[Jack.Kerr]

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A Self-Inflicted Mess

Updated January 20, 2011, 02:34 PM


Texas’ budget is a mess. The state comptroller’s office has estimated that Texas has a budget gap of $27 billion for fiscal years 2012 and 2013 (Texas budgets in two-year cycles). The shortfall represents roughly one-quarter of all state spending. It’s one of the worst state budget deficits in the country — even worse than California’s.

Texas Gov. Rick Perry has blamed the mess on factors beyond his control — mostly the nation’s faltering economy. But that’s only part of the story. The current crisis in Austin has been largely self-inflicted.


To understand how this happened, you have to go back to 2006, when Texas lawmakers passed a massive tax reform plan. The goal was to cut property taxes without costing the state any money. Perry designed a “tax swap” that would reduce property taxes and replace the lost revenue with a new business tax.


There was one major flaw with this plan — it didn’t balance. Property taxes were cut by $14 billion annually. But the new business tax brought in only $9 billion a year in new money. As a result, the tax-swap plan has burned a $5 billion hole in the budget every year since. (In 2007, a booming economy helped mask the problem, and in the 2009 session, lawmakers used $12 billion in federal stimulus money to fill the gap.)


The imbalance was well known. The Texas comptroller’s office warned Perry in 2006 that his plan didn’t pay for itself. The comptroller’s office estimated the plan would result in a five-year deficit of $23 billion. Perry and other legislative leaders ignored those warnings. Some Democrats in Austin suspect that G.O.P. leaders intentionally created this structural deficit as a way tamp down state spending. And some Republican leaders and conservative activist groups have made statements in recent weeks that expressed downright giddiness at the prospect of deep cuts in state spending. Lieut. Gov. David Dewhurst referred to the budget gap in his inaugural speech on Jan. 18 as an “opportunity.”


Whatever the reason for the structural deficit, the bill is now coming due. The 2006 tax swap has resulted in a shortfall of at least $20.9 billion the past two budget cycles, according to an analysis by the Center for Public Policy Priorities, a left-leaning Austin think tank.


The structural deficit accounts for a large piece of Texas' current $27 billion shortfall.


In short, we did it to ourselves.