The Last Time Around

How will lawmakers deal with a budget shortfall of at least $11 billion — and maybe several billion more — in the next legislative session? In all likelihood, by doing what they did in 2003, when things were almost this bad.

Texas lawmakers are expecting to find a hole in the state budget — anywhere from $11 billion to $17 billion, maybe even more — when they return to Austin a year from now. That’s the worst forecast since 2003, when they responded to a $10 billion shortfall with cuts in major programs and hikes in various fees. “[They] had a very tough time, and they managed it," says Comptroller of Public Accounts Susan Combs, the state's chief financial officer. [In 2011] I am expecting the Legislature, with 181 smart men and women, to come up with something.”

Combs vows to do her research before telling lawmakers what they need to do. But even if she can't declare with certainty what they'll face, the warning signs are not good. Precipitious drops in revenue, including several months of double-digit decreases in sales tax receipts — which represent about 57 percent of the state’s total tax haul — have prompted Gov. Rick Perry, Lt. Gov. David Dewhurst and House Speaker Joe Straus to ask state agencies for 5 percent cuts.

For some, it's not too early to fret that lawmakers will balance the budget in 2011 by doing what they did seven years ago, the last time it was this bad. “Well, they cut Medicaid and CHIP (the Children’s Health Insurance Program), and otherwise they pretty much balanced it on the backs of other people,” said Eva DeLuna Castro, a former analyst at the Comptroller's office and now a budget analyst with the Center for Public Policy Priorities. “The Medicaid and CHIP cuts — I mean, that is hundreds of thousands of children losing healthcare.”

A CPPP analysis of the 2004-2005 budget found that decisions in 2003 rendered approximately 350,000 children and adults ineligible for Medicaid services that they would have qualified for in 2005 had policies remained unchanged. The study also concluded that nearly $4 billion in federal Medicaid dollars destined for Texas was “left on the table” after the state failed to allocate the necessary amount in general revenue funding to qualify for the federal aid.

Adding insult to injury, the cuts may not have had the impact on the budget that some believe. “Let me say this, and it's not an overstatement: Many of the savings that were promised [in 2003] were not realized,” says former State Rep.  Dianne White Delisi, R-Temple, who chaired the House Select Committee on Health Care expenditures before she retired in 2007. “So if I had one warning for this [upcoming] Legislature, it would be: Go for substance, not window dressing.”

Even the 5 percent cuts already requested will be easier said than done, says DeLuna Castro. “There’s not a lot that Texas does that’s optional. That’s what they're going to find out when they get the descriptions of the cuts. We're not really doing much that’s fat or duplicative or unnecessary. Everybody needs something that a state agency provides.”

Yet the authors of those 2003 cuts think they made back then the best out of a bad situation. “At the end of the day, looking back, everybody fared pretty well," says former State Rep. Talmadge Heflin, R-Houston, who chaired the House Appropriations Committee in the 78th Legislature and is now the director of the Texas Public Policy Foundation’s Center for Fiscal Policy. "There were some hurdles overcome, but you just have to delay some things when money is tight that you wouldn’t delay otherwise.”

The way Heflin remembers it, the Legislature’s allotment in 2003 for Medicaid and Health and Human Services — and its forecast of how many Texans would be in need — was spot on. “The way you adjust their dollars is [through] your projections of who will be drawing on the services," he says. "We went in with a fairly low number that materialized fairly accurately.”

Helfin says that another cause for optimism, or less pessimism, is the size of the Rainy Day Fund, the state's reserves. “They have considerably more money to work with than we had,” he says. “Going in to the '03 session, the Rainy Day Fund was just about tapped out: It had a few hundred million dollars in it and that was about it. Going in to the 2011 session, it'll be somewhere around $8 billion dollars.”

The Rainy Day Fund is often looked at as a last option, however. Combs says that since its creation in 1989, the fund has only been drawn down by more than $100 million “five or six times.”

DeLuna Castro argues that lawmakers should get over their protectiveness of the fund and use it for what’s for: a rainy day. “They are going to have to (use it),” she said. “When our state officials talk about the Rainy Day Fund they act like, ‘Oh, it’s so difficult. We can’t spend that.’ Well, (they) drained it regularly over the last decade. Every time it filled up they promptly used all of it: for Child Protective Services, for school finance, for prisons. It’s like they have no memory of ever having done this.”

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