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Budget Outlook

October 25, 2010

Dr. Alan F.J. ArtibiseDear Colleague,

Budget news continues to come forward and uniformly the news is not good. The budget realities for next year seem bleak.

In this context our efforts to grow resources and contain costs take on new meaning.

Please be fully aware of these facts as we move forward through the year.

Alan


Chancellor Cigarroa asked that I share the following article which provides a fairly comprehensive view of the possible budget outlook for the 82nd Legislative Session.  Vice Chancellor McBee has highlighted the areas within the article that directly reference higher education.

Legislature likely to cut deep to meet possible $25 billion budget gap
12:00 AM CDT on Sunday, October 24, 2010
By ROBERT T. GARRETT / The Dallas Morning News
rtgarrett@dallasnews.com

AUSTIN – Texas faces a budget crisis of truly daunting proportions, with lawmakers likely to cut sacrosanct programs such as education for the first time in memory and to lay off hundreds if not thousands of state workers and public university employees.

Texas' GOP leaders, their eyes on the Nov. 2 election, have played down the problem's size, even as the hole in the next two-year cycle has grown in recent weeks to as much as $24 billion to $25 billion. That's about 25 percent of current spending.

The gap is now proportionately larger than the deficit California recently closed with cuts and fee increases, its fourth dose of budget misery since September 2008.

Against the backdrop of the acrimonious campaign between Republican Gov. Rick Perry and Democratic challenger Bill White, Texas' top elected and budget officials have guarded even more tightly than usual against leaks of information. But bad numbers continue to dribble out in legislative testimony and agency reports.

The bottom line: Public schools, college students and government employees, not just poor and needy Texans, might very well lose money, grants, benefits and even livelihoods during and after next year's legislative session.

"They'll have to cut," said former Rep. Talmadge Heflin, R-Houston, the House's budget chief during the last budget meltdown, in 2003. "When you look at the big numbers, I just don't think there's any way that you make it match without making some reduction in education, both higher [education] and public education," or grades K-12.

No 'single magic bullet'

Even in the budget crises of the late 1980s, 1991 and 2003, Texas never cut state funding of public schools.

But declines in revenues, property values and federal Medicaid help have added between $3 billion and $4 billion this month to a late-August guess that the two-year shortfall could top $20 billion.

Ongoing expenses, including property tax cuts passed four years ago, cost between $95 billion and $100 billion in state funds, now that a federal flow of stimulus cash is winding down.

Dale Craymer, president of the business-backed Texas Taxpayers and Research Association, said next year very well could bring unprecedented retrenchments, including layoffs or furloughs.

"This budget's not going to be solved with a single magic bullet," said Craymer, a top budget adviser to former Govs. Ann Richard and George W. Bush. "It's going to be solved by a number of very hard decisions that cause a lot of pain in a lot of different areas. So furloughs may indeed be part of the solution," though even far-ranging layoffs of state employees wouldn't close the budget gap by themselves, he said.

In 2003, the Legislature eliminated more than 5,300 full-time jobs with the state or its universities and two-year colleges. Already this fall, though, the state agencies alone – not counting potential layoffs at the campuses – have pointed to nearly 10,000 full-time jobs lawmakers might whack if they desire to cut most programs' spending by 10 percent. Employee groups fear that health benefits, recently reduced, will take further hits.

"It's going to be pretty gruesome," Craymer said.

Leaders in brag mode

With the next legislative session little more than 11 weeks away, lawmakers' budget aides huddle on Thursdays at the Robert E. Johnson Building near the Capitol – in secret, as is Texas' budget-making norm, but amid more strident than usual warnings about keeping information confidential.

Even as the hired help prepares a menu of unpleasant options for leaders, though, Perry and Lt. Gov. David Dewhurst campaign in full brag mode. The state's two leading Republicans boast that Texas was last into the recession, has dodged major cuts so far and is well-prepared for any challenges because it has pinched pennies.

Comptroller Susan Combs, who sets the limits for how much the Legislature can spend, has declined to lower her January 2009 revenue estimates, even though they were about $2 billion too optimistic for the budget year that ended Aug. 31.

Combs, a Republican, made even more rosy forecasts for this year, although sales tax receipts so far don't support them. She is due to deliver her final estimate to the Legislature in January.

Sen. Steve Ogden, R-Bryan, head of the Senate Finance Committee, and House budget chief Jim Pitts, R-Waxahachie, declined to be interviewed about the huge deficit.

The outlook keeps deteriorating.

Earlier this month, a Texas Education Agency official testified that declining property values will force upward – by $2 billion to $3 billion – the state's obligation to public schools. Last week, the Health and Human Services Commission disclosed that federal Medicaid matching money will dip by $1.2 billion more than expected, because Texans' personal income rose in comparison to other states in recent years.

Experts and former officials sized up the developments as meaning that a late-August deficit estimate by senior legislative staff members – $20.6 billion, as reported by The Dallas Morning News – is now on the low side. They say the number has reached $23.8 billion to $24.8 billion, and could go higher if the economy doesn't pick up.

As Texas once again fills a budget breach, it brings new assets and liabilities. On the plus side, as Perry and Dewhurst frequently have stressed, the state should have about $9 billion in a rainy day fund that budget writers could tap, though that requires a supermajority of both houses.

But while that was easily achieved four times in the past two decades, some analysts said this year's tea party movement – not to mention the 2006 property tax cuts that weren't funded – could spook Republicans who once blithely consented.

Fewer tools for lawmakers

The looming gap, though, is massive. It far exceeds the $9.9 billion shortfall lawmakers solved in 2003, and some of the tools they used then are no longer available.

Craymer, the former gubernatorial aide, said seven years ago the state could reduce Medicaid eligibility and benefits.
"That now appears to be prohibited by the [federal] health care reform act," he said.

Also, lawmakers offset a tight budget for higher education in 2003 by ceding to campuses control over tuition and fees, which have skyrocketed.

"So that tool has been used," he said, adding, "Many people forget that in 2003, we got $1.3 billion in 'free' federal money that was a part of a federal bill to help the states. It would appear that the federal spigot is now off."

Recently, House Speaker Joe Straus, R-San Antonio, said the "base budget" introduced by legislative leaders in January probably would assume no use of rainy day money. He said doing so "will give lawmakers a clearer picture. ... The cuts may seem drastic and painful, but this is a discussion we will be required to have."

Two officials familiar with the budget process, who said they were not authorized to speak publicly about current deliberations, said the introductory spending blueprint will contain cuts touching a broad swath of Texans.

They said the base budget, if passed, would force universities and junior colleges to raise tuition again, while slashing financial aid. Teachers, some of whom keep asking lawmakers how big their pay raises will be next year, would be lucky to keep their jobs after the state scales back aid to public schools, the officials said.

"There are going to be entire agencies zeroed out and a lot of employees and programs cut to unsustainable levels," one official said.

The other official said he's unsure how many Republicans could support so many cuts.

Rep. Scott Hochberg, D-Houston, the House's chief education budget writer, said he sees no way public schools will be spared if the GOP majority rules out raising new revenue.

Hochberg said no-tax-hike pledges by many Republican colleagues ignore Texas' dire need to improve high school and college graduation rates, so it can capture higher-paying jobs.

"We've been following a path of trying to be the cheapest state to do business in," Hochberg said. "To the extent we continue ... we're destined to be behind not only the rest of the world, but other states in our ability to be economically prosperous."

The Legislature convenes Jan. 11.
 

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