Math Anxiety

The people in government who look at spreadsheets — so the rest of us don't have to — are getting nervous about the state's finances.

Sales tax revenues have taken double-digit dives for five months running; in each of those months, the state's income from those taxes has been more than 10 percent lower than in the same month the year before. In a state where a steady rise in sales tax money has become almost a rule, the intake for the last 12 months is down more than 5 percent. And budgeteers assumed not only that they'd match the old numbers, but that they would exceed them.

Budgeteers used one-time federal stimulus money for ongoing expenses in the current budget — in Medicaid, for instance — that create holes to fill next time they write a budget. The programs will still be there even though the stimulus money probably won't.

And an ongoing "structural deficit" — the kind of term that seems designed to scare people away from a conversation about money — creates an ongoing problem. In 2006, in an effort to lower property tax burdens, the state agreed to spend more on public education. Lawmakers created a new business tax, but it raises less than they agreed to spend on the property tax fix. The gap has to be filled every time they write a budget. Last time, the feds showed up like leprechauns with pots of stimulus money and kept Texas from choosing to use its Rainy Day Fund, raise taxes or make spending cuts. Next time, the stimulus money won't be there, but the hole will be.

The Rainy Day Fund, if budget writers decide to use it, is expected to total about $9 billion. But the sales tax declines and troubles in the economy have grabbed the attention of people who watch this stuff for a living.

It's early in the two-year budget cycle, which began September 1, but if the state gets far enough behind its projections at the beginning of the budget period, it becomes more and more difficult to catch up later.

"Fortunately, it's too early to tell," jokes House Speaker Joe Straus. He and other state leaders are well aware of the numbers, and although they think it's not yet time to act, they're clearly focused on the big question.

Will there be enough money?

"That's a question for the comptroller and not for me," Straus said. "I am concerned, though, that we've had several months of significant downturns. I guess the Christmas season coming up will be interesting to watch as well.

"I think we're in relatively good shape right now but there certainly are caution signs ahead," he said.

Straus said interim charges — coming out pretty soon — will address efficiencies in state spending.

"We are in relatively good health as a state, fiscally, and I see no reason to take extraordinary action at this time," Straus said. "But we should always take a look at where we are and find efficiencies where and when they can be taken."

Comptroller Susan Combs remains optimistic and says her agency's estimates of state revenue are still on track. The state is constitutionally required (sort of — see comments) to balance its budget. The comptroller makes a hard estimate of how much money will be available and the Legislature writes a budget to fit. If the revenues fall short, the budget has to be cut. Or taxes have to be raised. Or lawmakers have to find new pots of money, like the $17 billion in stimulus money earlier this year.

Combs will soon issue a "certification estimate" that either confirms or adjusts her last set of numbers. But she's telling people publicly and privately that she's sticking to the current revenue estimate. The numbers are still in motion: The comptroller, the people at the Fed, everybody else — they've got the problem of not knowing when the recession ends. Until they do, they can't forecast the recovery with much confidence.

The numbers have to turn quickly or the state will have to make some budget adjustments. Lawmakers return in 14 months to write the next budget and to correct whatever problems they find in the current one, which runs through the end of August 2011. If the revenue numbers are short, they have to find new revenue, make some cuts, or do those things in some combination. It's still early, but the clock is running.

Keith Phillips, a senior economist with the Federal Reserve Bank of Dallas, recently told an audience at the Texas Taxpayers and Research Association that he expects the state to move into an economic recovery next year, but also said he expects that to be more mild than robust. His forecast for the holiday shopping season — the key part of the year for many retailers — was relatively optimistic. His forecast for next year was optimistic, but not wildly so.

Gov. Rick Perry and others are watching the numbers closely, and Perry says conversations about state agency spending are already under way.

"I don't have to look at numbers to ask [the agencies] to watch their spending and throttle back... Anyone who does not see the impact of this national and international recession, and realize that a prudent individual, whether you work for the State of Texas or you're a private citizen, you ought to ask yourself, 'Do we really need to spend this money? Is the return on investment going to be worth the expenditure?' So, absolutely, all the state agencies should be looking at their expenditures."