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State Budget Picture Not as Rosy as It May Seem

The state economy, and the state's finances, look relatively good. Tax revenue is far higher than the comptroller had predicted. But don't get too confident — there are some tough decisions ahead.

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*Correction appended

The state’s economy is booming, relatively speaking. Tax revenue is far higher than the comptroller had predicted. The Rainy Day Fund has so much money that it might hit a cap. Hardly anybody even knew that particular savings account had a limit, and why would they — why would the state ever hoard $9 billion or $10 billion?

But the state’s financial outlook isn’t as rosy as it appears to be, particularly if state lawmakers want things to run the way they run now.

It’s the central problem of state government in Texas: Lawmakers here and in Washington have promised to deliver more programs and services than they are willing or able to finance. As a result, they’re constantly choosing between cutting what Texans demand and increasing taxes and fees that Texans don’t want to pay.

The last round in that ongoing tug of war was during the 2011 legislative session, and lawmakers escaped with a flourish of creative financing. They saw that they couldn’t afford the 24 months of Medicaid required in their two-year budget. Instead of cutting more from the program, or cutting deeper into what they pay to providers (who have long complained that those rates are far too low), they budgeted just enough to hold Medicaid until early 2013. That’s when lawmakers return to Austin for another legislative session and another budget. They figured the state economy might improve — the equivalent of a leprechaun showing up or a winning lottery ticket blowing in through the window — before they had to pay for the last few months of Medicaid. Maybe fewer people would use the program, or they would spend less than expected.

Maybe they’d get lucky.

And so they did. The revenues have come in faster than Comptroller Susan Combs projected.

But their 2011 budget tricks and some clouds in the financial forecast take away some of their options in 2013. Gov. Rick Perry and other leaders decreed then that money in the state’s Rainy Day Fund shouldn’t be used for continuing expenses. They didn’t want to create a problem two years down the road. They also decided it would be okay to use the reserve for supplemental appropriations — the unanticipated spending that had to be covered in the latter months of a budget.

Budget writers are smart people, and they saw an opening. They shorted that two-year Medicaid budget by a few months, leaving services intact and uncut and assuming they could come back and find the money for the final few months in early 2013. If income was short, they could use the one-time money in the Rainy Day Fund — money they were unable to use on the front end — to cover the gap.

Sure, it’s convoluted and sneaky. But they don’t have to answer to voters in November about cuts in Medicaid services. Or about increasing taxes and fees. They can use savings and revenue increases to cover that tab and other, similar bills. And all without breaking any promises to voters, either about taxes or about promised services.

That’s the good news they will hear in January. The bad news? Their budget woes are just what they were two years ago. The state’s savings account has to be used for the current budget and not for the next one. And the state is still growing, which means existing costs of government are going up.

It’s a familiar litany: 70,000 to 80,000 more children in public schools every year; rising costs and client loads in health and human services; a highway financing system that no longer completely covers maintenance on existing roads in a state that also needs new roads; a statewide water plan with a financing drought; a higher education system stuck between stingy state budgets and a deep and growing resentment of tuition increases. Et cetera, et cetera, et cetera. A list of promises on one side of the ledger — government programs and services that voters want — and a list of promises on the other against higher taxes or fees that voters don’t want to pay.

The comptroller recently told lawmakers that a flagging national and international economy could cut into the state’s tax income — an early warning against too much optimism. They’ll get real numbers — the ones used for budgeting — in January.

Then they can decide which set of promises to break.

*An earlier version of this story said that lawmakers deferred spending on Medicaid instead of making cuts to that program; in fact, they deferred the spending in addition to cuts to the program and in provider rates.

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