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How Texas ended up $27 billion short

By Richard Whittaker, Fri., March 4, 2011

Amid the gloom shadowing the Texas budget, there is one bright spot for Dick Lavine: Outside the Governor's Office, nearly everyone accepts his calculation that Texas is short about $27 billion for the next biennium. How did the senior fiscal analyst for the Center for Public Policy Priorities get to that number? Here we go:

1) Starting Cash: Comptroller Susan Combs forecasts that Texas has $77 billion in general revenue funds for 2012-13 – but some of that is already spent. So deduct $1 billion that went to the Rainy Day Fund and $4 billion in deficit spending in the current biennium, and calculate the actual cash available:

$77 billion – $1 billion – $4 billion = $72 billion

2) Spending: Take the $90 billion spent from general revenue in 2010-11, add inflation and population growth, and Texas would need $99 billion just to maintain current service levels. So take available cash and subtract required spending:

$72 billion – $99 billion = –$27 billion

3) School Funding: So the state has $27 billion less than it needs. How did that happen? Well, the global economy flatlined in 2008 and state sales taxes collapsed in 2009, but lawmakers really broke things in 2006 when they "reformed" public school financing. To do so, they cut property taxes by $14 billion and predicted that the revised "margins franchise tax" would replace $8 billion of that cut. Let's work through those predictions:

$8 billion – $14 billion = –$6 billion (predicted)

4) The Structural Deficit: When the state approved the switch, they knowingly created that famous "structural deficit" economists talk about. But how did a $6 billion shortfall become $10 billion? The 2006 Republicans got their numbers wrong: The margins tax has actually only produced about $4 billion, not the $8 billion they predicted. So how short are schools?

$4 billion – $14 billion = –$10 billion (actual)

5) Shrinking Income: Moreover, the Legislature has spent decades ignoring or refusing to index-link underperforming taxes to inflation – such as the gas tax (20 cents/gallon since 1991) and the beer tax ($6/barrel since 1984). Add old shortfalls to new problems, and there you have it: a $27 billion budget shortfall and a lot of legislative head-scratching. It didn't happen in one session (or one recession), and, as Lavine has warned, "We're not going to solve this problem in one session."

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