Budget Semantics

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Business Insider publishes an article about the fact that Texas is facing a significant budget shortfall, and that is not being included in the narrative about the budget crisis facing many states. Matthew Yglesias blogs about it, the Paul Krugman blogs about it, the Ryan Avent responds to Krugman's blog, and then Krugman responds to Avent's response. Krugman writes a column in the New York Times, and then Kevin Williamson responds to the column at the National Review. So, what is the argument all about? Semantics. But, let's start from the beginning.

Since the Great Recession began after the financial crisis in 2008, the narrative has been that Texas has weathered the storm better than the rest of the states. However, since Texas budgets biannually, the last budget was passed only a few months after the recession began in 2009. The effects of the recession are now being felt in full affect in the budget that will be passed in 2011. Having a budget crisis in a pro-business, low-regulation, low-spending, no-union, Republican-dominated state goes against the narrative. As Yglesias notes, “keeping taxes low by simply not having taxes be high enough to pay the bills is in the best Texas conservative tradition of George W Bush but it doesn't work for state government during a recession.”

Texas has maintained an unemployment rate below the national average throughout the recession. According the Bureau of Labor Statistics, Texas currently has an unemployment rate of 8.2% compared to the national average of 9.4%. But, Krugman notes that on his blog that when you compare the unemployment rate in Texas and New York they are statistically similar. However, Avent notes that the two states are different because of the dramatic difference in their respective labor markets, and that a large share of the rise in the unemployment rate in Texas is due to migration. Although, Krugman responds that the unemployment comparison is relevant because “in terms of personal hardship, in terms of people looking for jobs but not finding them, Texas has done essentially no better than New York.” So far it has just been a policy debate among economic policy wonk bloggers.

Then Krugman writes about “The Texas Omen” in his bi-weekly New York Times column, during which he expands on the subject of Texas and points out that it is the state where conservative economic policy has most completely been put into practice. Then Williamson takes issue with Krugman assessment of Texas, and says in his National Review post that “no, Paul Krugman, Texas is not broke.” Williamson continues, “keep your pants on, professor. Texas is not going to have a budget shortfall.” So, what's the deal?

More Below the Fold…There seems to be a semantics problem. Why does Williamson think even though there is shortfall projection that there will not be a shortfall? “Texas doesn't do shortfalls. Texas starts from scratch: Every year is basically Year Zero when it comes to the state budget – there is no assumption that next year's funding will match or exceed this year's.” Sounds great. But, it is not entirely true. As Williamson notes, in 2003 Texas did address a $10 billion budget shortfall by using zero-based budgeting. Of course, the legislature did raise new revenue with fees. But, while zero based budgeting sounds great, it is not done in practice. The 2003 budget was the exception, and the 2011 budget is not being addressed in a similar fashion. Governor Rick Perry has already asked state agencies to cut 10% from their last appropriations, and it has been made clear generating new revenue is completely out of the question.

Williamson also takes issue with the size of the budget shortfall, that he says doesn't exist. Williamson writes that “Texas's potential shortfall probably is not $25 billion. The inside guys talk about $11 billion to $15 billion, spread out over a two-year budget.” The size of the shortfall has been a source of debate over the last year, and projects have steadily increased from $15 billion, to $18 billion, to $20 billion, and then to $25 billion. Although, Governor Perry has often cited Republican State Senator Steve Ogden's (R-Bryan) estimate of a budget shortfall around $10 billion. Well, it turns out everyone was wrong. The Austin American-Statesman reported today that Comptroller Susan Combs released a report stating that Texas is facing a $27 billion shortfall.

Another word conservatives are taking issue with is Krugman's use of the word “deficit” as opposed to “shortfall.” There is a point to be made here, because they are technically not the same. When the federal government has a budget deficit it is filled with credit and contributes to the national debt. However, due to provisions in their constitutions 49 of the 50 states cannot use credit to fill a budget deficit, and must pass a balanced budget. So, when Krugman talks about a $25 billion deficit he is referring to the $25 billion shortfall. They are essentially the same thing, except Texas is constitutionally obligated to balance the budget while the federal government is not.

Texas showcases what happens when uncompromising conservative public policy meats reality: the elites reap the benefits while working and middle classes bear the brunt. The two places in the budget that will likely face the most dramatic cuts are education and health and human services. Even though according to the Editorial Projects in Education Research Center, Texas spends $7,561 per student which ranks 48th in the nation, and at 26.8% Texas has the highest percentage of uninsured in the nation. It is likely that over the course of the next 140 days we are likely to see the working and middle class pay the bill for a conservative economic policy that still does not deliver on its promises.

Political and Social Thought…

to the Left of College Station

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