When lawmakers make their way back to the Capitol next January, they will likely face a huge projected shortfall-the difference between how much the state thinks it will collect and how much it intends to spend.
Exactly how much red ink will be in next session’s 2012-13 budget remains a bit of a mystery, but some of the Legislature’s leading budget authorities said at last month’s Policy Orientation, hosted by the Texas Public Policy Foundation, the figure could range anywhere from $15 billion to $19 billion.
In all likelihood, lawmakers will not have to make up this deficit in its entirety, thanks in large part to the state’s $8-9 billion in rainy day money and the probable resumption of payouts from the Permanent School Fund. Still, budget planners should expect to grapple with a good portion of it.
Coming off a recession year, you can expect that Texans will be in no mood to see the next Legislature simply raise taxes and move on. Instead, expectations are high that lawmakers will balance the budget by tightening their belt-just as many households have already done.
To its credit, the state’s leadership has given early indications that it recognizes this need for fiscal discipline and is already acting on it.
Last month, Gov. Rick Perry, Lt. Gov. David Dewhurst, and House Speaker Joe Straus, III instructed state agencies to recommend five percent of their current budgets for potential cuts by mid-February. The move could generate near $1 billion in potential savings that will narrow the budget shortfall.
Taking a cue from the state’s leadership, a number of legislators have expressed interest in finding other ways to trim the budget. One idea, in particular, would take a page from the playbook we ran in 2003.
When the Legislature convened that January, Texas was confronted with a $10 billion shortfall, declining revenues, and a severe recession-a situation not all that different from today.
To work through these challenges and balance the state’s budget without a tax increase, my fellow legislators, along with the governor, adopted a zero-based budgeting philosophy.The objective of zero-based budgeting was simple: start from scratch.
Normally, when lawmakers are crafting the state’s next two-year budget, they use what an agency spent in the previous budget as a starting point. With zero-based budgeting, however, we approached the budget writing process as though we were building each agency from the ground up; agencies were funded first based on any constitutional requirements, then on statutory authority, and finally according to expenditures in a priority list.
Using this technique, we were able to get a detailed picture of each agency’s spending requirements and propose intelligent solutions to the state’s budget problems-like consolidating 12 health and human services agencies into five, at a savings of about $1 billion per year.
The results speak for themselves.
That Legislature not only eliminated the state’s $10 billion shortfall in 2003 without raising taxes, but also cut general revenue spending for the first time since World War II and helped create an environment of low taxes and spending that spurred the Texas economy for the rest of the decade.
Time will tell whether the next Legislature closes the state’s projected multi-billion dollar shortfall in a similar fashion. But if they seek to get through this fiscal difficulty while avoiding the kind of tax increases that have debilitated other large states, they have at least one tool in their kit that has worked before – building a new budget from scratch.
The Honorable Talmadge Heflin is Director of the Center for Fiscal Policy at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. He is a former Chairman of the Texas House Appropriations Committee.