Texas has $18 billion in new money to spend, but some is probably off-limits

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By Robert T. Garrett, Dallas Morning New

tmp611414057315991554Comptroller Glenn Hegar declared Monday that lawmakers, on the eve of their 140-day session, have about $18 billion in new money, a surprisingly optimistic assessment of the state economy that foresees a boost in oil prices.

His estimate, which caps what the Legislature can spend unless it changes taxes, fees or other revenue streams, set off a fresh round of calls for tax cuts, boosts to schools and other state programs, and an end to accounting tricks that lawmakers have used to balance past budgets.

With the tea party flexing its new political muscle, some experts said that one-third or more of the new money Hegar identified is likely to remain beyond lawmakers’ reach: To spend it, they would have to vote to exceed the state constitution’s spending limit. Many Republicans fear such a vote would invite a primary challenge.

Hegar said that as legislators begin to write a two-year budget, they can expect to have $113 billion in general-purpose state revenue. In the current cycle, Texas is spending about $95 billion, according to the Legislative Budget Board. Counting federal funds and other income, its budget just tops $200 billion.

In the session, which begins Tuesday, lawmakers will pass no more important bill than the budget. It affects families’ budgets for college tuition, how long commuters remain stuck in traffic and the health care of millions.

The estimate gave Hegar a high-profile debut as a new statewide officeholder but also carried considerable risks. A former Houston-area state senator, the Republican assumed the job of chief tax collector earlier this month.

“The state’s economy will continue to expand, though at a slower pace than we’ve seen in the recent past,” Hegar said.

He cautioned, though, that state revenue has become increasingly hard to predict, implying he might have to revise the estimate before the session ends in May. Texas has no income tax, and a shale boom has goosed receipts from its main tax, the 6.25 percent state sales tax, as well as energy production taxes.

But the global economy is shaky, Hegar said. Also, oil prices dropped by more than 50 percent in recent months. He surprised some experts by predicting that the current price of oil, about $47 a barrel, would rebound to $65 in the next fiscal year and $69 the fiscal year after that. Former Comptroller Susan Combs pegged oil at $94 a barrel last year, easing to $87 this year. The fiscal year begins Sept. 1.

On the bright said, Hegar said, lower gasoline prices “put more disposable income in wallets and pocketbooks.” The national economy appears to be gaining strength. Texas builders, developers, professionals and owners of business-service firms are prospering, he said.

In addition to the new money, the state’s rainy day fund will swell to $11.1 billion by August 2017 unless lawmakers tap those dollars, Hegar said. In recent years, legislators have drawn down the money only to create a water-project fund and increase highway funding — and then only with voters’ approval — and filling holes in a current budget. This session, few such gaps exist, primarily because property values have increased steadily. That allows state aid to schools to fall.

Eva DeLuna Castro, a budget analyst for the Center for Public Policy Priorities, a center-left think tank, said that between $5 billion and $8 billion of Hegar’s $18 billion in new money could be off-limits. That’s because of the spending cap. Many lawmakers cringe at the prospect of voting to bust it.

The $18 billion assumes lawmakers will not swear off their fiscal habit of hoarding about $4 billion of revenue dedicated toward specific purposes but not spent, she explained.

Last session, they held on to that much of the money, which was raised to pay for specific programs. Not spending it allows the comptroller to certify there is enough revenue to pay for the budget. That’s because, for budget certification purposes, dedicated and general revenue are treated as one pot of money.

Many GOP leaders say they want to end the practice and go to “truth in taxation,” but that would make it harder for them to balance the budget.

Hegar’s numbers also set up a fight over whether to hand out big tax cuts or boost spending — say, by completely erasing cuts made in 2011 to public schools and filling budget gaps in higher education and public-employee health care and pension systems.

One thing’s almost a given: The GOP-run Legislature will boost spending on policing the Texas-Mexico border, pouring perhaps as much as $300 million more into the ongoing push.

Conservatives, though, also want tax cuts.

Taking note of Hegar’s estimate, Gov.-elect Greg Abbott and Lt. Gov.-elect Dan Patrick said it means lawmakers will have enough money to provide tax relief. They offered no details.

Speaker Joe Straus, R-San Antonio, said he expects the House to “strike the right balance between fiscal discipline and addressing education and other priorities that contribute to economic growth.” He didn’t elaborate.

Former Rep. Talmadge Heflin, who was the House’s top budget writer when it slashed spending in 2003, said Hegar’s estimate provides enough money to adequately fund existing programs, if on tight rations, “and still have money left over for tax cuts.”

Heflin, now with the free-market-oriented Texas Public Policy Foundation, said his group wants lawmakers to repeal or at least deeply cut the business-franchise or “margins” tax.

“It’s the one that’s most damaging to the economy,” he said.

Other conservatives and some business groups, though, would rather see the state buy down local school property taxes. In urban areas, especially, school tax bills are soaring — and doing no favors for economic development, they say.

DeLuna Castro, of the liberal think tank, said lawmakers could use all $18 billion of the new money Hegar foresees to do just three things: increase state school aid by restoring it to pre-recession levels; fully fund existing services by covering extra costs caused by inflation and population growth; and end the $4 billion hoarding hoax.

“It’s enough to not make new [budget] cuts,” she said.

If lawmakers approve tax cuts, she said, they’ll have to keep using accounting gimmicks and shoving additional burdens on cities, counties, schools, community colleges and hospital districts.

“The state doesn’t pay for it, so someone else has to,” she said.

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