Lege Lines: Tough Balance

Senate Finance Chair Jane Nelson (Photo by Jana Birchum)

In what parallel dimension would anyone be surprised that Attorney General Ken Paxton sides with Lt. Gov. Dan Patrick against House Speaker Joe Straus – even if doing so meant abandoning the entire concept of fiscal conservatism?

Scratch that. This isn't about fiscal conservatism. This is basic accounting. In an opinion issued on April 21, the state's top lawyer said he saw no constitutional barrier to spending money previously allocated to the state highway fund to balance the budget. In doing so, Paxton provided legal cover for a Senate accounting trick the House hates.

The issue is the divide between the House and Senate draft budgets for the next biennium – not the total spending (both are at roughly $106 billion), but since both proposals outstrip Comptroller Glenn Hegar's revenue forecast, the two sides need to bridge the gap between. In 2014, voters overwhelmingly supported putting extra cash into the State Highway Fund to repair crumbling road infrastructure. A first payment on that plan is due this calendar year. However, by moving the payment date forward from one fiscal year to the next, Senate Finance Committee Chair Sen. Jane Nelson, R-Flower Mound, frees $2.5 billion to cover this year's general spending bills. In his nonbinding opinion, Paxton said the language of the original constitutional amendment was internally contradictory, and that the legal standard held that the budget merely had to ensure "substantial compliance" with the rules. Advantage Nelson and Patrick.

But that plan isn't flying in the House, where Straus and Appropriations Com­mittee Chair Rep. John Zerwas, R-Rich­mond, have both publicly blasted it. Before Pax­ton's ruling, they said it violated the Texas Constitution. Since the ruling, Straus has continued to argue that, legal or not, the Senate's plan makes for bad accounting. He told The Dallas Morning News, "None of this changes the fact that the Senate is attempting to spend the same dollars twice."

The House solution to the funding gap in the core budget is pretty simple: Use the Rainy Day Fund – or, to use its technical name, the Economic Stabilization Fund. That's a pot of cash, derived from excess oil and gas revenues, originally designed to smooth out the budget when times are tough and tax revenues have gone down. Forty-six states claim such a resource, but Texas has by far the largest, both in raw dollars and in proportion of general revenue spending. It currently stands at roughly $10.3 billion, and even with the domestic petrochemical industry in the doldrums, it should add over $1.5 billion extra by the end of the 2019 fiscal year. The bipartisan House argument is that they can readily pull $2.5 billion out and still leave a hefty balance. But Dan Patrick has spent his entire legislative career in opposition to spending the fund, so their plan could well be a nonstarter in the Senate.

The concern in the House pertains to optics: Paxton's opinion is the headline news, and few people will dig deeper into the details. Moreover, deferring payments remains a common way to make budgets balance – thus the need for a supplemental appropriations bill every session before the main budget is passed. This is different, though. It depends on spending the same cash in two successive years.

Up until now, the argument over the State Highway Fund vs. the Rainy Day Fund has played out through shots lobbed across the rotunda. But everything changed last week. The House sent four Republicans (Zerwas, Trent Ashby, Sarah Davis, and Larry Gonzales) and one Democrat (Oscar Longoria), as did the Senate (Nelson, Joan Huffman, Lois Kolkhorst, and Charles Schwertner, plus Chuy Hinojosa as its sole Dem) to form a budget conference committee. It's up to them to create not just a revenue stream but a spending scheme that is acceptable to both chambers. Yet neither side seems set to budge.

In the midst of this, there's been a quiet but dire warning about the future of Texas' economy. Comptroller Hegar said he wants to take a portion of the Rainy Day Fund and establish a higher risk, higher return (and therefore, potentially higher loss) Texas Legacy Fund. From a return-on-investment point of view, the comptroller has compared the Rainy Day Fund to burying the money on the Capitol lawn. By taking bigger risks, he told the Texas Tribune, "We have the opportunity to make a difference for when the oil dries up in 40 years."

So if you think the 85th Legislature has a big budget headache over a couple billion dollars, just fear for the 95th, and the 105th, as they craft a new tax base to replace the oil dollars that kept the state afloat for the past century.