Rick Perry’s budget sleight-of-hand
“We balanced our budget. Not by raising taxes but by setting priorities and cutting government spending,” Texas Gov. Rick Perry said Saturday, kicking off his presidential campaign. “It can and it must be done in Washington, D.C.”
It’s a line you’ll be hearing at every turn of Perry’s bid for president. And it’s mostly true. Perry successfully closed a yawning $27 billion shortfall in the two-year state budget that passed in June--a budget that enacts deep spending cuts without any new tax hikes, all while leaving $6.5 billion in the state’s rainy day fund. But contrary to his claims, Perry didn’t balance the books through fiscal conservatism alone. The Texas governor also used accounting sleights-of-hand that deferred payments and papered over enormous expenditures that will soon come due, as the Associated Press explains -- though not until the 2012 election is over.
Texas’s fast-growing population has been one of the main engines of its economic growth -- Perry’s other major talking point. Over the last decade, Texas has added more people than any other state in the country, in large part due to its burgeoning Hispanic community. But its skyrocketing population also means an accompanying rise in public health and education spending -- costs that Perry and the GOP legislature failed to factor into Texas’ 2012-2013 budget. For the first time in more than 25 years, Texas will not factor in enrollment growth in school budgeting: Perry’s budget assumes that the student population will remain constant, when more than 160,000 new students are projected to enroll in Texas public schools over the next two years.
At the same time that its school population is growing, the Perry budget cuts $4 billion in basic spending on public education--a spending reduction that could force school districts to cut tens of thousands of jobs, increase class sizes, or hike local property taxes. Altogether, it’s the first per-capita decrease in education spending since World War II. The earliest rounds of teacher layoffs and other painful cuts won’t take effect until this spring.
Texas’ ballooning population has also meant a steep rise in public health care costs, especially as the state’s poverty rate keeps rising. Perry’s budget only covers Medicaid funding through the spring of 2013, coming up $4.8 billion short. It effectively sends the 2013 state legislature an IOU, allowing lawmakers to avoid coming up with more money on top of the 12 percent reduction in Medicaid spending that’s already in the budget. Texas has the highest rate of uninsured residents in the country, with a quarter of state’s population reporting that they have no coverage.
Finally, Perry’s budget ignores a $4.5 billion structural deficit that happens every year due to a 2006 tax reform that’s never generated as much revenue as expected. Strapped for education funds, Texas towns had been maxing out property taxes on residents. Perry crafted a bipartisan compromise that offset lower property taxes with a change in the state’s franchise tax on business that raised revenue. But the deal has come up billions of dollars short, leaving Perry’s 2012-2013 budget with yet another hole. As the AP notes, Standard and Poor’s has cited the tax revenue shortfall as one of the “primary sources” of the state’s budget problems.
Even Republican state legislators acknowledge that the budget is riddled with IOUs and hidden shortfalls that will quickly come due. How is Texas likely to pay off its bills? First, by resorting to the $6.5 billion in the state’s Rainy Day Fund, effectively erasing the extra savings that Perry boasts his current budget contains. “The Rainy Day Fund is probably already spent with the Medicaid costs and public education,” acknowledges GOP state Rep. Phil King. “Effectively they’ve used it...They just aren’t going to fess up until January of 2013,” Bill Hammond, president of the Texas Association of Business, told the Texas Tribune.
That’s why some Republicans are starting to advocate for the need for (gasp!) tax increases to cover Perry’s papered-over budget gap. Texas state Rep. Drew Darby, a Republican budget writer, told the Dallas Morning News last week that another budget relying on cuts only wouldn’t pass muster due to the state’s growing population, its tax revenue deficit, and need for better transportation and water infrastructure. “Texas is like every other state positioned here today: We’re going to have to start looking at our revenue side,” said the GOP legislator. “We can't just look at the cutting side.”