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Texas Governor Perry Agrees to Close 2011 Deficit Using Reserve

March 16 (Bloomberg) -- Texas Governor Rick Perry reversed course and agreed to use $3.2 billion of reserves to close a gap in this year’s budget, while remaining opposed to a similar move in the next biennium.

Perry, 60, and House of Representatives Speaker Joe Straus, a San Antonio Republican, agreed with Comptroller Susan Combs to use reserves to help close a $4.3 billion deficit for the year that ends Aug. 31, according to a joint statement yesterday.

The agreement calls for $800 million in budget cuts, and counts on $300 million in extra sales-tax receipts, according to the statement. Perry last week said legislators should look for more efficiencies and urged public schools to use their own reserves and not the state’s $8.2 billion. The so-called rainy-day fund is collected from energy taxes.

“Perry’s been like the prettiest girl at the school and the hardest to get a date with,” said Bill Miller, a Republican political consultant whose clients have included businesses and politicians.

“He’s wanted everyone to prove it, emotionally and substantively, that they really needed the money,” said Miller, who works at HillCo Partners in Austin. “He’s the jury, and he’s been convinced.”

Perry has insisted on only using the reserve as a last resort to cover nonrecurring costs, Katherine Cesinger, a spokeswoman, said yesterday by e-mail. He agreed to use the money following meetings with legislative leaders, she said.

“I remain steadfastly committed to protecting the remaining balance of the rainy-day fund, and will not sign a 2012-2013 state budget” that uses the reserve, Perry said yesterday in the statement.

Projected Deficit

The Republican governor last week emphasized his opposition to increasing taxes and using reserve funds to balance the budget, in a meeting with about 70 House lawmakers. The state faces a projected deficit of $15 billion to $27 billion for the two-year spending cycle that begins in September.

Texas voters in November “overwhelmingly sent a message that we don’t want to see Texas be like California and New York,” Perry told reporters after the meeting. “Fiscal conservatism will be the foundation of this state.”

Republican legislative leaders including Representative Jim Pitts of Waxahachie, the House’s chief budget writer, pushed back. They said spending cuts may force firings of thousands of teachers, close dozens of nursing homes and deny financial aid to many college students.

Using about 40 percent of the reserve fund now diminishes Texas’s flexibility in balancing its budget over the next two years, said Horacio Aldrete-Sanchez, a Dallas-based Standard & Poor’s analyst.

Longer-Term Solution

“Stronger credits such as Texas should look for a longer-term solution that tries to preserve some budgetary balance over the long term,” Aldrete-Sanchez said in a telephone interview.

While Perry and Lieutenant Governor David Dewhurst, also a Republican, have said tax increases aren’t being considered, Aldrete-Sanchez said spending cuts alone “may not be sufficient to address the budget deficit.”

Texas used $1.9 billion of reserves in 2005, including for its Emerging Technology Fund, favored by Perry. In 2003, the state took out $1.2 billion to help pay for health insurance for children and low-income residents, according to a 2009 report from the Center for Public Policy Priorities, a nonprofit research group in Austin, the capital.

Looking Forward

Using reserve funds now is a mistake because Texas will face more severe economic pressure over the next few years resulting from rising Medicaid costs, Talmadge Heflin, a Texas Public Policy Foundation analyst in Austin, said by e-mail.

“Those who seek to empty the fund because it is raining today have not checked the long-range weather forecast,” Heflin said. The foundation promotes limited government.

Perry’s opposition to spending from the reserves has been a nod to “Tea Party” conservatives, said Cal Jillson, who teaches politics at Southern Methodist University in Dallas.

“Perry was solidifying himself with his base,” he said. “Everyone has known since before the session started that we were in a hole and that we would have to use the fund.”

To contact the reporter on this story: David Mildenberg in Austin, Texas, at

To contact the editor responsible for this story: Mark Tannenbaum at

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