Spending Theirs, Saving Ours

The Texas Senate approved a $182.2 billion budget that includes over $10 billion in federal stimulus money, avoids across-the-board cuts in state agencies, and leaves the state's $9.1 billion Rainy Day Fund untouched.

The vote was 26-5. The bill now heads for the House, which has been working on its own version; once that's approved, the conference committee will hash out the differences, adding and subtracting as new economic numbers and political deals surface.

The budget (the full copy is here, the more readable summary is here, courtesy of the Legislative Budget Board) is designed to protect that savings for two years from now, when budget-writers expect an epic miscalculation to come into full bloom. Lawmakers revised state business taxes in 2006 and agreed to use the money to increase state spending on public education, thus lowering pressure on schools to raise local property taxes. But the taxes they passed raise far fewer dollars than what the Lege agreed to spend. That "structural deficit" started to blossom this year, but the federal stimulus money allows budgeteers to put off the problem.

They're certain it's coming back in 2011, when the Legislature writes its next budget. It might even be worse, if the economy doesn't recover according to predictions. That's one reason they're trying to protect the Rainy Day balance — so they can use it to cork the school finance math problem two years from now.

"Things could get worse before they get better," Senate Finance Chairman Steve Ogden said while laying out the budget bill. "I think you're going to see sales tax numbers come out, shortly, that are going to show a significant deterioration of sales tax collections in the state of Texas for March and February, showing that the state of Texas is slowing down faster than what we thought. I think that's getting ready to happen. I think if there is no federal stimulus money and we tried to pass a budget similar to this next time, we're out of balance by at least $10 billion. And the only way to balance it then is with the Rainy Day Fund.

"So I think the most prudent thing that we should do right now is to hold onto that Rainy Day Fund until we're sure that things aren't going to get worse... until we're sure that we can cover that so-called Structural Deficit..." Ogden said. "We would really go in the tank if we spend that Rainy Day money now."

Here's the setup. Flash back to the beginning of the year, when, according to Comptroller Susan Combs, the state started with a $9 billion difference between the cost of running the government and the amount she said it would have in its treasury. However, she said, lawmakers had a $9.1 billion plug for that hole if they were are willing to spend the money in the so-called Rainy Day Fund.

That was the picture in January.

A few weeks later, the feds came up with the stimulus package, which has about $16.1 billion in goodies for the state government to spend. States aren't allowed to sock that money away. But Texas government is full of creative budget folk, and they've used the stimulus money to fill the hole identified at the first of the year and to write the budget in a way that doesn't dramatically expand services and that leaves the Rainy Day Fund untouched.

Some senators wanted the state to use some of the fund to pay for programs that didn't make it into the budget. Article 11 of the budget — an unfunded wish list of programs that could get money if money becomes available — totals over $4.6 billion.

"We played no games with this federal stimulus money," Ogden said, defending the strategy. "There was no effort whatsoever to divert money from something the federal government wanted us to fund to something they didn't."

And he fended off inquiries about using federal stimulus money, in effect, to keep state coffers full. "I don't believe that the federal stimulus legislation requires us to spend any or all or a portion of the Rainy Day Fund in order to qualify for federal stimulus money," he said.

New programs did get into the budget. Originally, budget writers went looking for $1.9 billion to put into public school programs. They found that. In other places, the federal money offset cuts that were under consideration a few weeks ago. Ogden told the Senate that 2.5 percent across-the-board reductions that were prepared by state agencies last year fell by the wayside when the federal money appeared — the state didn't have to make those cuts after all, he said.

"I can assure you, sir, that had we not had $10.4 billion of federal stimulus money to write a budget with, this budget would have been a whole lot less than $182 billion," Ogden said in answer to questions from Sen. Rodney Ellis, D-Houston. "It would have been a whole lot closer to $169 [billion], because that's all the money we had."

• The budget passed with a controversial rider — added by Ogden — still intact. It says: "Sec. 17.13. No Destruction of Human Embryos for Research Purposes. No funds appropriated under this Act shall be used in conjunction with or to support research which involves the destruction of a human embryo." He agreed to change it, but not to remove it. That cost him at least one vote — that of Kirk Watson, D-Austin.

• The Nays came from Wendy Davis, D-Fort Worth; Ellis, D-Houston; Mario Gallegos, D-Houston; Eliot Shapleigh, D-El Paso; and Watson. All 15 members of the Senate Finance Committee, including the five Democrats, voted in favor of the bill.

• The Senate's version of the budget totals $182,224,994,036, or about $251,691,980 per day.

• The Biggies: 41 percent of the budget goes to public and higher education, and 33.1 percent goes to health and human services agencies. That's just under three-quarters of the budget. When you only count state money — no federal funds — education gets 57.8 percent and HHS gets 29.4 percent, leaving less than 13 percent for everything else.

