Dollars and Sense
When the Legislature meets in January, lawmakers know they won’t be able to cut their way to a balanced budget. Instead, they should do what a certain Republican governor did more than twenty years ago: raise taxes.
When the Legislature meets in January, it will have a disaster to deal with—a record-breaking collapse in state revenue caused by the devastating global recession. Texas may be short more than $18 billion, roughly 20 percent of what we need to write a workable budget. We must figure out how to make ends meet. Given the size of the shortfall, though, one thing is certain: We cannot balance the budget through cuts alone without seriously damaging our children’s opportunities and leaving needy Texans unprotected. Instead, for state government to be able to do its job, we must take a balanced approach that includes new revenue.
Taking the contrary view, Paul Burka offered in his story “The Eighteen Billion Dollar Man” a plan that he claims would balance the budget without hurting the state’s most vulnerable citizens and without new taxes. In fact, his plan would cut help for the needy, and he ignores the damage his plan would do to our economy. Worst of all, Paul gives comfort to those who mistakenly think that Texas can somehow balance its budget through cuts alone.
Our budget grows because population and costs grow. Over this decade, our population increased by almost 20 percent, or 4 million people. We have the second youngest population of any state, giving us lots of children to educate. And costs are going up. About a third of what state government spends is for health care, where costs go up much faster than consumer inflation. When the state budget does not grow to cover additional people and costs, we have to cut vital programs and services.
As a very low-spending state, we are long past being able to do more with less by adjusting priorities or increasing efficiency. Because Texas has budgeted carefully and tightly for years, we can’t balance our budget through cuts alone without seriously damaging the ability of state government to do its job. This is why politicians never have any specific ideas about how to save big bucks. Whatever adjustments or efficiencies we can identify will be dwarfed by the magnitude of our revenue shortfall.
Paul nonetheless suggests big cuts are possible with fundamental rethinking. For example, he proposes eliminating the Public Utility Commission, an agency he describes as engaging in unnecessary rate regulation. But Paul misreads the budget. Most of what he proposes cutting is actually assistance provided to low-income families for their utility bills. For each of Paul’s suggestions, once you have all the facts, you see that his hoped-for savings are illusory or damaging.
Consider education. Paul proposes to save almost half a billion dollars by delaying building new schools. But the money he identifies doesn’t pay for new schools; it pays for debt service on bonds for existing schools. For higher education, Paul proposes to cut more than a billion dollars, leaving it to public universities to cut programs or raise tuition. Tuition has already skyrocketed, putting college out of reach for many kids with good grades but no money. Paul’s approach to just slash doesn’t work.
Instead, to balance the budget, the Legislature must do what Texas families do. When Texas families face tough times, before they cut spending in ways that hurt their family, they use their savings and try to raise more money. The Legislature should take a similar balanced approach.
The state’s savings account, our Rainy Day Fund, will have more than $8 billion we can use to balance the budget. Paul admits it’s pouring, yet proposes to spend only half the fund. We need to spend it all. The constitutional purpose of the fund is to maintain vital state services during economic downturns. As our economy recovers, state revenue will recover; in the meantime, the fund can cover state costs. The fund automatically replenishes from oil and gas severance taxes, which will put about $1 billion back in the fund over the next two years. Perhaps we can hold that money in reserve, but the magnitude of the damage from otherwise required cutting doesn’t allow us to hold back more.
The Rainy Day Fund, however, is designed only to bridge us from recession to recovery. As Paul points out, even in the best of times, our tax system doesn’t produce sufficient revenue to meet the state’s needs. Whether you measure taxes per resident or taxes as a percentage of the economy, Texans pay less in taxes than those in almost any other state. That means we put less into education and infrastructure than we need to maintain our competitive edge. It is no accident that one in every three jobs in Texas is a low-wage job. We simply don’t prepare our children for high-wage work.
As Paul notes, the Legislature made a chronic problem worse in 2006 when it reduced school property taxes by a third. Lawmakers guaranteed that the loss to schools would be made up for with state dollars, but then did not increase state taxes enough to cover the cost. That left a permanent $10 billion budget hole—what Lieutenant Governor David Dewhurst and others have called a structural deficit—reducing the money state government has to invest in education and infrastructure. In other words, amazingly, about half of our current problem is structural rather than cyclical.
Strong economic growth won’t lift us out of this structural hole. For one thing, we won’t have strong economic growth if state government doesn’t have enough money to do its job of educating our workforce and maintaining roads and other infrastructure critical to the economy. For another, even when the economy does grow, our tax base doesn’t grow with it. We primarily raise taxes on the sale of goods, even though we increasingly make our money selling services. We simply don’t have a modern tax system built for our economy.
Paul knows we need tax reform and he knows we are in a crisis, but he blames his editor for making him propose a plan with no new taxes. Paul should have rebelled against this edict, and Texans should too.
Paul claims this no-new-taxes approach is a political reality because state leaders say they won’t raise taxes. When it comes to political reality, however, Paul cheats—invoking it when it helps him and ignoring it when it doesn’t. On the spending side, for example, his plan depends upon ignoring the reality that we aren’t really going to eliminate the Department of Agriculture. On the revenue side, his plan depends upon expanding gambling, even though Paul admits gambling doesn’t have the votes.
Paul says, though, that once people see the state leadership’s draft budget in January, the politics of gambling is going to change. In fact, once the people see the proposed cuts, the politics of everything is going to change. For example, in its draft budget, the Texas Education Agency proposes to eliminate funding for new science labs, science textbooks, and teacher development. We can’t prepare our children for high-wage jobs that way. The Department of State Health Services proposes cuts that translate into almost 140,000 Texans being denied mental health services, including almost 3,000 who need hospitalization. That isn’t taking care of needy Texans.
Texans are willing to pay a little more in taxes to build science labs and make sure the mentally ill can get into the hospital. State after state has made this same choice. In more than thirty states, the debate about how to deal with the recession began with “No New Taxes” and ended with a tax increase, including in conservative states such as Oklahoma. The debate is just beginning in Texas.
Historically, Texans have chosen a balanced approach. In 1987, the last time we faced a revenue crisis approaching the magnitude of the current crisis, Republican governor Bill Clements promised no new taxes but ended up signing what was at the time the largest tax increase in any state’s history. And it is important to note, during the following decade, Texas prospered.
We have options. Half a dozen states have increased their cigarette tax, which both raises revenue and reduces teenage smoking. We could increase our cigarette tax by a dollar a pack and raise about $1.9 billion. Several states have temporarily or permanently increased their sales tax. We could temporarily increase our state sales tax by half a percent (with a rebate to protect low-income families) and raise about $3 billion. And there are other possibilities.
In the long run, if we want to keep Texas open for business, Paul and I agree that we need a modern tax system so that our state government can do its job instead of lurching from crisis to crisis. But in the crisis of the moment, we just need to put some money on the table. That requires Texans to pull our heads out of the sand, demand a balanced approach, and make democracy work.