The three guys at the top of Texas government are all sworn in and official, and they are scratching around for cash. The state's current budget is flowing red, and the next budget mismatches declining revenues with increasing costs. Gov. Rick Perry, Lt. Gov. David Dewhurst, and Speaker Tom Craddick started off with a letter to state agencies asking for the equivalent of 7 percent of their current year budgets. Some programs won't be touched: public school funding, acute care Medicaid, the Children's Health Insurance Program and debt service (which can't be cut without defaulting).
They told the agencies to bring back the numbers within two weeks–by February 6–and told them to minimize cuts to services. Several areas for cutting were specified: foreign and out-of-state travel, consulting and professional contracts, capital spending (furniture and computers and the like). When they're done there, the trio wrote, the agencies should look at hiring freezes, layoffs, and other cuts, all the while avoiding legally required programs and trying to avoid cuts to direct services.
They don't want anybody closing the state equivalent of the Washington Monument.
The letter is designed to shake the sofas for spare change to get out of the current budget fix–not the spending mess that starts with the next two-year budget. More is known about the size of the current fix, but there's less time to maneuver. Lawmakers are looking for almost $500 million to cover increased costs of programs they approved two years ago, and they're trying to find ways to patch a $1.8 billion hole in Comptroller Carole Keeton Strayhorn's estimate of how much the state would bring in during the current budget period. The first problem is the more critical; if they don't find money for an emergency appropriation, they'll have to cut services they already approved and that people are already receiving.
If agencies pony up enough money in response to the letter from Perry, Dewhurst, and Craddick, the second problem will be almost an academic exercise. It's legal for the state to end a two-year budget cycle with a deficit, so long as the amount they plan to spend is in balance with the income estimated by the comptroller. Actual spending frequently outruns the budget and lawmakers regularly have to come back and make supplemental appropriations to cover spending gaps.
But comptrollers almost never miss their revenue estimates. They tend to be overly conservative, if anything. Strayhorn's numbers were dead on for the first year of the biennium–the year that included the 9/11 economic slump. But the economy hasn't recovered as quickly as she expected. Sales tax receipts are below the slow pace set a year ago, and have been for months. As a consequence, she expects her earlier prediction of revenue to be low by $1.8 billion.
If state agencies can't come up with unexpended balances, freezes, and cost-cutting to cover the higher-than-budgeted spending, lawmakers will have the choice of raising taxes and fees or cutting programs. Program cuts wouldn't require any official action from the comptroller, except to say that they saved or cut what they said they would. A new appropriation would require the comptroller to say that the needed money will arrive in the form of new revenue; since the state is running a deficit, that would require a tax bill. Since they have promised not to raise taxes, the leadership is left to choose between shaking down the agencies or cutting programs.
The letter says the proposed cuts will go to lawmakers and the governors for review before any spending is actually reduced. The three are looking for $500 million to $700 million for now. And the new, trimmed budgets could easily serve as the starting point for the next two-year spending plan.
Fetch, Spot, Fetch
The State Auditor's Office put out a report that says the state could have as much as $7 billion in fraud marbled into its budget, but you have to be careful with the qualifications the agency added in their report. In fact, there is probably nothing close to that amount, and if there is, you have to wonder why there's not some financial outfit somewhere in state government charged with finding it.
The fraud item is included in an SAO report on "major areas of risk facing state government" that includes financial management and accountability, strategic employee management, administration of contracts and grants, information and technology management, and performance measures and management. In a cover letter on the report, State Auditor Lawrence Alwin says his agency will soon issue a detailed set of recommendations on where lawmakers might save money or find more efficient ways to do things. If that doesn't duplicate the performance review package already presented by Comptroller Carole Keeton Strayhorn, it could help solve the state's budget problem.
But don't expect SAO to come up with $7 billion. They tossed that number out without backing it up with anything more than a promotional blurb from the Association of Certified Fraud Examiners. SAO quotes that organization saying an "average organization loses about 6 percent of its revenue to fraud and abuse." In the case of the state budget, that would amount to $7 billion.
