Texas Budget Debate Has Already Played Out Around U.S.

Rep. Jim Pitts (r), R-Waxahachie, laughs with Rep Dwayne Bohac (l), R-Houston, during debate on HB4 on March 31, 2011.
Rep. Jim Pitts (r), R-Waxahachie, laughs with Rep Dwayne Bohac (l), R-Houston, during debate on HB4 on March 31, 2011.

The 2011 Texas legislative session has been characterized by teeth-gnashing, hand-wringing and intraparty bickering over billions of dollars in budget cuts. While all the drama is very real, it's also the first time Texas has had to make budget cuts during a legislative session since the recession and economic downturn began. But the rest of the country has not been so lucky.

"I mean, if you go to probably 30 of the 50 states, you'll see very similar headlines,” said Billy Hamilton, the state's former deputy comptroller. “You know, teachers are going to be laid off and jobs lost and la la la."

A report by the National Conference of State Legislatures showed that in 2008-09, 42 states and Puerto Rico had combined budget shortfalls of more than $174 billion. In 2010, for the Texas 20/20 PAC, a group whose membership included a handful of moderate Democrats, Hamilton wrote a report detailing what the states did to close those gaps. He concluded that no state had a magic wand; some did just what Texas is doing now: using only budget cuts, sort of.

"It seems like in most states, it sort of depends on what you mean by 'all' with cuts,” Hamilton said.

Audio: Ben Philpott's story for KUT News

Cuts-only approaches are a political talking point, often paired with no-new-taxes rhetoric. States have added about $34 billion in new revenues over the past couple of years, but lawmakers still call much of it "non-tax revenue."

"But that doesn't mean they haven't expanded gaming, passed cigarette tax increases, which for some reasons don't count as tax increases in most states,” Hamilton said. “Sometimes they clean up the tax statutes to raise money. Many times they raise fees."

So does raising fees to mitigate state budget cuts actually help? Or does it hurt spending, which drives the economy?

"How these taxes affect states, I think, it's difficult to say," said Kail Padgitt of the Tax Foundation, a nonpartisan tax-research group that provides yearly rankings on state tax burdens and business climates. Padgitt said immediate outcomes can be hard to gauge during an economic downturn.

But raise taxes — sales, business and property — too much, he said, and a state could be unprepared for a recovery. "Basically, a state that has put itself as a less business-friendly place in terms of taxes is not going to be as appealing for businesses to expand in,” Padgitt said.

Financial credit ratings are another economic metric to consider. Robin Prunty, an analyst for Standard and Poor's, said in that general, states that can balance their budgets are seen as financially stable and will maintain credit and bond ratings. But the financial powers-that-be also look at how a state balances its budget.

"We do evaluate the level of structural budget balance,” Prunty said. “In other words, how much of the solution in structural in nature because that obviously has implications for future fiscal years." 

Meaning, did the state balance the budget with "one-time" fixes? Prunty said Arizona and California used several one-time fixes to solve recurring budget problems. Bond ratings for both have been downgraded. In that sense, the Texas House version of the 2012-13 budget, which spends none of the Rainy Day Fund and uses no major accounting tricks and balances with cuts, would likely be viewed positively by the bond rating agencies.

But that doesn't mean moderately raising revenues through taxes or fees in Texas would spell economic doom. Going back the Tax Foundation's annual reports, you'll find Texas at or near the bottom on this list — and that's a good thing — in almost all of the group's tax burden reports. This, at the very least, gives the state options.

"You know, states can have a little bit more ability to maneuver within what they have because they're not going to raise up to California levels or raise up to New Jersey levels,” Padgitt said. “Texas has a long way before it would get there in terms of its taxes."

The Texas Senate seems to be taking that idea to heart. Republicans there have created a committee to look for $5 billion in non-tax revenue to help balance the budget. Sen. Bob Deuell, R-Greenville, has even suggested a gas tax increase to help pay the bills, but both ideas are falling on deaf ears in the House.

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