Capitol Chronicle

If you find your eyes glazing over at the propect of your own household budget -- let alone that of the state of Texas -- you might recall that old TV commercial in which the crusty mechanic holds up a five-dollar oil filter, compares it to the bill for a new engine, and mutters sagely: "You can pay me now, or pay me later." It's a simple enough lesson in financial foresight the Legislature might have learned long ago. Instead, the curriculum seems to be back to kindergarten every two years -- as the state patches together temporary fixes for current crises, and then can't find the money to do anything else. This way of doing business is always described as "fiscal conservativism," but perhaps a better description would be "penny wise, pound foolish."

Because one way or another, the bills always come due.

Newly promoted Gov. Rick Perry, for handy example, announced his proposed state budget last week, and it includes a request for $95.1 million for four new prisons. It's still early, but there was no immediate groundswell of support from legislators for new prison construction. A few judiciously pointed out that Perry's wish list didn't include any money for pay raises for correctional officers (just one of many crises-in-progress) and a spokesman for the officers noted that it seemed at best contradictory to propose building new prisons at a time when we can't afford to pay the people running the ones we already have.

The prison guards, of course, are but one subset of state employees lining up for a raise. The state employees union has requested a $4,800 annual increase for every state agency and university employee, a proposal that has the considerable virtue of helping most those who need it most. The employees point out that since their real earnings, adjusted for inflation, have declined steadily for the last 15 years (in what the business pages call a "booming" economy), such an increase would only get them back to where they were 10 years ago -- hardly an unreasonable request. With corollary proposals for no increases in insurance costs (the last raise was immediately devoured by rate increases) and additional staffing, the biennial price tag comes to about $2 billion.

Two billion dollars! How can we afford that? The painful and embarrassing truth is, we're already spending it. For most of the same decade that state workers' real wages have been steadily decreasing, the state employee turnover rate has been skyrocketing (perhaps there's a connection?). According to a recent report by the state auditor (www.sao.state.tx.us), the overall statewide turnover rate for 2000 was 18.93%, with some agencies losing people at rates in excess of 30%. (The Dept. of Mental Health and Mental Retardation, for example, lost 7,200 of 20,500 employees, a one-year turnover rate of 35%.) The auditors "conservatively" estimated the statewide, quantifiable costs of such turnover -- administration, training, orientation, recruitment, loss of productivity, etc. -- at $262 million, but suggested that the actual costs may be closer to $1.1 billion. And direct costs to the state do not even address the loss of services to citizens: in economic development, in human services, in legal services and criminal justice (turnover among correctional officers -- e.g., those folks assigned to guard the Connally Unit -- is at 24%). Moreover, the auditor's report gives an even more foreboding statistic: About 3,000 employees retired in 2000 (10% of turnover). Another 12,000 are eligible to retire in 2001, and more than 24,000 will be eligible to retire by 2005.

Certainly some employee turnover is inevitable, even necessary. But with numbers like these -- a crisis created by a decade of neglect -- it can readily be argued that a substantial raise and insurance protection for state employees is fiscal conservatism in action.

We can pay it now, or pay it later.

Teachers' Insurance

Like state employees, Texas teachers are leaving the profession in droves. The current turnover estimate is around 20%. Teacher pay is not great, but also driving many teachers away is the lack of affordable health insurance. Dallas Democratic Rep. Harryette Ehrhardt has once again filed a bill (HB 12) to provide a fully state-funded group insurance plan for all public school employees, including retirees now covered separately by the financially precarious Teachers Retirement System plan, TRS-Care. Ehrhardt's bill has bipartisan support, and several prominent legislators have agreed that something must be done -- but are already publicly balking at the projected price tag of Ehrhardt's bill: $2 billion.

Two billion dollars! How can we afford that? The painful and embarrassing truth is, we're already spending it. The TRS-Care system, structurally expensive because of its insured pool of aging retirees, is on the verge of bankruptcy, and the Lege has been pouring patchwork dollars into the system -- $22 million in emergency appropriations a month ago, another $450 million or so requested for this biennium. For the next eight to 10 years, TRS is projecting $6.5 billion in supplemental expenditures -- a crisis cost that would be radically reduced if the retired teachers were included in a statewide pool of current teachers and employees.

