The Eighteen Billion Dollar Man

Texas is facing an unprecedented fiscal crisis during the next legislative session. So I opened my copy of the 988-page budget, grabbed a red pencil, and went to work. And the results weren’t pretty.
The Eighteen Billion Dollar Man
Photograph by Wyatt McSpadden

Easy come, easy go. Most of the $14 billion in federal stimulus funds that the Legislature used to balance the state budget in 2009 will be long gone when lawmakers return to the Capitol in January. By then, Comptroller Susan Combs will have delivered the bad news: Texas is $18 billion or so short of having enough revenue to pay for public schools, universities, health care, law enforcement, new roads, and all the other state services it delivered in the 2009–2010 budget cycle. This is the deepest hole the state has ever faced, nearly double the $10 billion shortfall in 2003.

The sluggish economy is the major reason for the fiscal crisis, but another cause is that state leaders have enjoyed a long ride on the line of least resistance, choosing not to raise revenue even as demand for state services has soared. For almost two decades, under Democratic and Republican leadership, governors from Ann Richards to George W. Bush to Rick Perry have bet on the come that the state’s robust business climate would provide enough revenue to meet growing needs without their having to take any political risks. Now, with the national economy mired in the worst recession in eighty years, they have rolled craps. The day of reckoning has arrived.

And I’m going to do the reckoning. On the following pages, I propose how the Legislature could balance the books for the next two years, by cutting spending and raising new revenue. I want this to be an honest budget, one that accurately shows readers how daunting $18 billion is, so I’m not going to use cash-management practices known around the Capitol as “smoke and mirrors.” That’s a gimmick that budget writers use as a last resort when they are out of money and out of ideas. For example, one such trick is the estimation of Medicaid caseloads in the upcoming biennium. The Legislative Budget Board, a committee that includes the lieutenant governor, the Speaker, and four members each from the Senate and the House, decides whether the demand for Medicaid services during the next two years will be high, low, or middling. In real life, the demand is always high, but in practice, the LBB routinely adopts a low estimate. That allows lawmakers to budget less money for Medicaid, even though they know that the amount will prove inadequate. Sooner or later, a future Legislature will have to make up the difference.

I have spent several weeks interviewing lawmakers and budget experts about what the 2011–2012 budget might look like: what can be cut and what can’t, what is politically feasible and what isn’t. I have gone through the 988-page budget from 2009–2010, looking for nonessential items that can be trimmed from the current version. One such category is construction: The current budget has about $2 billion for new buildings, and I would eliminate a lot of it. An exception is the long-overdue repair and rehabilitation of mental health facilities. I am not going to balance the budget on the backs of the state’s most vulnerable citizens. However, one trade-off is that I chose to shutter four state agencies, a decision that did not come easily. I realize what that would mean for the employees who work there and for the programs—some of them extremely useful—that these agencies operate. But with such a bleak economic forecast, good programs can become frills. Finally, you will notice that I did all of this without raising taxes, a concession to political reality. Jake Silverstein, the editor of TEXAS MONTHLY , is playing the part of Governor Perry in the exercise. He has vowed to veto any tax increase I might propose.

A word about how the budget process works: The state raises a lot of revenue, but a great deal of it is earmarked for specified purposes. Thus a tax on sporting goods is projected to raise $108,075,135 in the 2009–2010 budget, but the revenue is earmarked for the Parks and Wildlife Department. The sporting goods tax is essentially a user fee imposed on sportsmen. Many other levies (including the gasoline tax, which helps fund the Department of Transportation) are similarly earmarked for particular agencies. These items have sapped the budget of its flexibility, leaving insufficient revenue for big-ticket items such as public schools and health care. The revenue that matters for the purpose of writing a budget is general revenue, or “GR” for short. Most GR comes from sales taxes and is not burdened by earmarks. You may read in the newspaper that the state is spending umpteen billions of dollars. Ignore it. Nobody pays attention to the total amount spent, which includes everything from federal funds to fees and fines. The amount of GR that is available effectively determines the level at which major state services can be funded.

This is the second time I have written an article for TEXAS MONTHLY about how to cut the budget. In 1985 Texas faced a $1 billion shortfall (pocket change by today’s standards), and I wrote a cover story headlined “The Bloody Billion.” The budget was much easier to understand 25 years ago than it is today. Not long thereafter, the Legislature switched to a new format in which agencies identify their priorities and set goals for what they want to accomplish and, in theory, are held accountable for meeting them. Now spending tends to be lumped into much bigger sums than in the old version, and a lot of the little mischief that was easy to find back in 1985 is buried in the big items. It was not hard to come up with $1 billion in 1985. Today, finding $18 billion is going to be very tough. Many of the cuts I suggest are painful and far from ideal, but they illustrate how difficult the task is. Let’s take out the long knives and get to work.

[CUTS]

1. ELIMINATE STATE AGENCIES

The Railroad Commission of Texas
SAVINGS: $129,390,742

The Railroad Commission was created in the late

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