Turn Out the Lights ...

The Lege Has Barely Begun, and the Official Accountants Say We're Broke

Reading the state dailies the last couple of weeks must have caused many a Texan a painful dose of double vision déjà vu. National headlines have been all about President George W. Bush's proposed $1.6 trillion tax cut, designed to return a boiled chicken to every pot (a few pots more than others, but who's counting?). Meanwhile, below the fold, in a much smaller type, befuddled Texas legislators intensified their grumbling about not having enough money to go around for the state's real and pressing needs: schools and teachers, state workers and prison guards, children's health insurance and environmental protection, roads and infrastructure ... the list is long and growing.

More than one legislator noted that a big reason there is not enough money to go around is former Gov. George W. Bush's $2.6 billion tax cuts during the last couple of legislative sessions, which have left the state's piggy bank empty just as the economy lurches toward recession. Even Perry's Republican colleague, new Lt. Gov. Bill Ratliff, was heard musing longingly about the state's normally untouchable "Rainy Day Fund," and Sen. Eddie Lucio, D-Brownsville -- not heretofore notorious as a tax-and-spend liberal -- said he was considering filing a bill to roll back the 1999 tax cut.

I wouldn't advise a run on your bank just yet, but the strained budget, tax-hike brushfire was widespread enough at the Capitol to provoke Bush's successor to attempt to douse it before it spread. "I believe each of us would agree," Rick Perry wrote to Ratliff and the Lege, "given a slowing economy and uncertain economic future, that this is not the time to increase taxes." (Like the old joke about fixing a leaky roof, it's never the right time to raise taxes.) "Given the uncertainty of the national economy and the long-run impact on Texas," Perry went on, "we should allow the Rainy Day Fund to grow and help us deal with future economic or budgetary conditions." The Lege has been shortchanging the fund in any case -- last session, the Bush budget allowed not one dime for it -- so it better not rain in Texas for several more years. In his letter to Ratliff, Perry predicted that the fund would be over $1 billion by the next session. That sounds impressive until you remember the current budget, dry as a bone, comes in $108 billion.

The substance of Perry's letter was less newsbreaking (Stop the Presses! Governor Takes Stand Against Tax Increase!) than was the fact that he felt obligated to write it. The latest budget panic had been set off by revised Medicaid projections from Health and Human Services Commissioner Don Gilbert, who informed lawmakers that an additional $600 million would be needed to cover the state's 40% share of Medicaid costs (the feds pay the rest) in the next biennium. That meant a currently projected overall budget "surplus" of $300 million had suddenly become a $300 million "deficit." (Note that despite the air of mathematical certainty, when it comes to state budget words like "surplus" and "deficit" are highly political: Their precise meaning is determined by who's counting -- and who's defining the state's priorities.)

It's not yet clear how $600 million in new costs, like a Klingon battle cruiser, suddenly materialized out of thin air. Gilbert pointed to rising costs for prescription drugs and new enrollees, but one legislator told me the drug costs only accounted for one-sixth of the increase. Mario Gallegos, D-Houston, was said to be looking for "a smoking gun" that would explain why costs invisible in 1999 -- when George W. Bush was running for president -- abruptly became visible three weeks after his inauguration. Gallegos will undoubtedly find no dark conspiracy: It was common knowledge around the Capitol during the last two sessions that agency heads understood without prompting that they should slash costs and low-ball budget needs to protect the Governor's campaign priority: tax cuts.

A bicameral "working group" (that is, not subject to open meetings laws) of legislators has been appointed to examine the Medicaid budget and find the leaks. They might look no further than their own voting records. As Perry pointed out, the "right and appropriate" tax cuts had "overwhelming bipartisan support," even though many of those voting for the cuts worried aloud about the permanent distortions they were building into the state budget. One comical touch is the fact, newly rediscovered, that the 1999 budget bill (as revised at the last minute in conference committee) allotted only 23 months of Medicaid costs for the biennium -- magically shifting one extra month, and at least a $100 million headache, to this session's budget writers (try that with your mortgage payment). Sen. Chris Harris, R-Arlington, was widely quoted as saying if he had realized that shell-game was buried in the budget bill he never would have voted for it. Rep. Patricia Gray, D-Galveston, was less self-forgiving. "It's not clear whether we knew it or not," she told me, "but we all voted for it, like lemmings."

These kinds of childish and self-defeating accounting tricks are repeatedly forced upon the state's budget writers because of the fiscal handcuffs of so-called "balanced" budgeting, and the reflexive campaign posturing of "tax-cutting" without considering the consequences. "Every candidate says he's going to Austin to cut taxes," said Gray. "And then they each also bring their local economic development program that's only going to cost $1 million or $2 million or $3 million. The money has to come from somewhere, and the bill always comes due."

Oddly enough, as Perry's letter pointed out, the comptroller's current additional revenue estimate -- $5.2 billion, of which the original $300 million "surplus" remained after accounting for increasing program costs -- was roughly equal to the early estimates during the last session. What's changed dramatically in the wake of Bush's departure is the atmosphere at the Capitol -- from "Let's give it all away!" to "Where did it go?" "The trance appears to have broken," said Dick Lavine, tax analyst for the Center for Public Policy Priorities. "For the last two sessions, the mood was, 'We've got all this money, let's have a party!'" This year, with the effect of the tax cuts becoming visible and the economy slowing, Lavine says, "Now suddenly they realize the state has real needs that they've been ignoring. That's why Ratliff is looking at the Rainy Day Fund and saying, 'We've got to look at our needs,' and why these guys are suddenly waking up and saying, 'Can we get that money back?'"

