That $6 Billion Left in the Rainy Day Fund? Already Used, Some Say

About 10 minutes into his speech in New Orleans last week, Gov. Rick Perry geared up for one of the afternoon’s many applause lines.

Taking a moment to praise his state, he told the audience at the Republican Leadership Conference that the Legislature had just balanced the budget — without raising taxes and while maintaining essential government services. “I might add that new budget leaves $6 billion in a Rainy Day Fund,” he said, to the delight of the crowd.

Perry hit the same refrain the week before in a speech in New York City.

The country’s longest-serving governor naturally depends on the accomplishments of the state Legislature to bolster his presidential bona fides. But Perry’s neon-light promotion of the robust reserve account on the national stage exposes a disconnect with the conservative lawmakers battling for his principles at home, where at the state level his party is working to divert negative public sentiment about the deep budget reductions.

Just ask a Republican state legislator why $6 billion of taxpayer money sits in the bank as teachers lose their jobs. The likely answer? Because it’s already accounted for.

Heading into the legislative session, the governor made keeping the fund under lock during the forthcoming budget battle the 11th commandment for fiscal conservatives. The Legislature, flush with a newly obtained supermajority in the House, followed his lead. Both chambers employed two core arguments to swat down proposal after proposal from Democrats to use the money to shore up government services: that the governor would veto any bill using the Rainy Day Fund in the upcoming budget, and that the money was already obligated.

“We’ve got to get the message right. There’s been a lot of misinformation out there that there’s $6 billion in the fund that’s not been used. It’s been used,” said Rep. Charles Perry, R-Lubbock and no relation to the governor.

But what about the governor’s remarks in New Orleans?

“That’s the governor’s message,” said the Tea Party-anointed lawmaker who defeated nearly three-decade long legislative veteran Delwin Jones in the 2010 primary, mounting a grassroots attack from the right. “That’s not Charles Perry the legislator’s message.”

Here’s where Charles Perry the legislator is coming from. Lawmakers have already drawn down $3.1 billion of the fund’s roughly $9.5 billion reserve to cover a deficit in the current budget. Then, to make the 2012-2013 budget balance, the state’s projected share of expected Medicaid costs is underfunded by $4.8 billion — for many, a conservative estimate.

That means when lawmakers come back in two years — and without a change in federal law diminishing the state’s obligation to Medicaid or an increase in Rainy Day revenue from an improved economy — they will need most of the remaining $6 billion to pay another past due bill.

 “Effectively they’ve used it,” said Bill Hammond, president of the Texas Association of Business and a former state lawmaker. “They just aren’t going to fess up until January of 2013.”

Hammond’s organization is the largest business lobby in the state. Early in the session, he called on the Legislature to siphon $6 billion from the fund to soften cuts to public education and health and human services. When he realized the “till could easily be empty” for the next budget cycle because of current and upcoming deficits, he stopped.

“They have used the entirety, depending on how Medicaid finally shakes out,” Hammond said, adding that, of the $9.5 billion, about $9 billion has been committed.

What ultimately ends up in the account depends on economic conditions. A rare public intraparty battle during this month’s special legislative session revealed the Republican split over spending even surplus amounts of the fund, when a tempting loophole presented itself during debate on Senate Bill 2, a fiscal matters bill critical to balancing the budget. Rep. Donna Howard, D-Austin, offered an amendment to direct any increase in the Rainy Day Fund over the next two years above the account's current balance to finance enrollment growth in public schools.

“This is not some far out thing, this is talking about a contingency,” Howard said, describing her amendment on June 10 in an effort to sway Republicans who had pledged not to drain the fund. “I’m offering something that allows you to remain faithful to what you’ve committed, to not touch the current Rainy Day Fund.”

In essence, her Republican colleagues could support it without casting a vote to deplete the corpus of the fund. The amendment, which under some projections could put $2 billion more into public education, passed without a hiccup.

The outcry from the right was immediate. Still, the next day, 17 members (who were later dubbed the “Rainy Day Republicans”) bucked party orthodoxy to vote against a measure to drop the amendment.

A majority of the House ultimately voted in favor of removing it, but because the measure lacked the requisite two-thirds support of the chamber, it remained. If it survives conference committee — the House passed a non-binding resolution to instruct its conferees to strip it —two-thirds of both the House and Senate must approve it.

The Howard amendment is unlikely to make it to the governor’s desk. It may never prove its effectiveness as law. But as political strategy, Democrats can hope it throws into relief the struggle of Republicans butting up against the take-no-prisoners fiscal conservatism and the anti-federal agenda that carried so many of them into the state house.

“Texas is not Washington, D.C.,” said Rep. Lanham Lyne, R-Wichita Falls, a freshman who voted to keep Howard’s measure.

Lyne said the governor’s position on the Rainy Day Fund factored “immensely” into the dialogue in the House throughout the session.

 “If you don’t have the governor on board,” he said, “It’s not going to happen.”