The participants in the conversation were David Anthony (the superintendent of Cypress-Fairbanks Independent School District, the third largest ISD in Texas); Bill Hammond (a former state representative and the president of the Texas Association of Business); Louis Malfaro (the secretary-treasurer of the Texas chapter of the American Federation of Teachers, the country’s second-largest education union); Scott McCown (a former district judge and the executive director of the Center for Public Policy Priorities); Robert Scott (the commissioner of the Texas Education Agency); and Arlene Wohlgemuth (a former state representative and the director of the Texas Public Policy Foundation). The conversation was moderated by Jake Silverstein, editor of Texas Monthly, and Nate Blakeslee, a senior editor at the magazine.
Jake Silverstein: We all know that Texas is facing a severe budget shortfall, and we know that some of the plans put forward this session include pretty drastic cuts to education, anywhere from $4 billion to $10 billion. But I want to start by talking about how we got here. I know there are different ideas for how we got here. Scott, I want to start with you. Give us your take on how we got here. And I’ll start with a simple question. True or false: Are we here where we are today because of the tax swap in 2006?
Scott McCown: You moved from a big question to a little question.
Silverstein: You can feel free to move back.
McCown: I think we are where we are today because Texas has always been a low-tax state and yet it’s always been a state that believes in education, and those two commitments have been in collision for years. How do you have a strong public education system and give Texas children an economic opportunity and do that in the context of a low-tax state? And I think that’s been the struggle, and that struggle has in this session intensified because of the Great Recession, which is responsible for a portion of our shortfall. But it comes on top of the 2006 creation of a structural deficit, so it was a double whammy, and we’re trying to deal with that now. So I guess that’s the short answer.
Silverstein: Is that how other folks at the table see the narrative of how we got to where we are today?
David Anthony: Well, one of the analysts for Standard & Poor’s in Dallas has indicated that the biggest problem in Texas right now is the property tax buy-down in 2006—an inept business tax to buy-down that tax break of $14 billion—not the recession, even though the down economy certainly has an impact with what’s going on in the state. But those two combined—if you look at the failure of the business tax to generate $5 billion at the biennium, that’s a $10 billion hit right now, and that would look good if that $10 billion were in the Rainy Day Fund right now.
Robert Scott: The scope of the problem is far beyond even those two items. It’s not just that the tax swap of 2006 failed to deliver. It’s not just that the Legislature didn’t appropriate enough. It’s that you also have growth factors in the formulas and student growth at 70,000 to 80,000 students per year. So that’s contributing to the gap that we see right now; it’s not just the tax swap. You go back to the fundamental reason the Legislature was put in the position to do the tax swap. It was the litigation in West Orange Cove that said originally the lawsuit was brought about in terms of equity between districts, adequacy overall, and an unconstitutional statewide property tax. What the Supreme Court gave the legislature as a problem to solve was the unconstitutional statewide property tax, and they solved that problem. They compressed tax rates down to a dollar, and they solved that problem. The combination of the Great Recession and the lack of the business tax to generate what it anticipated plus enrollment growth and property values are what has contributed to the whole thing, so I think it’s more of a three-pronged issue than just about the tax swap or what the Legislature was able to generate with the business tax. You’ve got to look at the growth. So there are a whole bunch of different factors in there that are contributing to the gap right now.
Bill Hammond: It wasn’t the tax swap; it was the method for paying for the tax swap that created that problem. But you’re right: A two percent decrease in property value across the state is a huge factor in looking at this problem.
Scott: As a matter of fact, when the comptroller was able to revise that a couple of weeks ago, that put $300 million back on the table that the Legislature is able to use right now. So as the economy improves, that piece of the gap will improve. It’s whether or not we can address the business tax and enrollment growth. This will be the first session since Gilmer-Aikin that we haven’t funded enrollment growth. The question is whether we can live with that.
Anthony: But it’s the perpetual $5 billion or so structural deficit that goes on from biennium to biennium.
Hammond: $5 billion a year or $5 billion a biennium?
McCown: $5 billion a biennium.
Hammond: Well the problem is obviously a lot larger than just that amount of money that we’re dealing with this time. Depending on how you calculate it, the judge says its $27 billion, right, Judge?
McCown: Right, the shortfall.
Hammond: The shortfall established by the tax not producing as much money as the comptroller estimated it would is 20 percent of the problem. Everybody keeps talking about the structural deficit based on the franchise tax, which no one likes. I agree with that, but that’s like the commissioner just said: I mean, that’s a relatively small part of the problem; I mean, you’re creating a new Fort Worth ISD every year.
McCown: Its not 20 percent, I don’t think. I think it’s a full third.