In fact, the report says, 443 cases of fraud have been referred to the auditor in the last two years and they involved an estimated loss of only $214 million. If the number really was $7 billion, and if the auditor knew where the problems were located, the Legislature could get through the current fiscal mess without a cut in services or an increase in taxes or fees or other revenues.
Some lawmakers are already looking at this area, at least generally. The Texas Conservative Coalition's recommendations of budget cuts and program changes and efficiencies includes a proposal that would move the SAO out of the legislative branch and into the executive branch and would focus it solely on financial auditing. Performance audits and that sort of thing would be left to the Comptroller of Public Accounts and other agencies.
Like a 401(k), Only Bigger
A second report from the state auditor describing the finances of the Teacher Retirement System is turning stomachs at the Capitol. Blame the financial markets and demographics for this, but TRS needs another $260 million annually from the state to continue current benefit levels and remain solvent. Before you spit up your Wheaties over that number, you should know that it's partly a function of the system's investments, and it means that the money will be needed unless the markets turn in a strong way in the next four years. It's partly a function, though, of how many teachers are in the state and how many of them are collecting retirement. If the trends continue, the state would have to increase its contributions (and/or the school employees' contributions) to keep things going.
That's not the only problem at TRS, or even the worst one. TRS-CARE, the retiree health insurance program, will need an extra $720 million to cover the expected costs of claims through the end of the 2004-05 state budget. That's in addition to what the state already spends. And the SAO adds an ominous note, saying it expects similar trends to affect other public retirement plans, like the one that covers former state employees.
• Department of Corrections: We wrote last week that state spending is running close to the constitutional cap on the growth of the state budget. To put it plainly, that ain't right. The Legislative Budget Board's cap applies to a certain type of general revenue spending, and if lawmakers had the money–they don't–they'd be able to spend quite a bit before hitting the cap in the current budget. The budgeteers have plenty of problems, but that's not one of them. Sorry, sorry, sorry.
The Goose Egg Budget
By most accounts, the governor's budgeteers were too optimistic in their pessimism about a state budget. The comptroller's low estimate of state revenue over the next two years was much worse than they expected. So they bagged their budget plans, substituted zeroes for the numbers they'd been working on, and presented the public with a budget that has a structure and no content. Where the dollar amounts would normally appear, they left goose eggs.
Democrats called it a publicity stunt. Republicans defended it as a symbolic gesture showing the state really is starting at zero spending and forcing agencies to prove the need for every dime (and the lieutenant governor and the speaker stuck to their deal to stick with the governor's plan).
For the moment, it means there's only one budget in the works that actually has numbers in it, and that's the current services budget prepared by the Legislative Budget Board. If you put that document next to the comptroller's dismal revenue estimate, you start the game with a budget shortfall of $10.5 billion, a number that could grow if there are haywire developments in some big ticket items–like education and teacher and employee retirement.
Neither the LBB nor the governor's budget has been officially filed as a bill. But if you want to have a look, the Guv's is available on his state website, at www.governor.state.tx.us; the LBB's is at www.lbb.state.tx.us. (The exact date hasn't been firmed up, but Gov. Rick Perry's State of the State speech is more or less set for early February, and aides say he'll use that speech to lay out some of his priorities for state spending over the next two years.)
Moving Legislative Power to the Governor
The budgets have a critical difference that's not in the numbers. Texas governors have the power of line-item veto–they can strike through the funding for a program and kill it outright. But the Legislature is jealous of its budget powers, and writes the appropriations bill in a way that limits the governor's line item vetoes. Instead of detailing the spending in each program, they lump the spending into large categories, then include "explanatory" material that spells out how the money is to be spent. The governor can't veto small parts of various programs or agencies without killing the whole program or agency in question.
The LBB is run by the Legislature, and the staff there prepared a spending plan that continues the tradition. The governor's staff put together what they call a "transparent" budget that details the spending. It has the advantage, they say, of letting voters look into the wiring in each agency, to see how much they spend on travel, for instance. And it would give the governor a little more precision when he's in a vetoing mood; for instance, he could kill an agency's travel budget without killing anything else in that agency.
