Christmas Carole

The legislature hopes for a holiday gift from Comptroller Rylander of enough money to avoid a tax increase. But she sure sounds a lot like the grinch.

December 2002By Comments

AFTER HER ELECTION AS STATE comptroller in November 1998, Carole Keeton Rylander sought advice about her new job, a largely obscure office except for one detail: The State of Texas cannot spend a dime without her approval. It is the comptroller’s responsibility to tell the Legislature how much money is available to spend and to refuse to approve the lawmakers’ budget if they fail to stay within her revenue estimate. The tension between Legislature and comptroller can get serious at times, and so the person Rylander turned to was a man who understood tension: Bob Bullock, who had held the office for sixteen years (1975-1991) before serving another eight as lieutenant governor. Often irascible, occasionally brilliant, but always informed, Bullock, before he died in 1999, gave freely of his advice to anyone who asked for it (and to many who did not), regardless of party.

“I visited with Bullock a couple of times before he died,” says Rylander, who was reelected last month, “and one thing is absolutely emblazoned in my mind: ‘Carole, you never want to overshoot the runway on a revenue estimate.’ And so, when I tell people I am not going to overshoot the runway [with a high revenue estimate], I’m quoting Bullock.”

This is not good news for the Legislature. When the next regular session begins, in January 2003, budget writers will face one of the largest shortfalls in the state’s history: at least $5 billion, according to Rylander’s preliminary estimate, and perhaps as much as $10 billion. A “perfect storm” of slowing economic growth; continuing in-migration that strains schools, prisons, and health care systems; and vanishing state savings means that lawmakers will have to make deep spending cuts or raise taxes. And the storm is heading Rylander’s way: The lower her revenue estimate is, the more hard choices the Legislature will have to make.

The tug-of-war between the comptroller and the budget writers is nothing new. Even in less fiscally challenging times, lawmakers have been known to greet revenue estimates with skepticism. Many believed that Bullock lowballed the estimate to give himself leverage; when legislative leaders begged for more money, he would say that the state would have more money to spend if only he had more auditors or better computers or some other empire-building item that would allow his office to collect more taxes. And so Bullock would get the new appropriations he wanted, and the Legislature would get the higher estimate it wanted, and peace and happiness would reign throughout the Capitol.

A prediction for the New Year: This will not be the result in 2003. Both houses of the Legislature will be dominated by Republicans, most of whom oppose new taxes (as do many Democrats). Rylander has too much at stake—the state’s financial security and her own political future—not to live up to her campaign slogan of “One Tough Grandma.” If she caves in to legislative pressure and provides the Legislature with an overly generous revenue estimate, the state could end up spending beyond its means and running out of money before the two-year budget cycle is complete. The ensuing political disaster would ruin her chances of moving up to lieutenant governor or governor in 2006.

But an overly cautious revenue estimate has its own perils. In a year when the Legislature faces legitimate demands for increased spending on items like health insurance for teachers and children, nursing home reimbursement, ever-growing Medicaid rolls, and increased enrollment in public schools, lawmakers could find themselves forced to choose between making deep cuts in basic services and passing a tax bill to balance the budget.

“Nononononono! Nothing I do is ever going to trigger a tax bill,” Rylander gasped in a recent interview, reacting to the t-word as if it were an expletive. With a traditional lacquered Texas hairdo and a perky smile, she looks like the quintessential good ol’ girl until she reflects on the considerable heat she expects from lawmakers this session. The smile vanishes and her eyes narrow: “It will be a time to hunker down and play hardball.”

The gamesmanship between comptroller and Legislature over the revenue estimate has taken a new turn in recent years. Budget committees have made contingent appropriations that will be funded only if the comptroller says that there is money over and above her revenue estimate—say, from an improved economy. Last session, budget writers, frustrated with a Rylander revenue estimate they regarded as too parsimonious, drew up a list of spending items that would be allowed in the event she upped her estimate. Among the contingent items were pay raises for judges and state employees, two politically powerful lobby groups whose standards of living were in Rylander’s hands. The contingency list had its intended effect. One by one the affected groups showed up in Rylander’s office, pleading with her to adjust her estimate.

