Stymied by Stimulus?

As the first version of the state budget circulated at the beginning of the 2009 session, school advocates had a reason to get excited. The budget included $1.9 billion in new education funds, most of it going directly to schools via weighted formulas for distribution.  There was only one problem.

The money didn’t exist.

“It was a deficit budget as written,” said Scott Hochberg (D-Houston), who chaired the Appropriations subcommittee on Education.

As soon as legislators knew how much money the state would have to spend, they realized the state was about $4 billion short of covering the proposed costs.

The federal stimulus money came to the rescue. In addition to the one-time expenditures typically associated with stimulus — roads, buildings, etc. — the Legislature also used the money to cover ongoing costs, particularly for education and health and human services.

But in order to avoid cutting education money next session, legislators will have to find a way to make up for this year’s missing education money as well as the money for growth.

"We sort of had a $5 billion hole that we covered with $8 billion of stimulus money," said Dale Craymer, president of the Texas Taxpayers and Research Association.

That $5 billion hole would normally have been filled with state operating funds (called general revenue). The $8 billion Craymer refers to both offset the missing funds and allowed lawmakers to add programs. 

Education was particularly affected. Instead of using $3.25 billion in state funds as planned, the Legislature initially planned to put $5.9 billion of federal stimulus dollars into public education.  Ultimately, they received $4.2 billion for the expenses — still over 20 percent more than planned. And very little of that was for new and one-time expenses.

“Truth be told,” says Craymer, “directly very little of the stimulus money was really spent on any one-time items.”

In some ways, the stimulus bill encouraged such an approach. Funding shortfalls in education were first on the list to be funded. But because state funds can get moved around, it isn’t hard to show a deficit in education, even if initially those shortfalls surfaced in a different part of the budget.

“Primarily the stimulus in Texas was used to just move dollars around and you didn’t have the level of benefit that the stimulus was designed to create,” says Rep. Jim Dunnam (D-Waco), chair of the Select Committee on the Federal Economic Stabilization Funding, the formal name for the stimulus money.

Dunnam argues that the Legislature created a deficit in education when it was actually spread throughout the budget.

If he's right, that may prove to be a problem for educators. Next session, legislators will have to find a way to balance the budget, and this time, they’ll probably be without a stimulus package. Basic costs in education will be even higher as more kids join the ranks of students.

And after putting in the extra stimulus this year, it will be difficult politically to scale back in 2011. No politician wants to be known for cutting education funding. 

Without the stimulus package, the Legislature may well have had to dip into the “Rainy Day Fund” in its next session. That fund — savings set aside over time — will have an estimated $9 billion when it comes time to write the budget, but the governor and many lawmakers have been very reluctant to use any part of the savings.

Next session, however, they may not have much choice. Raising taxes is politically dangerous, but cutting education funding also isn’t great for getting re-elected. The Rainy Day Fund may be the only option.

“I think there was the political will for it this year if the governor had not threatened to veto,” Hochberg said.  He points to the fact that education funding has never been cut in his 16 years as a legislator.

“Could we be in trouble?” he asked. “I’m not saying that we won’t be. But it’s too early to be Chicken Little.”

Craymer, however, points to some pieces of sky that might start falling. He says those on the far ends of the spectrum — ultra-liberals and ultra-conservatives — will push hard for their agendas. And since using the Rainy Day Fund requires a two-thirds vote, those members will have significant leverage.

Next session will likely come down to one question, he says: “Do you cut programs [or] do you raise taxes? That script has yet to be written.”