Another variation is floating around that could cut a middle ground, but it's the sort of thing that historically makes legislators wary. It's called a "reduction veto," and it would allow a governor to strike out an item in the budget and replace it with another number. The current system is basically an up or down vote on each item; reduction vetoes, being promoted by the Texas Conservative Coalition, would allow the governor to lower the amount spent on a program without killing the program outright. Seen through legislators' eyes, that means the governor could override budget committee decisions about how the state should do its business.
They'll Freeze Later
Here's an obnoxious question: How do you call on state agencies to freeze hiring while you yourself are in the middle of a hiring frenzy? That's the situation the Legislature is in. Lawmakers hire office staff when they're elected, but don't hire their committee aides until they know what committees they'll be serving on. And while Gov. Perry, Lt. Gov. Dewhurst and Speaker Craddick are calling on state agencies to hold the line so the state can get out of the current budget with its piggy bank intact, House and Senate members are hiring.
Out of the Icebox, Into the Fire
For proof that nothing in politics is permanent, take a look at the pre-election tension between Lt. Gov. David Dewhurst and Sen. Bill Ratliff, R-Mount Pleasant, and then at the post-election duties the new Lite Guv is handing to his predecessor. Dewhurst named Ratliff chairman of the Senate's state affairs committee, which normally handles major legislation. And now, it appears that committee will handle both of the emergency items on the governor's list of Things to Do First: Insurance reform, and medical malpractice legislation. Both will be under consideration within a matter of days.
Ratliff was elected by his peers two years ago to serve as lieutenant governor when Rick Perry moved into the Governor's Mansion and George W. Bush moved into the White House. He declared his intention to run for the office in the November elections. But some conservative Republicans bristled at that, recruiting Greg Abbott to run against Ratliff before settling on Dewhurst and convincing Abbott to move to the attorney general's race. Ratliff took a hard look at what he would have to do to beat Dewhurst and then quit the race. Then he declined to endorse Dewhurst over Democrat John Sharp in the general election, an indication of continuing tension.
But Ratliff, who played prominent roles when Perry and Bob Bullock were in the corner office, will be Dewhurst's go-to on insurance reform and on tort reform, two issues that had appeared on their way to the Senate's Business and Commerce Committee, chaired by Sen. Troy Fraser, R-Horseshoe Bay. Fraser, a close friend of Gov. Rick Perry and the Senate leader on insurance during the interim between sessions, isn't out of the picture–he's a member of Ratliff's committee–but his committee apparently won't take the front position on those issues.
This Will Be Very Important in 17 Weeks
The House has hornswoggled the Senate for several sessions now by holding legislation at the end of the session until it's too late for Senate committee debate. The House deadline for passing bills matched the Senate's final date for committee consideration of bills. If the Senate wanted to handle legislation that passed on the House deadline, it would have to zip it through committee faster than you can drive through Wink, then handle any messy or embarrassing details in floor debate.
The House passes hundreds of bills on deadline, piling the Senate with last-minute work. More importantly, the House sneaks things past the Senate in the rush that might not pass at all if the Senate had time to inspect. Now it will. Without catching the attention of the House (or the press, or most of the lobby, for that matter), the Senate moved its deadline. Instead of shutting down the committees 17 days before the end of the session, the upper chamber will run them for another two weeks.
It won't kill the logjam that always comes at the end of the legislative session, but it will take away the advantage the Senate had inadvertently handed the House. And it'll change what has become a normal end of session gripe from senators, that they were being force-fed major bills under pressure.
And This, in One or Two
Aides to Speaker Tom Craddick say he'll announce committee assignments on a Thursday, but they're leaving open the possibility that the names could come down on January 30 or on February 6. Some of the Keepers of Rumors were talking about an earlier date, but that's almost impossible if you're going to get the thing done right logistically and politically. They had to wait for Craddick to be elected on the first day of the session, then for members to turn in the cards listing their own wishes about committee assignments. They stuff that into a computer, which puts out a rough cut that has more to do with what legislators want than what makes sense for management. Then they put the names up on a board and start moving friends and foes and experts and dolts into the proper assignments. Once that's done, they follow the same "ring and run" rule most of us learned in 2nd grade: They announce the lists on Thursday when members are going home for the weekend so that lawmakers can work out their bruised feelings before returning the next Monday. On Thursday afternoon, nobody's around to complain.