The short answer is no. But to judge from the appropriations committees, Lavine's suggestion that the party is over seems accurate. In subcommittee after subcommittee, legislative priorities appear more than usually constrained by an increased urgency to hold down or shift costs. Perry's new prison proposals, once a law-and-order reflex, appear dead on arrival. The criminal justice discussions of probation policy have been driven as much by financial considerations -- it's cheaper to let technical violators go than to lock 'em up again -- as by questions of simple fairness or good sense.

In the House Select Committee on Teacher Health Insurance, to take another example, the will seems to be there to get something substantive accomplished. "We're going to do as much as we can do," said Chairman Paul Sadler, speaking for what appears to be a bipartisan consensus. But the way to do it seems not so clear. The latest wrinkle is the leadership's proposed constitutional amendment to allow "total return" accounting for the Permanent School Fund, an apparently sensible change that would mean a fixed percentage of the fund's investment gains (which have been sizable), not just the interest, would be earmarked for public school employees' insurance. It seems a practical immediate solution, yet (as Brownsville Democrat Rene Oliveira pointed out) it requires a cumbersome constitutional mechanism for a statewide necessity that should rather be built into predictable and flexible, biennial budgeting priorities.

In presenting the funding proposal, House Appropriations Chairman Rob Junell noted, "As frustrated as we are by teachers' health insurance, I'm more frustrated by the escalating costs of medical care in the United States. We're not going to be able to solve that problem in this committee." Left hanging unmentioned in the air was the lack of a serious national health care policy, dramatically scuttled during the Clinton administration. If the U.S. Congress can't muster the leadership to take on the insurance companies, what hope is there for the Texas Lege?

Patricia Gray acknowledged last week that a centerpiece of this session's progressive agenda -- the simplification of children's Medicaid access, enabling several hundred thousand children actually to receive health care to which they are already entitled -- will likely be trimmed back in response to the new budget situation, because it could cost the state an estimated $300 to $400 million for those additional children. "We have to deal with the reality of the numbers," Gray said -- meaning, of course, that Texas will once again be balancing its budget on the backs of those least able to afford it. The real joke is, we save little or no money by doing things this way. "Those kids will still get sick, and they will show up in emergency rooms all around the state, because their families have no other choice," said Gray. "It costs more to treat them [with high-cost emergency room services than it would to keep them healthy via Medicaid], and those costs get added to the local tax burden." Hospital district taxpayers are overburdened everywhere -- yet there seems to be no political will to share those costs rationally and progressively across the state. Conservative legislators are mounting a counterattack on the Medicaid proposal, insisting that health care is an individual responsibility. "It's difficult for people to accept that responsibility," commented Gray dryly, "if they can't even get access to health care."

Gray agrees that the state's problems are as much or more on the revenue side as on the cost side, but she doesn't see much hope of changing that situation any time soon. "I'm one of about five people around here," Gray said, "who are willing to discuss the 'I' word." The "I" word is of course "Income Tax," made unconstitutional and unspeakable some years ago as a consequence of the failed gubernatorial ambitions of the late Bob Bullock. "You might think people in Travis County, for example, would be clamoring for an income tax," said Gray, speaking of local property tax rates. "But nobody seems to make the connection."

Earlier this year, Austin state Representative Glen Maxey was discussing his assignment to the Appropriations Committee, in his sixth session as a legislator. "I'm glad to finally join that committee," Maxey told me, "because you can pass all the bills you like on the floor, but often the crucial financial decisions have already been made -- highly political decisions, often behind closed doors. So there's 'no money' to implement new programs or to address the state's real needs. I wouldn't have joined the committee if I believed we can't do any better."

In the wake of the new budget numbers, Maxey wasn't simply recommending, like nearly everybody else, that the state just continue to juggle the available money or cut the budget and make do with less. He was promising to introduce -- as he has done before, without appreciable success -- a state income tax bill. Asked about Maxey's promise, a senatorial colleague shook his head. "Glen Maxey," he said, "is the bravest guy in the Legislature."

On the Floor

Just because the state is officially broke, don't expect the perennial tax boondoggles to disappear. Giveaway aficionados are monitoring HB 1200, sponsored by Fort Worth Republican Rep. Kim Brimer, which would create new tax incentives for corporations building manufacturing plants in Texas. On his Web site (www.kimbrimer.com, Brimer is flogging the bill as a great boon to economic development and necessary for Texas to compete with other states. What he's not saying is that the bill would provide an estimated $500 million dollar subsidy to Intel, already planning a new site near Fort Worth. Brimer is said to be trying to finesse the drafting so that the cost -- and bonanza to Intel -- doesn't show up in the first five years covered by the bill's fiscal note.

Houston Dem John Whitmire is new to the Senate Finance Committee, and says too many agency heads apparently low-ball their budgets in an effort to placate lawmakers. At immediate issue was the budget of the Texas Commission on Alcohol and Drug Abuse, just emerging from a decade of scandals and cost overruns attributable to both poor management and over-zealous privatization. Whitmire noted that TCADA's current figures show it is serving 19% (up from 10%) of the eligible clients -- which means that 81% of the people who desperately need TCADA's services are doing without. "If an agency needs more money to get the job done," said Whitmire, "then it should ask for that money and let the legislators make the decision to spend it or not -- and let the legislators take the heat." end story

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budget, taxes, Medicaid, Rick Perry, George W. Bush, Dick Lavine, Patricia Gray, Eddie Lucio, Bill Ratliff, Mario Gallegos, Chris Harris, Rob Junell, Paul Sadler, Rene Oliveira, Center for Public Policy Priorities, Glen Maxey, Kim Brimer, Intel, John Whitmire

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