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If This Isn't a 'Rainy Day,' What Is?

Balanced approach is key to bridging budget gap in Texas

Budget problems used to be for other states. Texans could look at Illinois' yawning budget deficit or California's massive shortfall and rest assured their state's energy-driven economy shielded them from a similar fate.

Not anymore.

Texas faces a deficit of $18 billion for the two-year budget that begins in September 2011. It's a daunting gap, considering that state revenue amounts to $87 billion in the current budget.

The precise size of the shortfall is a matter of debate, and a revenue estimate won't be made until January, when Texas Comptroller Susan Combs produces one in advance of the legislature's biennial session.

Budget experts across the ideological spectrum agree on the reasons for Texas' gap.

"One is the worst economy we've experienced in 75 years," said Dale Craymer, president of the Texas Taxpayers and Research Association, a conservative-leaning business group that advocates for fiscally responsible government.

Sales tax receipts, which bring in almost two-thirds of the state's tax revenue, started falling in February 2009 and have made a tepid recovery since April of this year.

Another issue is how the last two-year budget was balanced — with about $8 billion from the federal stimulus program and $5 billion in surplus. "That's one-time money that won't be available again," Craymer said.

In addition, Dick Lavine, senior fiscal analyst for the Center for Public Policy Priorities, said a business tax passed in 2006 has never produced enough revenue to make up for the one-third cut in local school property taxes that it was supposed to supplant. "We'll have a shortfall every budget," he said.

Lavine, whose nonpartisan group advocates for low-income Texans, said it will be impossible to bridge the gap with cuts alone.

That is why people are eyeing Texas' $9 billion rainy day fund. It was set up in the late 1980s with oil and gas money to carry the state through hard economic times, and was last tapped in 2005. Tapping the fund requires a two-thirds vote from lawmakers.

AARP wants a balanced approach to the deficit solution. "Using at least part of the rainy day fund needs to be on the table," said Amanda Fredriksen, AARP Texas senior advocacy manager.

Gov. Rick Perry, R, and legislative leaders have asked state agencies to cut 5 percent from current budgets and identify 10 percent more savings in the next two years. But they exempted aid to local schools, children's health care and Medicaid, which pays for low-income nursing home care, among other things. Health and human services and education make up three-quarters of the budget, so it will be impossible to cut the total budget without cutting there.

Lavine and Craymer agreed that the legislature will need to use a combination of cuts, the rainy day fund, accounting measures that shift costs forward, and new revenue. Both said the legislature may have to give serious consideration to legalized gambling and raising fees for licenses, admission to state parks and other services.

Lavine said he wants to see the state go further. "We're a 21st-century service economy, but our sales tax reflects the economy 50 years ago. We don't tax lawyers' services, accountants, stockbrokers, real estate agents, engineers, management consultants. Obviously, that's a large segment our sales tax is not capturing," he said.

Craymer's business group does not support any new taxes. "We're a fiscally conservative state. We recognize that raising taxes does harm to the economy," he said.

"There's a lot at stake this time" in the legislature, Fredriksen said.

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Thomas Korosec has been a journalist in Texas for more than 20 years.