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Texas' Stymied Budget Could Hurt Future Economic Growth

by: Joe Deshotel

Tue Jul 03, 2012 at 10:00 AM CDT

Texas is the nation's fastest growing state but consecutive biennial budget deficits threaten its long-term economic competitiveness. On June 4th state leaders hinted at additional cuts to education and healthcare services by asking agencies how they would go about cutting another 10% from their general revenue. According to the Center for Public Policy Priorities the request ignored increases in population and inflation while using the 2011 reduced funding levels as its General Revenue baseline. This fiscal year Texas is projected to have the 3rd largest budget deficit as a percentage of revenue, one spot ahead of California and only out-shorted by New Jersey and Nevada. The structural budget problem has persisted since a 2006 reduction in property taxes was replaced by an underperforming franchise tax. John Heleman, chief revenue estimator for Republican Comptroller Susan Combs said,
A $10 billion budget shortfall will reappear in future legislative sessions again and again unless lawmakers better align how much money comes in and how much goes out,
Last year House Speaker Joe Straus acknowledged the structural deficit,
We have no choice, unless we want to continue to try to grow our population and continue to shrink spending significantly…I think at some point you can't cut your way to prosperity.

Others disagree, 5 state Senators, US Senate candidate David Dewhurst and Gov. Rick Perry have all signed the 'Taxpayer Pledge' to "oppose and vote against any and all efforts to increase taxes." Straus has been targeted as a 'moderate' by Empower Texans the same group promoting the pledge and a force behind the legislature's recent push to the right. Under the name Texans for Fiscal Responsibility the group is coordinating, as it did in 2011, with other conservative organizations as Texans for a Conservative Budget. Joshua Trevino spokesman for Texas Public Policy Foundation, another of the aligned groups, referred to last session's cuts as "a good start".

Fact: If all of the state's 6.5 million uninsured were placed in one city it would surpass Houston's metro area as the nation's 4th largest.

Texas officials have pledged to fight the expansion of Medicaid in Texas. For states that choose not to opt-out the federal government will cover a majority of the new spending. That could be a loss of 186 billion in Federal dollars over the next decade says State Representative Garnet Coleman. Medicaid is chiefly how poor children, elderly and disabled gain access to care. How this demographic has faired during these cuts has been part of the soft underbelly of the Texas economic model, that is propped up by the state's unmatched natural resources. A study by Feeding America revealed that 18% of all Texans and 27% of Texas children face food insecurity. Short-tern costs related to insecurity include, "greater odds of being hospitalized, and the average pediatric hospitalization costs approximately $12,000" and long-term costs as, "contribut[ing] to high health care costs throughout life" and "greater absenteeism." A growing population of underserved youth combined with cuts to education funding is creating a negative outlook for Texas' ability to sustain economic growth. Bill Hammond, president of the Texas Association of Business was recently quoted saying, "If we are going to remain competitive in the world's market, we are going to have to have an educated workforce. We do not have one today." At least one prominent Texas politician is willing to ask his constituents for a tax increase to cover the state' insufficient appropriations. Mayor Julian Castro of San Antonio is proposing a 1/8th cent sales tax to help pay for full day Pre-K for predominantly low income children. The council will vote in August to give voters the chance to approve the measure in November. The proposal has the support of local businesses, education leaders and HEB CEO Charles Butt. Should it pass legislators can take it as a sign that the cuts are being felt and the economy adversely impacted. A Texas A&M cost-benefit analysis of Pre-K concluded:

The benefits of universally-accessible, high-quality pre-kindergarten for four-year- olds in Texas greatly outweigh the costs. Program participants benefit from increased graduation and retention rates and increased lifetime earnings. Mothers of participants also receive increased lifetime earnings and increased income. Benefits to the State of Texas are lower juvenile crime, less child abuse, and increased tax revenue. The benefits of pre-kindergarten are particularly large for children from low-income and minority households.
Just a decade ago Texas ranked 25th nationally in per pupil spending while today it ranks 37th. The 82nd legislature's $4.5 billion cuts from education did not include an estimated 160,000 new Texas students in its formula. Many advocates for cuts argue there is no correlation between spending and results but a 2011 study showed Texas ranking "below average" in math and science, skills that will be needed as we move towards a more information based economy. Companies may appreciate Texas' low tax atmosphere for business but they will think twice before moving higher paying jobs here if they will have to import talent from other states or countries.

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