Add to that the savings to individual school districts (and school taxpayers). Those districts that can afford coverage at all are spending some $1 billion annually for expensive and inadequate plans. And these institutional costs do not even consider what the current single-district systems cost teachers and their families. In Dallas, for example, employees must pay as much as $685 a month for family coverage (over and above the DISD contribution of $178). Increasingly, many just do without insurance -- or leave the schools, and our children, entirely, yet another incalculable but very real social cost. (Nor do these cost estimates address the expense to school districts for teacher turnover: See aforementioned state employees.)

The savings on TRS-Care alone -- let alone all the other exploding expenses -- suggest that rather than freespending liberalism, a rational, statewide school employee insurance plan is tight-fisted fiscal conservatism. "The really relevant question," asks Ehrhardt, "is what will it cost not to provide health insurance for our public school employees?"

We can pay it now, or pay it later.

The Tax Cut Shell Game

It will be objected, of course, that the money just isn't there. The comptroller's early estimates propose "discretionary funding" of only $300 million or so -- the amount left over from the projected revenue "surplus" after accounting for additional expected costs for existing agencies and programs. But this biennial political poor-mouthing rings increasingly hollow. Consider the fact that under the state's budgeting system, agencies must come begging to the appropriations committees, hat in hand, with a status quo budget -- every new expenditure, whether for inflation, economic changes, or even the state's exploding population growth -- is considered "exceptional." That politicized definition hamstrings the budgeting process from the get-go.

But this year there is yet another reason for citizens to be skeptical of the ritual hand-wringing over the state's financial woes. The "money isn't there," in large part, because -- at the insistence of a Republican governor running for president -- the Texas Legislature (Republicans and Democrats alike) gave it away. According to the comptroller's estimates, tax cuts over the last two sessions have diminished revenues for the current biennium by about $2.56 billion. The single biggest item was the governor's 1997 homestead exemption on property taxes (his "$1 billion tax cut"), which is now costing the state a real $1.32 billion, while theoretically providing the state's average homeowner an estimated $140 per year reduction in property taxes -- except that most school districts simply raised rates to make up for the loss. They had to pay for teacher insurance somehow. (see chart, left).

I asked Houston Rep. Garnet Coleman, who supported Gov. Bush's homestead exemption in 1997, if he had come to regret that vote. "Honestly, yes," he said. "The numbers speak for themselves. It may have been a popular vote, but it was not the best public policy." Coleman, to his credit, is one of the few state politicians honest enough to acknowledge such regrets. Asked the same question recently, Gov. Perry said, "A majority of legislators supported those cuts, and I agree with them." The chief beneficiary of those tax cuts has now moved to the White House, where he will attempt to impose the same voodoo economics on the federal budget. It remains to be seen whether the U.S. Congress is as gullible as the Texas Lege.

During the presidential campaign, there was much political grumbling -- most pointedly from those prominent state Democrats who had decided to throw their support behind Gov. Bush -- about what was called the Gore campaign's "Texas-bashing." Texas-bashing might be more precisely defined as stating the obvious about social conditions in Texas, where we remain among the national leaders in rates of poverty, uninsured children, unregulated air and water pollution, high school dropouts, incarceration and executions, and among the bottom-dwellers in spending on public health, mental health, Medicaid, parks, libraries, and so on. Although the latter litany may have at least something to do with the former, among the Texas political establishment it is considered impolite to call attention to these cow chips in the punch bowl.

Yet every two years, the state's part-time legislators flock into Austin and find themselves using all their financial fingers and toes in an attempt to plug the multiplying leaks in the community dikes. A few of them think that's just peachy -- the less money and authority for state government, the more money and freedom for their lobbyists and corporate sponsors. But most attempt an exhausting and commendable job of trying to stretch dimes into dollars, while wearily explaining to skeptical citizens that although the needs of the state are real and growing, "the money just isn't there" to do very much about them.

But those are political explanations, not financial ones. The painful and embarrassing truth is, we're already spending the money -- but badly, wastefully, regressively, and inefficiently: as municipalities, as hospital districts, as school districts, as teachers, as employees, as taxpayers, as citizens. The bills always come due, and the bottom line remains: "compassionate conservatism" is neither.

What we don't pay for now, we will certainly pay for later.