Flotsam & Jetsam
Comptroller Carole Keeton Strayhorn cut her own budget by 6 percent (less than legislative leaders asked for, but she also did it before they sent out their letters), installing hiring and salary freezes, cutting contractors and travel budgets. Two weeks ago, she made a list of recommendations for the state's fiscal health that would add more than 100 auditors and tax enforcement people to her staff, the better to increase tax collections. Gov. Rick Perry said he cut his budget for what's left of this fiscal year by 14 percent.
• Rep. Sid Miller, R-Stephenville, says he's got more than 40 votes locked up to be the next chairman of the House GOP Caucus. He says he wouldn't be in the lineup but for Speaker Tom Craddick's decision that the head of that group shouldn't head a House committee. Miller says Rep. Harvey Hilderbran, R-Kerrville, would have been the favorite for the job; with him expecting a chairmanship, Miller says, he decided to get into the race. He added that he'll get out of the contest if Hilderbran doesn't get a chairmanship and is free to head the caucus. Miller's not the only House member interested in the job, and most say they're keeping their powder dry until after they see how the House committee slots are assigned.
• The first of the Texans nominated for federal judgeships this year is supposed to be up in Washington for Senate hearings in the next few days. Former Rep. Rob Junell, D-San Angelo, was nominated by President George W. Bush for a federal judgeship in Midland. People we've talked to on the Washington, D.C., end of this don't expect Junell to have any problems. He's the former head of the House Appropriations Committee and was one of a handful of Texas Democratic legislators who campaigned hard for Bush in 2000.
• The special election to replace U.S. Rep. Larry Combest won't be cheap, apparently. Randy Neugebauer, a former Lubbock city councilman, says he's already raised more than $400,000 in his quest for that seat. That includes $150,000 he loaned his own campaign, but he's raised $275,650 from others, he said. Neugebauer says he's hired Jane Anne Stinnett, who had been working for Combest, as spokesperson for the campaign. His hires include Todd Olsen as general consultant, Scotty Howell to handle media and John Pritchett, most recently with Texas Supreme Court Justice Dale Wainwright's political office, to run the campaign. The election will be on May 3.
• The Texas Medical Association, after losing most of its internal lobby team on the eve of the legislative session, assembled a team of hired guns to help out, including former Rep. and insurance commissioner Elton Bomer; Don Gilbert, formerly head of the Texas Health and Human Services Commission; former state Sen. David Sibley; lobbyist Mario Martinez; and the Fort Worth-based Eppstein Group...
Once upon a time, Al Erwin and Dennis Thomas together made up a quorum of the Public Utility Commission, but after several years of recovery from that experience, they are starting up a lobbying, public relations and public affairs shop. Thomas has been consulting for several years; Erwin most recently worked on Dewhurst's election campaign...
Lobbyist Homero Lucero is leaving Valor Telecom to start his own shop. His first customer? Valor Telecom, which will be using him instead of an insider this session...
Kristen Vassallo, who was chief of staff to former Austin Mayor Kirk Watson and then worked on his unsuccessful campaign for attorney general, will head the public affairs practice at TateAustin, a PR firm based in the capital.
• Michael Morales–whose big brother ran for governor last year–will plead guilty to charges he tried to pressure the Tony Sanchez campaign into paying for supposedly damaging information about their candidate. Dan Morales' little brother also allegedly tried to sell the information to Gov. Rick Perry's campaign. He's accused of telling the Sanchez camp that he would publicize the information–which has never been detailed publicly–if Sanchez didn't pay up. That guilty plea will likely involve federal prison time.
