Texas is already so short of tax revenue that Gov. Rick Perry has told state agencies to cut 5% of their general revenue budgets. Now legislators have been told that the state may be running out of capacity to issue more bonds.

Back in January, Speaker Joe Straus assembled four select committees designed to tackle various aspects of the state's financial responsibilities and the structural deficit. Amongst these was the Fiscal Stability committee under Chairman John Otto, R-Dayton, whose interim charge was to "determine whether the recent and anticipated shortfalls are simply the product of the ongoing recession or whether state resources cannot keep pace with increasing demands."

The committee held its second meeting yesterday, May 26, and there was some pretty serious news. As first reported by Quorum Report, debt service can only be equal to 5% of the annual unrestricted general revenue fund averaged over the last three years. It doesn't matter if the bond has been issued or not, Otto told his fellow committee members. He noted, "When we got to the voters, when we pass a bill authorizing [bonds], even if they're not issued, they count toward the constitutional debt limit."

The sticking point was the $9 billion in transport bonds approved in 2003 under Prop. 14: Including both issued and unissued segments of those bonds, plus the rest of the state's debt load, Texas is now at 4.08% of GR. If revenues drop then it will tack even closer to the cap. Even now, that leaves the next legislature with very little wiggle room when it comes to bond issuance for major projects.

Otto noted that the situation would probably improve if the state issued those Prop. 14 bonds immediately. They could get a better interest rate than that used for the debt service obligation calculation on unissued bond, and could start paying that debt down. Until there is some major change, he warned the committee, they better be very cautious about considering legislation that could eat up that remaining 0.92 percentage points.