“The judges would come in to see me,” Rylander says, “then you’d have the state employees.” She stayed firm. If the lawmakers had been serious about pay raises for state employees and judges, she told the supplicants, they would have provided the funds in the budget and not resorted to a “pie-in-the-sky wish list.”

“There’s always pressure on the comptroller, but that was the most blatant and aggressive attempt to pressure the comptroller I’ve ever seen,” says Bill Allaway, the president of the Texas Taxpayers and Research Association. “There’s always tension there. But the contingent appropriations—that was a direct challenge to the comptroller.”

“What we were trying to do was make sure that, in the event we had the money, these items got funded,” counters state senator Rodney Ellis, a Houston Democrat who is the chairman of the Senate Finance Committee. He denies that he intended to pressure Rylander but muses that “obviously you could read this to see the comptroller would be in the position to take credit for things” like state employee pay raises if the money had been found. “Comptrollers always have something in their back pockets. They all do it,” Ellis says.

Much of the controversy over the accuracy of the revenue estimate ignores the reality that the process of arriving at a number is as much art as science (not to mention politics). Over the past twenty years, predicting the state’s tax revenues has become an increasingly sophisticated process requiring nineteen full-time employees of the comptroller’s office, econometric computer models, two advisory groups, and dozens of tense meetings. “Texas has an infinitely more complicated economy now than it did when I first went to work for the comptroller’s office,” says deputy comptroller Billy Hamilton. “If you think it is a string of Wal-Marts with some refineries on the coast, you’re missing what’s happening.”

Rylander gives great credit to Hamilton, who served as the chief revenue estimator for Bullock and deputy comptroller under John Sharp, for improving the accuracy of the estimate. She recruited Hamilton as her first act upon her election in 1998, even using her political funds to supplement his salary. Hamilton oversees the work of chief revenue estimator James LeBas, who, Rylander brags, was “right on target” with the 2002 prediction: only $32 million off the mark of a $57 billion budget, perhaps the closest in the state’s history.

Comptrollers have their own ways of testing the accuracy of their experts. Hamilton says Bullock used to go to Melba’s boutique in Austin to ask about her sales and a Chevron station near his home to inquire about the gasoline receipts. Or he would call the Texas Automobile Dealers Association and ask president Gene Fondren how the car business was doing. In meetings, the staff would present a scientifically based forecast, and Bullock would often shake his head and say something like, “I talked to Melba yesterday, and she doesn’t think it’s happening.”

Rylander has her own sources for testing the accuracy of the revenue estimate. Her “kitchen cabinet” includes her four sons, “[who] are all great advisers in political and economic and all other areas”—her eldest son, Mark, sat on the President’s Council of Economic Advisors until he was recently confirmed as the commissioner of the Food and Drug Administration—as well as state experts like Allaway or economist Ray Perryman.

She plans to make her revenue estimate public at the last possible moment before the Legislature convenes, on January 14, so that she can analyze the latest information on tax collections. But the indicators look bad. Rylander has already identified a $5.1 billion shortfall to maintain current spending levels. Recently, the major state agencies have come forward with predictions of what they will need to maintain their current level of services and meet the demands of a growing population. The Texas Education Agency will need almost $1 billion to take care of more schoolchildren. Fully implementing the teachers’ health insurance program would cost another billion. The Health and Human Services Commission will need $2.4 billion to pay for more Medicaid and Children’s Health Insurance Program participants. And so on. While Rylander believes “moderate” growth in the state’s economy will offset some of the projected shortfall, lawmakers will have to find a way to make the books balance.

Most Austin insiders believe that it will take several special sessions before the Legislature will be able to agree on a budget. Cutting the budget is difficult because Texas spends most of its money on basic services like public and higher education, transportation, and prisons. Anyone for cutting back on schoolteachers? Prison guards? Many Republicans would like to reduce the costly Medicaid program, but federal mandates get in the way. Other options are accounting tricks (such as one-time delays of payments to school districts), palatable tax increases if any exist (tobacco?), closing tax loopholes, or dipping into the state’s Rainy Day Fund, an action that requires a two-thirds vote of each house of the Legislature. Rylander is adamantly opposed to raiding the Rainy Day Fund, noting that its existence helps the state’s credit rating on Wall Street. The only sure way to avoid painful budget cuts or new taxes is a rosy revenue estimate from Carole Keeton Rylander. But she’s not about to overshoot that runway.

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