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Texas’s Perry Faces Record Budget Gap on Revenue Drop

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Texas Governor Rick Perry
Rick Perry, governor of Texas. Photographer: Patrick Semansky/Bloomberg

Jan. 11 (Bloomberg) -- Governor Rick Perry, after touting Texas’s growth while holding down taxes and spending, faces the biggest two-year budget gap in state history and a challenge some compare to the 1980s, when an oil bust roiled the economy.

Texas’s revenue will fall 2.9 percent to $72.2 billion in the two-year fiscal period that begins Sept. 1 compared with the biennium ending in August, state Comptroller Susan Combs said yesterday in Austin. She said the state also faces a $4.3 billion deficit that must be closed by the end of August.

“The budget situation is as bad as it’s ever been,” said Billy Hamilton, a former deputy comptroller and now a municipal-finance consultant in Austin, the state capital. He likened the situation to a period of declining revenue several decades earlier. “The speculative bubble in oil popped in the 1980s, and we’ve just gone through another bubble in real estate.”

Texas is positioned to make spending cuts without raising taxes, Perry, a Republican, said in a statement yesterday. Texans elected Perry, 60, to an unprecedented third term in November because they support his leadership approach, Catherine Frazier, a spokeswoman, said yesterday by telephone. Texas is one of a handful of U.S. states with no income tax.

“Voters made it clear they want their elected leaders to treat the state budget just like families treat their budgets,” Frazier said. “We don’t spend all of our money and we keep taxes low. Those priorities have set us on a path to strength.”

Gap Projections

The second-most-populous U.S. state planned to spend about $86 billion in the two years through August, including more than $6 billion in federal economic-stimulus money that is winding down, Combs said. With a growing population, Texas will need about $99 billion to keep services at current levels, which suggests a $27 billion funding gap, Dick Lavine, a senior analyst with the Center for Public Policy Priorities in Austin. The group advocates for better economic conditions for low- and moderate-income Texans.

Texas’s population grew by 21 percent to 25.1 million between 2000 and 2010, the U.S. Census Bureau said Dec. 21. The state will add another 2.9 million residents by 2015, according to estimates by the Texas Department of State Health Services.

Spending cuts likely will affect public education and mean bigger class sizes, said Sherri Greenberg, a former lawmaker and the interim director of the Center for Politics and Governance at the Lyndon B. Johnson School of Public Affairs at the University of Texas. She said cuts may also reduce payments to health-care providers for lower-income residents. Public schools and health and human services account for about 80 percent of general revenue spending, she said.

Teacher Pay

Texas ranks 34th in public-school teacher pay, according to the Texas State Teachers Association. Classroom teachers in Texas averaged $47,157 in pay for the 2009-2010 school year, 15 percent below the national average, according to National Education Association statistics. Texas has the biggest proportion of uninsured citizens under 65 among U.S. states, according to Census data.

“Texas has historically underfunded health care and education and the situation has worsened under Governor Perry,” said Clay Robison, a spokesman for the state teachers group, which has about 17,000 members.

“Governor Perry believes we are doing everything we can to address the challenges we have and that includes health and human services issues,” said Frazier, Perry’s spokeswoman.

‘Structural Problem’

Texas cut property taxes by as much as a third in 2006 as part of a plan supported by Perry to shift the burden of school funding to the state from local authorities, Greenberg said.

The shift “caused a structural problem in the state budget,” said Hamilton, the former deputy controller. With less property tax revenue, the state relies more on sales levies, which slumped more than expected, he said.

Texas must trim spending by about 17 percent, Nick Samuels, a Moody’s Investors Service analyst in New York, said yesterday in a telephone interview. He estimated the deficit for the coming budget cycle at $15 billion and said the cuts assume that the Republican-dominated state leadership won’t raise taxes.

All statewide elected officials in Texas are Republicans, while the party holds commanding majorities in both legislative chambers.

“I am confident we will meet our state’s needs within this revenue estimate by prioritizing spending without raising taxes, laying the foundation for our state’s future prosperity,” Perry said yesterday in a statement about the estimate from Combs.

Texas has an $8.2 billion reserve account that may be used to curb the need for spending cuts, said Talmadge Heflin, a former lawmaker turned fiscal analyst. Using reserves requires a two-thirds vote of approval by the Legislature, he said.

To contact the reporter on this story: David Mildenberg in Austin at dmildenberg@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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