• General Revenue spending, after you back out a one-time payment for schools in the current budget (never mind, unless you love accounting), is relatively flat, at about $80.8 billion.

• The Senate's starting budget back in January totaled $171.5 billion. When they left town at the end of last session, they'd approved spending of $167.8 billion. And this budget, if the numbers hold (they won't) totals $182.2 billion.

• State employees will pay more for their retirements, what with the state's big pension fund taking a hit in the markets and in the continuing economic ills. The state's contribution to the Employee Retirement System would rise to 6.685 from 6.4 percent of payroll. Employees, who currently put in 6 percent, would see that rise to 6.685 percent.

• The budgeteers set aside $2 million for the Secretary of State to use educating voters should the Voter ID bill become law.

Worser and Worser

Texas is worse off economically than it was a couple of months ago, the Federal Reserve Bank of Dallas says in a new report.

"The Texas economy continues to slow. Almost every region and economic sector in the state is weaker than six weeks ago," the Fed reports. "In large measure, this slowdown is the result of soft consumer demand and frayed financial markets, although ongoing economic weakness in Mexico and low energy prices have also adversely impacted the region."

The news is full of red numbers. Texas' unemployment rate (reported earlier) rose to 6.4 percent in January, a five-year high, according to the new report. Construction employment is off by 13.6 percent over the last three months, according to the Fed, and the value of contracts is at 2005 levels. Home sales have been falling for more than a year and are still dropping. Exports fell 12 percent in the fourth quarter of 2008 — Texas exports to Mexico were down 13.7 percent.

And the consumer confidence index for the region that includes Texas is higher than the national number, but is also at a five-year low.

Just Like That

You can spend $16.1 billion in one sentence. Watch: Fold $10.9 billion into the 2010-2011 budget, toss $3.8 billion into the current budget for spending before September, drop $858 million into state programs without even putting the dough through the budget, and leave $556 million on the table while the governor and the Legislature wrangle over Unemployment Insurance.

The off-budget spending is included in the budget, but only as an informational item. That $858 million will go to urban and rural transit, funds for safe and clean water, Medicaid money for hospitals that provide charity care, homelessness prevention, and justice assistance grants.

The immediate spending — which gets added to the current budget — is topped by health and human services money (FMAP, for those who follow the acronyms), highway and bridge construction, public education, and child support.

And the biggest glop goes into the two-year budget that starts in September. The state is adding $10.9 billion in federal money and subtracting $5.4 billion in general revenue, leaving a net increase of $5.5 billion. It allows the budget writers to sock $9.1 billion away for expected budget trouble two years from now, while also increasing the size of the budget to $182.2 billion from $167.8 billion in the last budget. (The asterisk: The size of the current budget grows if lawmakers supplement it with more appropriations and we're using the $167.8 billion just to keep the apples and oranges organized.) The biggest recipients, in order, of the federal stimulus money in the new budget are the Texas Education Agency, the Health and Human Services Commission, the Department of Transportation, the Department of Housing and Community Affairs, and the Comptroller of Public Accounts. Those five agencies soak up $9.8 billion of the $10.9 billion total.

All of the agencies getting federal stimulus money will have to file quarterly reports with the governor, the comptroller, the State Auditor, and the Legislative Budget Board.

Still Writing the Current Budget

The "supplemental" appropriations bill — the one that includes spending for the current budget period and not the next one — will be on the burner next week and it dwarfs its predecessors.

Usually, the additional appropriations cover unplanned growth in existing programs and other unexpected expenses. But this year, it'll include money for damage from Hurricane Ike and it'll include a lot of federal stimulus money that's meant to be spent before the next fiscal year begins in September.

So what's usually a $1 billion to $2 billion proposition is, this time, over $3 billion and approaching the $4 billion range.

The stimulus part of it is included as an informational item in the Senate's version of the budget and in the draft of the House version. It includes $3.3 billion in stimulus money for health and human services ($1.6 billion), for education stabilization funds ($979 million), for highway and bridge construction ($662 million) and for child support enforcement ($27 million).

Money for Hurricane Ike-related expenses — you can hear estimates up to $1.1 billion — will be added to that.

Nice Try, But...

In which an attempt to use a constitutional cap on the state's savings account as a way to force some spending falls short...

Here's a line from the Texas Constitution: "During each fiscal biennium, the amount in the economic stabilization fund may not exceed an amount equal to 10 percent of the total amount, excluding investment income, interest income, and amounts borrowed from special funds, deposited in general revenue during the preceding biennium."

If you're a sharpie, the word that jumped out at you was "deposited." We're not sharpies, so we had help. We read the line to say: Look at general revenue in the last budget and divide by 10. That's the most you can have in the Rainy Day Fund. General revenue in the last budget totaled $79.9 billion, and if that was the magic number, the fund would be capped at just under $8 billion.

