A budget shortfall as high as $27 billion is projected as lawmakers work through the 2011 legislative session, according to estimates from economists and the comptroller's office. There is unity on the amount of its budget shortfall, however. Republicans who argue spending does not need to be maintained or grow from 2010-11 levels argue the shortfall could be around $12 billion to $15 billion. Texas writes budgets biennially, or in two-year terms, so the shortfall affects the 2012-13 state budget.
Leadership in the Texas Legislature, which is dominated by fiscal conservatives, is not expected to support attempts to raise taxes to fill the multibillion-dollar hole. But social service advocates say the state's safety net system can't afford any further budget cuts.
How the state fell into a hole
Declining sales tax receipts and the recession: State lawmakers write a budget based on an educated guess of how much money will be available to spend during the period for which they're writing a budget. For example, in 2009, lawmakers wrote a budget for 2010-11. State government gets about 60 percent of its revenue from sales taxes, so when there's a dramatic drop in state revenues, or collections, there's less money to spend. During the economic recession of 2008-09, Texas saw a drop in state revenues for 14 straight months.
Structural deficit: Some budget watchers say lawmakers created a "structural" deficit in 2005, when lawmakers cut school property taxes by one-third and expanded the business tax to make up the difference. But the business tax brings in billions less each year than the property tax did, meaning that with every new budget, lawmakers must find more and more extra money to make up the difference. The structure of the revenue system creates deficits each year.
Options to fill the hole
Budget cuts: In 2003, lawmakers used massive cuts and increases in fees to fill a $10 billion budget hole. Gov. Rick Perry has said those measures can be used again in the 2011 session. In 2010, state agencies were already advised to cut 5 percent from their budget requests, which was projected to save about $1 billion. The comptroller said in 2010 that she trusted lawmakers to make up the rest.
Increasing revenue: There are various ways this can occur, but lawmakers must approve them, which makes some of them much more likely than others.
- Draining the Rainy Day Fund: The Rainy Day Fund allows states to set aside excess revenue for use in times of unexpected revenue shortfall. It can plug holes in the budget, defend against an economic perfect storm and keep the deficit clouds at bay. Using the fund itself isn’t particularly easy. If the comptroller says that revenue will decrease between legislative sessions or if a budget deficit unexpectedly develops, it requires a three-fifths vote to transfer money away from the fund. Of course, if members want to use the money for any other situation — like say, a budget shortfall — then they’ll need to reach two-thirds of their colleagues, an even higher threshold.
- Cost-shifting: Cost-shifting refers to transferring the burden of paying for a service from the state government to its beneficiaries. The best-known example from 2003 was the deregulation of tuition at public universities. Those with state-subsidized health insurance also had to shoulder higher costs — including $790 million in new co-pays, premiums and other costs.
- Fees: Since it's politically unpalatable to raise taxes, lawmakers in the past have raised fees in places that many Texans would not notice or be affected by. In 2003, lawmakers established a quality-assurance fee for facilities for the developmentally disabled ($54 million) and added a $1,000-a-year charge for three years for motorists' first driving-while-intoxicated conviction.
- Gambling: In light of the budget situation, lawmakers are considering casino gambling as a possible new revenue stream. But there's infighting among industry groups over which industry — track owners or destination resort casino backers — get preferential treatment in the lawmaking process. If a casino gambling bill actually passed, Texans would then vote to approve them. It would take another few years for the industry to grow in Texas and provide billions promised in increased revenue. But some tax revenue, like money from casino licenses, could flow into state coffers more quickly.
- Personal income tax: Texas has no personal income tax, and most Republican leadership in Texas say it will never happen. But progressive economists argue that a personal income tax is the only way to grow revenue over time because a property tax and sales tax system will not be enough to continue funding programs and services.