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Lawmakers Keep Texas Moving in Right Direction on Fiscal Policy

But Leave Much to be Desired

Six months ago, Texas lawmakers convened the 82nd session amid the most challenging fiscal climate since World War II.

As soon as the session began, lawmakers learned that revenues were down sharply from the previous cycle, the state was short $4.3 billion for its current budget, and the next budget was facing a $15 billion shortfall. No minor matters.

Fast-forward to today: The bills for the current two-year budget are paid, the budget for the next two years is balanced, no new major taxes were passed, and much of the state's rainy day fund is still intact for use by future legislatures.

All in all, a job well done, right? Well, that depends.

To be sure, lawmakers achieved some good things this session, such as cutting overall spending for the first time in at least 50 years and reducing general revenue spending for only the third time since World War II.

But to make these things happen, budget writers had to rely heavily on gimmicks and one-time fixes, like a $2.3 billion payment deferral to the Foundation School Program and underfunding Medicaid caseload growth to the tune of $4.8 billion.

Perhaps even worse than these budget shenanigans is the fact that, despite having a golden opportunity, lawmakers failed to make any substantive changes to how and why state government spends money.

For instance, of the Texas Public Policy Foundation's five essential budget and spending reforms, which were offered in January (see the American-Statesman article at http://bit.ly/nCd3UH ), lawmakers really only achieved one — reducing Texas' dependence on federal funds — and even then, this goal was primarily accomplished because of the fact that $12 billion in federal stimulus funds expire at the end of the current budget cycle, meaning this was probably going to happen on its own anyhow.

As for other budget and spending reforms, here's how lawmakers fared:

• What conservatives were hoping for: A two-year budget prepared from scratch to root out waste, fraud and abuse.

What actually happened: Lawmakers largely overlooked zero-based budgeting — a technique that requires each state agency to build their budget from the ground up, thus helping to ensure that every expense is justified — and instead wrote the budget using a modified current services approach. The result was a much meatier budget than could have otherwise been.

If there is a silver lining here, it is that zero-based budgeting proponents did make some headway this session in highlighting this tool and possibly created some opportunities in the next session for lawmakers to take this tool out of the toolbox.

• What conservatives were hoping for: The elimination of nonessential agencies and programs.

What actually happened: In short, very little.

Initially, it appeared that House lawmakers were going to look favorably on this idea and even cast a number of difficult votes to defund certain agencies and programs. But unfortunately, much of the lower chamber's resolve seemed to wane after its version of the budget was passed and conference committee members went to work.

In the Senate, lawmakers never really pursued this and instead turned much of their attention to finding additional revenue to support the current structure.

And so, no major efforts to rethink how state government operates ever materialized, coming as a major disappointment for many as the Legislature seemed unwilling to look closely at rationale for continuing taxpayer support for such entities as the Historical Commission, the Commission on the Arts and the Healthy Texas Program.

To be fair, in the end a few agencies were consolidated and merged, and funding was somewhat reduced in some cases; but overall, the Legislature seemed reluctant to do what it did in 2003 and truly refocus the state's attention on priority issues — such as transportation, border security and an efficient system of public education.

• What conservatives were hoping for: Change the budget layout to make it easier for taxpayers and legislators to understand.

What actually happened: Twice House members amended major legislation to try to pass this provision, and twice conference committee members stripped it from the final bill, even going so far as to ignore a motion to instruct conference committee members to keep the provision on the bill.

To this day, it is still largely unknown why the conference committee members were so opposed to such a simple thing as making the budget easier to understand. For the time being, it seems, the budget bill's confusing and intimidating nature will continue to baffle all but those without an advanced degree in public finance.

• What conservatives were hoping for: A strengthening of Texas' constitutional spending limit to better control the long-term growth of state government spending.

What actually happened: No legislation was passed to improve the state's constitutional tax and expenditure limit despite several bills having been filed.

This was in spite of the fact that during the regular session, three bills that would have vastly improved the state's constitutional spending limit were filed and heard in the committee. But for reasons unknown, none of these bills ever made it out of committee.

The failure to reform the state spending cap is a major setback for those concerned about the long-term growth of government. As it is under the current spending cap, state spending has grown by 300 percent over the past two decades, far outpacing population growth plus inflation, which was just 115 percent.

All things considered, it is hard to see how the 82nd Legislature was not a dud for fiscal reformers. Lawmakers achieved little in the way of creating structures to secure the state's short- and long-term fiscal stability.

And as for lawmakers handling of the budget this session, they certainly did some positive things overall, but their reliance on gimmicks and accounting tricks to bring the budget into balance may very well spell disaster for the 83rd Legislature.

In fact, it won't be surprising if next session's lawmakers look back on the 82nd Legislature and be reminded of Wimpy, the hamburger aficionado from the Popeye cartoon, who once said, "If you could a hamburger construct that would my hunger stay, I'd gladly pay you Tuesday for that hamburger today."

A positive session overall, but it could have been much, much better.

Overall grade: C

Talmadge Heflin is director of the Center for Fiscal Policy at the Texas Public Policy Foundation, a nonprofit, free-market research institute based in Austin. Heflin served 11 terms in the Texas House and chaired the Appropriations Committee in 2003, leading the Legislature's successful efforts to close a $10 billion budget deficit without a tax increase.

James Quintero is a fiscal policy analyst at the Foundation.