Some lawmakers wanted to use that as the basis for taking money out of the fund to pay for cleanup and rebuilding in Galveston, which was devastated by Hurricane Ike.

But that's not the magic number.

A lot of stuff goes through the general revenue fund that's not general revenue. And if you look at deposits to that fund, which includes a lot of federal money, the number to play with is $118.3 billion. And 10 percent of that is $11.8 billion, which is more than $9.1 billion.

Bottom line: If lawmakers want to leave $9.1 billion in that fund, untouched, there's no law to stop them. Or at least that particular bit of law won't stop them. And the folks who want money for Galveston have their eyes on stimulus money and the supplemental appropriations bill.

Flotsam & Jetsam

Next week promises to be short and noisy.

Both the Republicans and the Democrats are revving up for House hearings on Voter ID legislation next week. The chairman of the Elections Committee, Republican Todd Smith of Euless, has been getting it from both sides, with some conservative groups saying, already, that he's too willing to compromise. Democratic groups are trying to turn him into a boogeyman, too, calling him an "extreme partisan" bent on suppressing votes. No pressure, right? The Senate heard experts testify first and then heard what citizens were left after a marathon all-night session. Smith's panel won't repeat the pajama party; they'll hear experts on April 6 and normal humans on April 7.

• The Guv's still against it, but committees in both the House and Senate are moving ahead with plans to snag $556 million in federal stimulus funds for the Unemployment Insurance program. Perry doesn't like the program additions the feds are requiring as part of the deal — even though the Department of Labor says states can revert to their current programs later. In the Senate version, (Kevin Eltife, R-Tyler, is the parent) the UI changes would also include formation of a committee that'll overhaul the whole program. Some lawmakers see that as a vehicle to change the program back to what it is now; others see it is a vehicle for serving a greater percentage of the state's unemployed workers. The House has UI bills situated in two different committees. Rep. Joe Deshotel, D-Beaumont, got his own bill out of his own committee and on its way to Calendars, but irked some of the people who wanted to testify by moving the meeting back two hours and voting the bill out before the original start time. It was legally done, but some opponents of his bill thought it was high-handed.

• We don't pretend to know the answer to this question, but it's an interesting one: Given the chance, would Texas voters give the Legislature the power to call itself back to Austin to override gubernatorial vetoes? Rep. Gary Elkins, R-Houston, got that proposal through the House with 131 ayes — or 31 more than it needed. It's now on the way to the Senate. If it passes and if voters approve, governors would no longer have the last word on vetoes of bills that pass too late in the session for lawmakers to fight back. And no, it wouldn't happen fast enough under any circumstances to affect the current legislative session. Rick Perry will speak last this time.

• The effort to get some textbook money for the technologies that might replace textbooks is underway, in earnest. The sponsors want schools to be able to use electronic books and course materials as well as textbooks and want the money to come out of the same pot. That'll get a hearing in House Public Education next week.

• The Texas Education Agency is using Twitter to make announcements and such. And now they're doing quickie surveys, too. These five tweets arrived in quick succession on a recent afternoon: "We would like your input on how the Texas Education Agency should use its stimulus funds to address 4 areas of education. Questions to come:"... "Stimulus Q1: What are some innovative or promising practices that could be used to achieve rigorous post-secondary standards"... "Stimulus Q2: How do you think teachers should be evaluated"... "Stimulus Q3: What constitutes teacher effectiveness"... "Stimulus Q4: What types or kinds of interventions would you like to see the state fund to help low-performing schools improve?"

Political People and Their Moves

Clay Robison will join Tom Schieffer's gubernatorial campaign as communications director and sage. Robison was the Austin bureau chief of the Houston Chronicle for 27 years before being laid off last week (part of a 30 percent newsroom cut at that paper). He's got more experience than his candidate, or any of the opponents, having covered state politics and government since 1971, initially for the San Antonio Light. Schieffer, a former U.S. Ambassador (to Australia and then Japan) and state representative, announced his exploratory campaign last month. He's the only Democrat in the hunt, although state Sen. Leticia Van de Putte, D-San Antonio, and humorist Kinky Friedman are also talking about getting in. On the Republican side of this, Gov. Rick Perry says he wants another term; U.S. Sen. Kay Bailey Hutchison is exploring a GOP primary challenge to the incumbent.

William Gimson is the new executive director of the Cancer Prevention and Research Institute of Texas, which will oversee the $3 billion bond program approved by voters for cancer research in 2007. Gimson recently retired from his post as COO at the Centers for Disease Control, where he worked for 35 years.

Liz Young, most recently with Rep. Phil King, R-Weatherford, joins the Texas Public Policy Foundation as a higher education policy wonk.

Gov. Rick Perry's latest appointments include:

• Eric McDonald, owner and chief investment officer of McDonald Capital Management in Lubbock, to the Teacher Retirement System Board of Trustees.

