Budget mess got going with 2006 property tax cuts

Jason Embry, Commentary

Austin American Statesman

Feb. 17, 2010

A picture of how the state could look after a budget shortfall hits next year is starting to emerge.

Fewer guards would patrol state prisons. Universities would postpone facility upgrades. Doctors would get less money for seeing Medicaid patients.

State agencies have drawn up plans to trim spending by 5 percent over the next two years in anticipation of a shortfall that could top $10 billion. But experts expect those cuts to save only about $1 billion. So we've got a ways to go.

There may be some gamesmanship going on here from agency heads who want to make budget cuts seem worse than they actually are. But the looming shortfall is large enough that these cuts are going to feel very real to millions of Texans at some point.

We don't yet know how deep the cuts will be. What we do know is how we got here, and it's not for the reason state leaders want you to believe.

The economic downturn isn't helping the shortfall, but it's not driving it, either. The driving factor is a decision by Gov. Rick Perry and the Legislature in 2006 to reduce property taxes by $14 billion every two years and raise only about $9 billion to replace that money. In other words, the Legislature committed $5 billion every two years to holding down property taxes instead of spending that money on education, public safety or other priorities.

Then the state's new business tax brought in drastically less than projected, and that $5 billion gap turned into a nearly $9 billion gap. Lawmakers from both parties did little to address that reality when they met in 2009, and in fact they made the gap a little wider by exempting 40,000 small businesses from the new tax.

The good news heading into 2011 is that there will be plenty of money in the state's rainy day fund to help make up the difference, but lawmakers will run into political trouble if they take too much out.

Tax reduction is a perfectly legitimate public policy priority. But tax cuts work only if you have money to offset those cuts or are willing to make corresponding spending reductions. The surpluses once used to offset the 2006 tax cuts are dwindling, few of the people in power want to raise taxes and so far, lawmakers have not had to make sizable cuts in spending. So the full budgetary impact of the 2006 tax cut is just starting to hit.

In a poll conducted earlier this month for the American-Statesman and other newspapers, 41 percent of Texans said the state should solve the budget deficit by reducing spending on highway construction. Too bad most highway spending is dedicated by the Texas Constitution and can't be spent on other programs.

In other words, this isn't going to be easy.

jembry@statesman.com; 445-3572