Spending binge contributed to the structural deficit
Thu February 17, 2011 7:12 am

Here is what really happened [Thanks to the Texas Taxpayers and Research Association for their figures, which come from a soon to be released report].

In the middle of the previous decade, the Legislature faced a mandate from the Texas Supreme Court to reduce its reliance on local property taxes to fund public education. The Court held that so many school districts were taxing at or near the statutory $1.50 tax rate cap that the method of funding amounted to a statewide property tax, a taxing scheme that was prohibited by the Texas Constitution.

The Legislature responded by slashing property taxes by one-third, or fifty cents. The cost to the state was around $7 billion. To make up for the lost revenue, the Legislature rewrote the franchise tax, the state's major business tax, and also raised the tax on cigarettes. Comptroller Stayhorn projected that the property tax relief would cost the state $13.4 billion in the 08-09 biennium. The new incarnation of the franchise tax was projected to yield $6.8 billion more than the previous version. It is widely understood that the tax never met expectations. Instead of bringing in $3.4 billion in 2008, it actually brought in only $1.6 billion. The Legislature was able to cover the shortfall because the state had a $2.4 billion cash surplus.

Having provided a massive tax cut, and put restrictions on school districts' ability to raise money, the Legislature turned around and lavished spending on public education in the amount of $5.3 billion. This included a $2,500 teacher pay raise, another raise for support staff, a new high school allotment of $275 per pupil, millions for costs to the Teacher Retirement System, and so on. A number of new programs were established, such as Pre-K for military children, a technology immersion project, a leadership program for principals, $65 million for hold-harmless provisions--producing a fiscal note for 2011 of $10.3 billion. Why did the Legislature do this? My recollection is that Republican lawmakers had cast a lot of bad votes on education issues in the 2004-2006 years, during debates over school finance, including a vote on school vouchers, and they thought it prudent to put more money into the schools.

The spending on schools ate deeply into the state's cash surplusses. You know what happened next: the worst recession since the thirties, including an uinprecedented and heretofore unimaginable double-digit decline in sales tax receipts for eight months in a row, the federal stimulus package that was supposed to get the states through the recession. The stimulus funds helped in the previous biennium, but now the funds are gone but the programs they sustained remain.

The main point of this summary is that the "structural deficit," of which we hear so much, was not entirely the result of tax cuts, but rather the result of a quadruple whammy: the unprecedented drop of sales tax redeipts, the use of stimulus funds that were a short-term blessing but a long-term curse,  the underperformance of the new franchise tax, and $5.3 billion in new education spending, a lot of which was throwing money at schools. Don't get me wrong. I'm all for spending money on education. But the mishmash of programs that benefitted from the Legislature's largesse was not really a very smart way to go about improving public schools. If you want to help schools, put more money in the Foundation School Program.

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