State Revenue Is on the Rebound, and the Rainy Day Fund Runneth Over—Even as Sharp State Budget Cuts Begin to Bite Deep into Public Education

San Antonio AllianceUncategorized

The state’s chief revenue estimator testified on October 5th in the Texas House
that state tax collections have rebounded to levels approaching the all-time high attained in 2008, before the recession-induced collapse of state revenue. John Heleman of the Texas comptroller’s office said sales taxes showed the most significant recovery, coming back up to within a hair’s breadth of the 2008 total.

Heleman also told the House Ways and Means Committee that robust growth in tax receipts from oil and gas production will boost the state’s Rainy Day Fund by $2 billion more than predicted just months ago. He said the next legislature will likely have more than $7 billion at its immediate disposal in the Rainy Day Fund at the start of the next regular session in January 2013. And that’s not counting any continued growth in the fund during fiscal 2014-2015, which also could be used by lawmakers next session.

The $2 billion increase in the Rainy Day Fund projection is exactly what Rep. Donna Howard, Democrat of Austin, was trying to capture for public education back in June in order to reduce the severity of planned cuts. Her smart, bipartisan amendment prevailed in the House at first but was killed eventually by far-right pressure groups and by lawmakers who took their cue in opposition to the Howard amendment from Gov. Rick Perry and legislative leaders.

At their adamant insistence, despite anticipation of the sizable Rainy Day Fund increase confirmed on October 5th, cuts in public education totaling $5.4 billion were rammed through ($4 billion in per-pupil aid, $1.4 billion in grants). These cuts average more than $500 per pupil annually chopped from school districts’ budgets, with many layoffs and downgrades of educational offerings occurring this school year, and with the bulk of the harm still to come in the second year of the biennium starting in September 2012. For the first time in memory, the state is failing to fund the cost of anticipated enrollment growth (projected to exceed 160,000 over the two-year budget period, adding to the nearly five million already in our schools). Meanwhile, the gusher of oil and gas revenue flowing into an already-large Rainy Day Fund shows clearly that these budget cuts were a deliberate policy choice, not a decision compelled by lack of available resources.

The return of state revenue to pre-recession levels is welcome news indeed, but it doesn’t change the fact that state tax collections still are short of what it would take to catch up with population growth and cost inflation since 2008. Even with a robust Rainy Day Fund, lawmakers cannot stave off for very long the overhaul of a state tax structure that simply is not built to produce the revenue required for a rapidly growing state to provide for public education, health care, and other core needs of its people.

It was announced on October 5th that the House Ways and Means Committee at interim hearings next month and beyond will begin to look at needed changes, focusing
first on the state’s underperforming business tax. This so-called “margins tax” was touted by Gov. Perry and the legislature in 2006 as a full replacement for local school property taxes that were cut by a third that year. In reality, since 2006 the tax has never delivered as promised, contributing to an estimated structural shortfall of roughly $5 billion per year.