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Some Inconvenient Budget Truths

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Today’s release the 2014-15 Biennial Revenue Estimate (BRE), a report that tells lawmakers how much revenue they’ll have on hand to spend in the upcoming session, shows a much improved state revenue picture for both fiscal 2012-13 and 2014-15 and a large rainy day fund balance. Not surprisingly, this has excited the minds of many big spending special interest groups in-and-around the Capitol, many of whom have already begun to call on the Legislature to spend it all on new and expanded government programs.

But many of my big spending counterparts are forgetting some inconvenient budget truths:

1) The current 2012-13 budget was balanced using all manner of gimmicks (see “the Ugly” here), the majority of which will need to be undone in a supplemental appropriations bill. So while it’s true that the state is expected to have some extra cash on hand at the end of the current budget cycle, estimated at $8.8 billion, the fact is that most of that “extra” money is needed to reverse the underfunding of Medicaid caseload growth ($4.3 billion); a Foundation School Program deferral ($2.3 billion); and the use of other one-time revenues (<$1 billion).

2) Anything leftover in fiscal 2012-13 should be spent on more pro-growth policies—the very ones that got us here in the first place. Limited government, low tax-and-spend policies have created a fantastic environment for private sector growth in Texas which has, in turn, spurred robust revenue growth. Assuming lawmakers want this trend to continue, we should be pursuing more of the same kind of reforms—like eliminating the margin tax.

3) The 2014-15 budget cycle will still be tight. Discounting the rainy day fund—because you should never use one-time revenues to pay for ongoing expenses—the 2014-15 budget cycle will not be easy. Lawmakers must still contend with an ever-expanding Medicaid program, continue to undo the gimmicks, and, if they want serious tax reform, phase-out the margin tax.

So while the state’s revenue picture has improved quite handsomely since last session, the fact of the matter is that those extra funds are needed to undo past gimmicks and put in place reforms that will keep the state competitive (helping its future revenue picture). Calls for recklessly increasing government spending jeopardize everything that has been accomplished so far with The Texas Model.