Heflin: Most Sensible Solution Is Reduced Spending

Austin insiders say additional revenue is needed to close the state’s projected multibillion-dollar budget shortfall. Without the extra income, they claim, lawmakers risk the state’s future fiscal health and prosperity. But is that really the case? Is more money the only viable solution?

Of course not. Just as anyone managing a household budget knows, when a family’s expenses grow beyond its income, the solution is not to instantly drain your savings and demand a raise from your boss. The proper response is to cut back on household expenses — particularly if your family’s spending habits resemble anything close to the state’s.

According to the Legislative Budget Board, state government spending increased by nearly 300 percent between fiscal years 1990 and 2010, or 139 percent after adjusting for inflation. During the same period, Texas’ population grew by only 49 percent. Considering this kind of spending trajectory, it is little wonder that Texas’ finances have gotten out of whack. Maintaining this level of expenditure growth is not sustainable, and lawmakers must now make reasonable adjustments on the spending side of the state’s ledger.

Now the hard part: If the most sensible solution to the state’s fiscal woes is reducing spending, which areas of the budget should the Legislature prune?

In short, there should be no “sacred cows” this session: Every expenditure must be on the table. But we should focus particular attention on getting government out of doing things that individuals or the private sector can take care of themselves, such as promoting tourism, history and the arts, or determining how much consumers should pay for electricity, telephone service or insurance.

Likewise, there are a lot of things we can do without for a biennium (or two) while we try to get our fiscal house back in order. We can postpone the purchase of new parks, delay renovations of historical properties and get by without some recent and expensive environmental and health care spending.

We also need to think big. Health care and education spending dominate the budget, and if we are going to successfully tackle the shortfall, we need to look at ways to stretch our dollars further in these areas.

For example, lawmakers should consider such policy options as expanding Medicaid managed care, creating a health savings account option for state employees, cutting back all optional health programs to federally required levels, reducing university formula funding across the board and giving school districts the tools and the prodding to curb administrative bloat in K-12 education.

Finally, the Legislature should consider significantly paring back, if not altogether eliminating, state economic incentives and subsidies. If our low taxes, limited and predictable regulations, right-to-work laws and civil justice system aren’t enough to make Texas attractive to some businesses, that would suggest they’re the type of rent-seeking transients Texas can do without.   

In conjunction with these budget reduction options, lawmakers should also take care not to tap the state’s Rainy Day Fund or resort to accounting gimmickry.

First, it is important to realize that one-time measures and spending sources should not be used to support ongoing obligations. If your family’s budget is consistently exceeding its bounds, no reasonable person would advocate that you raid your savings account to enable day-to-day spending. This only prolongs the root problem of excessive spending.

Perhaps more importantly, though, this session does not appear to be the state’s only difficult budgeting cycle. According to research we published last month, “Final Notice: Medicaid Crisis,” Medicaid costs before Obamacare will double every 10 years through the next three decades. Obamacare adds 3.1 million people to Texas’ Medicaid rolls by 2014, and Texas will need an additional $10 billion in the next budget to meet those costs. The state will need to preserve as much of its financial flexibility for as long as possible to help avoid future fiscal crises.

Holding the line on government spending is never easy; it is far more satisfying to give than it is to take. But in today’s economic climate, the reality is that we can no longer afford the level of government spending we have had in the past. Spending must be brought in line with income, not the other way around.

Talmadge Heflin is director of the Center for Fiscal Policy at the Texas Public Policy Foundation, a nonprofit, free-market research institute based in Austin. He served 11 terms in the Texas House of Representatives and chaired the House Appropriations Committee in 2003, when the state had a $10 billion budget shortfall.