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The Shell Game

If history is any guide, the Legislature will turn to accounting illusions to mask large portions of a budget shortfall of at least $11 billion. Trouble is, such trickery is a bet on the economy roaring back to life — and that's no sure thing.

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It's 1983. Oil prices are in the toilet. The Texas economy is suddenly and unexpectedly reeling. Lawmakers, who happen to be in session, have a choice between big cuts or new taxes. Or they could decide on something creative. Comptroller Bob Bullock and his top propeller-heads find a creative out — a third way to balance the budget. They move up the due dates of the taxes already in place, borrowing from the future by speeding the arrival of money that wouldn't normally have been available until the next budget period.

In another budget crunch a few years later, they do the opposite, slowing payments due — into the next budget. Lawmakers decide to pay state employees on the first day of the month instead of the last day of the month. That moves the last payment of the budget period into the next budget period, allowing the state to make ends meet.

No taxes. No cuts. Just some accounting and collection tricks.

In 2011, facing a monstrously large budget shortfall, lawmakers will likely turn to the same shell game to cover the first $2 billion or more. But such trickery represents a risky bet: If the economy doesn’t rebound, bringing tax collections up with it, the next Legislature will be doubly broke.

"It's a gamble," says Dale Craymer, president of the Texas Taxpayers and Research Association. "It works great if revenues recover and you grow out of the problem."

To some, it’s a better gamble than the sure bet of raising taxes and fees now. "I would rather see reductions made," says Talmadge Heflin, a former House Appropriations Committee chairman who now works for the Texas Public Policy Foundation. "But if they have no other choice than raising additional revenue ..."

The state's accounting tricks really came into their own in 1991, during yet another budget crunch — one so bad that lawmakers approved a new tax bill, some "efficiencies" in existing programs, the state lottery and hundreds of millions of dollars in "smoke and mirrors" budgeting that moved costs out of the troubled period and into a future budget. They delayed state payments to local school districts by a day, "saving" an astonishing amount of money. They held money that was destined for state highways, along with other payments that would ordinarily come due in the last days of a biennial budget.

A few years later, lawmakers "repaid" the money they'd borrowed from themselves, adding an extra payment to, for instance, the Foundation School Program, to make up for the payment they “borrowed” from the previously cash-strapped budget.  

This session: Time to borrow. State budgeteers expect the gap between revenue and current spending to be somewhere in the $11 billion to $20 billion range, a classic money trap that leads to conversations about taxes, spending cuts, expanded (and taxable) gambling, using the Rainy Day Fund and new federal stimulus programs.

And cheating, too. The budget writers could erase $2 billion or more of tough political decisions over cuts or taxes with accounting tricks. Some say it’s a victimless crime. "Obviously it's easier — it's invisible to the public," Heflin says.

Delaying the school payment by a day would chop $1.4 billion from the total, without the political pains of a new tax or spending cuts. Delaying payments to the employee and teacher retirement systems, Medicaid payments and transfers of gasoline taxes into the state highway fund — all will be on the table.

Some of the tricks of previous Legislatures will no longer work. The state never returned to paying its employees on the last day of the month, so it can’t move the date to the first of the month again. Neither will moving up the tax due dates work. When that was done, sales taxes were due at the end of the month. Taxpayers knew that as long as their checks were postmarked in time, the money didn't have to be in the state's hands on time. Moving the due date back 10 days meant that most checks landed in the state coffers before the end of the month, and that's why it helped duck a tax bill three decades ago. With electronic filing, the state already gets the money on time.

Billy Hamilton, now a consultant, worked for Bullock in 1983 when the comptroller cooked up those changes in tax deadlines and got these games started. And he was there when another comptroller, John Sharp, expanded the use of delayed payments in 1991. "We used to say that 'on the last day of the state' — you know, when Texas goes out of business or whatever — someone will have to write a check before they turn out the lights."

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