say, “Tax me.”

That doesn’t mean Texas business refuses to see the current budget battle as a business issue. The state’s mostly Republican mainstream business community is publicly and privately expressing angst over the level of cuts in the House budget bills being debated this weekend. Massive cuts, business groups say, are a down payment on a bleak Texas future.

But those same business leaders are providing little guidance to lawmakers on how to pay for a revenue-shortfall state budget without cuts. Instead they are abdicating their influence in the House to lawmakers’ fears of angry, libertarian anti-government voters. House Appropriations Chairman Jim Pitts (R-Waxahachie) told me business leaders tell him they are worried about the economic impact of the budget but so far none are willing to help him find ways to pay for the cuts. “I have all these people come see me, some pretty substantial business people in Texas, and I’ve told them they need to do the lobbying,” Pitts says.

Today the House is taking up a $164.5-billion, two-year budget that would be at least $7.8 billion short of paying public school finance formulas, shortchange human services programs by at least $4.2 billion, and cut higher education by about 10 percent. The cuts will be required if the Legislature does not increase revenue or draw additional money from the state’s reserve fund.

Houston investor Lan Bentsen, the son of the late U.S. Senator Lloyd Bentsen and a member of the Children’s Defense Fund advisory board, was in Austin this week to call for a penny increase in the sales tax to negate the need for cuts in Medicaid. Bentsen told me his Republican business colleagues are as worried about the proposed budget cuts hurting the Texas economy as he is but said they are afraid of crossing Governor Rick Perry’s pledge not to raise taxes. “The Republican business community feels like perhaps they shouldn’t go against the governor and perhaps this shouldn’t be their fight,” Bentsen told me. “They don’t want to get their hands dirty.”

But if Republican-dominated business groups such as the Metro 8 Chambers of Commerce, the Greater Houston Partnership, and the Texas Association of Business are pleading with the Legislature to maintain state spending as much as possible, then why aren’t they doing more to persuade lawmakers to pay for it?

Consider for a moment the GHP’s legislative agenda . This is not a liberal Democratic group, but the libertarian crowd could portray it as a big-government manifesto. The agenda urges lawmakers to “protect the current investment in funding for Pre-K programs and K-12 public education, well-educated and trained teachers, low teacher-student ratios and age appropriate curricula.” The GHP says some Houston businesses are already finding it difficult to find “skilled production workers, scientist, engineers and accounting staffs.” GHP also is concerned that major health care cuts could harm Houston’s Medical Center. The Partnership also wants to maintain higher education Tier One funding for the University of Houston and protect Perry’s two “deal-closing” business development funds.

So far, the GHP has not taken a position on how lawmakers should pay for the spending it wants. But Chairman Larry Kellner told me the Partnership is planning to meet next Wednesday to discuss that issue and how much can be done with delayed payments, non-tax revenue enhancements, and a possible improvement in the state revenue estimate by Comptroller Susan Combs.

“I don’t think people are going to walk out of that meeting saying, ‘Well, we should just give up on those priorities.’ At the same time, I don’t think people are going to be saying we should raise taxes,” Kellner said. “People are going to be using the budget tools we have to ask, ‘How are we going to make this situation manageable rather than disastrous.’”

The Dallas Regional Chamber of Commerce presents a similar legislative agenda, one that urges lawmakers to preserve funding for public and higher education as well as Perry’s economic development funds. And how does the Dallas chamber suggest that legislators pay for these programs? It doesn’t.

“A lot of what we’re dealing with at the state level is [voter] reaction to federal largess,” says Bill Hammond, the president of the Texas Association of Business. Hammond himself is no budget wimp. As a member of the Texas House in 1987, he voted against the largest tax increase in state history, but he has been as vocal as any teacher group in supporting funding for education. But he says that anyone who believes this Legislature would pass a tax increase is fooling himself. So what does the TAB endorse? The full use of the $9 billion “rainy day” fund and Lubbock state senator Robert Duncan’s search for $5 billion in non-tax revenue, along with budget gimmicks such as delaying payments to school districts to shove the cost into the next budget cycle. But no new taxes.

“The fact is the federal government is out of control completely, and the voters are casting that as all government,” Hammond said, jokingly adding: “The people have spoken: They want more services and less taxes.”

But as the debate moves forward, I can’t help but recall the political flip of former governor Bill Clements, who won his 1986 election on a no-new-taxes pledge. During the 1987 Legislature, Clements went on a fifteen-city tour to oppose proposed tax increases to cover budget shortfalls caused by the collapse of oil prices and the savings and loan industry. It took Dallas businessmen Peter O’Donnell and Ross Perot to convince him that major budget cuts would harm the state’s future. A $5.7 billion tax increase was a bitter pill, but Clements swallowed it. “”Everybody had to do what was right, eventually,” Clements said at the time. “I think they have.”

The state is still waiting to find out what is right in 2011.

BY R.G. RATCLIFFE

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