Political People and Their Moves
Lawrence Collins, who said a couple of weeks ago that he was joining a buddy's lobby business, didn't stick around long enough for his pension to vest; he will instead become staff director for the Senate Finance Committee chaired by Teel Bivins, R-Amarillo. Collins once had that same job on the House Appropriations Committee... Stacey Schiff, most recently chief of staff to Sen. Florence Shapiro, R-Plano, moved to the executive branch. She'll oversee intergovernmental relations for Attorney General Greg Abbott... Lt. Gov. David Dewhurst added Ashley Wadick, formerly head of environmental law at the General Land Office, to handle environmental issues. He also hired several others for his research staff, including Shelly Botkin, Jared Wolfe, Andrea Sheridan, Carmen Cernosek, Nancy Bragg, Jon Heining and Colby Beuck. Botkin was on the Senate Natural Resources committee staff; Wolfe and Bragg from the House; Sheridan from the Texas Education Agency; Cernosek from GLO; Heining from the Dewhurst campaign; and Beuck from the Travis County District Attorney's office... The Texas Association of Builders hired Scott Norman from another trade group as its new in-house lobbyist. He's a former Senate staffer. They also named Jay Dyer, a lawyer at Vinson & Elkins, as their new regulatory and legislative counsel... Gov. Perry appointed James Campbell, an Amarillo attorney, to the 7th Court of Appeals, replacing Phil Johnson, a justice on that court who is moving into the chief justice chair... Perry named R. David Kelly, a partner at Carleton Residential Properties in Dallas, to be presiding officer of the Texas Public Finance Authority's board of directors... President George W. Bush picked a Texan–Major General Dee Ann McWilliams–to be assistant secretary for public and intergovernmental affairs at the Department of Veterans Affairs. Another Texan, U.S. District Judge Ricardo Hinojosa, is the president's choice for an open spot at the U.S. Sentencing Commission... Arthur Smith, the president and chancellor at the University of Houston, is stepping down after six years. He'll still be a member of the faculty, and will hang onto the current jobs while the board of regents looks for a replacement or replacements...
Quotes of the Week
Lt. Gov. David Dewhurst, quoted in the Dallas Morning News: "It is my intent to be lieutenant governor for the next eight years."
Sen. Judith Zaffirini, D-Laredo, telling the San Antonio Express-News that she asked Lt. Gov. Dewhurst to put her on the Finance Committee (she's vice chairman): "If knives are being distributed, I would want one in my hand. I trust me with a knife more than I trust some other people."
Rep. Rene Oliveira, D-Brownsville, after Gov. Rick Perry introduced a 400-page budget with zeroes where the dollar amounts would ordinarily appear: "What a waste of trees."
Sen. Kyle Janek, R-Houston, on the same subject: "Maybe we're just feeling our way in the dark. We've got to deliver services by spending $10 billion less. This is not an irrational way to do it. There may be a method to the madness."
Bush pollster Matthew Dowd, quoted in The New York Times: "Any time you have a tax cut, the majority of people will say it favors the rich, but so what? This issue just doesn't resonate with most Americans the way it does with the Democratic Party's activists and core constituencies."
Georgia state Senator Vincent Fort, a leader of the black caucus, quoted in a New York Times story on Gov. Sonny Perdue's campaign promise to ask voters about including confederate symbols in the state flag: "If there had been a referendum in Georgia in 1860 on slavery, I'd still be picking cotton."
Cleveland County, Arkansas, Sheriff Paul King, who's on the trail of someone who has stolen unmentionables from 14 different women over the last two years, quoted by the Associated Press: "Anybody who is going to steal underwear, you don't know what to expect."
Youth pastor Ed Ainsworth, making a sex education presentation at Lubbock junior high school, quoted by the Washington Post: "You have been lied to, lied to by the media, lied to by celebrities. Will this condom protect your heart? Will this condom protect your reputation? Go ahead and use a condom. You'll still be known as a slut."
Texas Weekly: Volume 19, Issue 29, 27 January 2003. Ross Ramsey, Editor. George Phenix, Publisher. Copyright 2003 by Printing Production Systems, Inc. All Rights Reserved. Reproduction in whole or in part without written permission from the publisher is prohibited. One-year online subscription: $250. For information about your subscription, call (800) 611-4980 or email biz@ texasweekly.com. For news, email ramsey@ texasweekly.com, or call (512) 288-6598.