• Mary Ann Williamson of Weatherford to chair of the Texas Lottery Commission. Perry also appointed J. Winston Krause, an Austin lawyer, to that panel. Williamson is a CPA, owner of MKS Natural Gas Co. and the widow of former legislator and state transportation commissioner Ric Williamson.

• Mary Alexander of Valley View, Gene Brooks of Austin, and Joseph Muñiz of Harlingen to the Texas School for the Blind and Visually Impaired. Brooks is being reappointed. Alexander is regional outreach manager for Recording for the Blind and Dyslexic. Muñiz is assistant library director for the City of Harlingen.

• Oliver Bell of Horseshoe Bay, Janice Lord of Arlington, and Carmen Villanueva-Hiles of Palmhurst to the Texas Board of Criminal Justice. Bell, owner and CEO of an eponymous company, and Lord, a social work consultant, are being reappointed; Villanueva-Hiles, owner and COO of A+ Therapy, is new to the board.

• Linda Lowes Hatchel of Woodway, a retired professor, to the Board of Tax Professional Examiners.

• Sue Evenwel presiding officer of the Texas Funeral Service Commission. She owns Designin' Women Custom Embroidery in Mt. Pleasant.

• Gary Wood, president of Collins Financial Services in Lakeway, to chair the Texas Public Finance Authority. Wood is also being reappointed to that panel. Rodney Moore, owner of Dude Development and Gibraltar Construction in Lufkin, is new to the panel.

• James Stanton of Dallas to the 134th Judicial District Court, replacing Judge Anne Ashby, who's retiring. Stanton is an attorney at the Cozen O'Connor law firm.

• John Chism of Irving and Patrick Patterson of Boerne to the Texas Private Security Board that regulates everything from private investigators to locksmiths. Chisum will continue as chairman; Patterson, a retired FBI agent and now an exec at Harland Clark Corp., is new to the board.

• Steward Geise of Austin, Jody Anne Armstrong of Abilene, and Nary Spears of Houston to the Texas State Board of Social Work Examiners. Armstrong and Spears are being reappointed; Geise works for CB Richard Ellis in Austin.

Busted: State District Judge Manuel Barraza of El Paso, on charges of trading and trying to trade judicial decisions for cash and sexual favors. One of those women was an undercover FBI agent; her agency arrested the judge on a four-count indictment just three months after he took office... Longtime Hidalgo County Commissioner Sylvia Handy and three others, including her husband, were indicted on six counts of harboring undocumented aliens and putting them on the county payroll, in part to pay for the commissioner's housekeeper and day care provider. She's also accused of using county money to pay off a personal loan.

Deaths: Thomas Goggan III, name partner of one of the state's biggest and most politically connected law firms, of complications from cancer. He was 65. The law firm — now called Linebarger Goggan Blair & Sampson — grew into a major tax collector for local governments in Texas and elsewhere.

Quotes of the Week

Texas A&M University Chancellor Mike McKinney, a former House member, quoted by the Austin American-Statesman on lawmakers' questions about a $50 million grant to A&M from the Texas Enterprise Fund: "This is what I told them: I said, 'You know, I used to sit up there and be a jerk also.' Sometimes that's what you have to do."

Texas Tech University Chancellor Kent Hance, testifying on legislation that would freeze or slow increases in college tuition: "If it's not coming from the state, it's got to come from students, or we've got to make cuts."

Rep. Debbie Riddle, R-Tomball, quoted in the Houston Chronicle on a measure that would shield reporters protecting confidential sources: "If the pope came to America, he would not have the same privilege as these journalists."

San Antonio Republican activist Jim Lutz, quoted by the Associated Press on the prospective GOP primary for governor: "I don't understand this race. Why are we having this? Why does Perry want to serve another term? And why does Kay want to leave the position she's in?"

Gov. Rick Perry defending U.S. Sen. Kay Bailey Hutchison 17 years ago on an issue — that she led the fight against personal income taxes in Texas — that his campaign is attacking her for now; this was dredged up by The Dallas Morning News and originally appeared in the Associated Press: "She led the charge against a state income tax. Was I a foot soldier in her army? Yes."

Rep. Todd Smith, R-Euless, after accidentally walking into a restroom already occupied by Rep. Terri Hodge, D-Dallas: "I haven't seen anything that exciting since that movie with Sharon Stone."

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Texas Weekly: Volume 26, Issue 13, 6 April 2009. Ross Ramsey, Editor. Copyright 2009 by Printing Production Systems, Inc. All Rights Reserved. Reproduction in whole or in part without written permission from the publisher is prohibited. One-year online subscription: $250. For information about your subscription, call (512) 302-5703 or email biz@texasweekly.com. For news, email ramsey@texasweekly.com, or call (512) 288-6598.