Saturday, March 26, 2011

Layoffs Loom

The Texas House will take up the state's biennial budget on Friday and address a multi-billion budget shortfall. CSHB 1 appropriates $163.5 billion for FY 2012-13, which is $23 billion or 12.3% less than the 2010-11 appropriation. The Legislative Budget Board forecasts that this will result in a significant reduction in state and local government employees, including teacher layoffs.

At the local level, the City of Houston is facing a $130 million budget shortfall for FY 2012 beginning July 1. In order to close its budget deficit for the current fiscal year, the City drew down its fund balances to the 5% statutory minimum. 90% of the City budget is personnel costs. Next fiscal year, there is really no other place to cut than personnel -- i.e. municipal employees, police officers and firefighters. The City estimates that 2,300 employees could be laid off.

Elected officials are facing a Hobson's choice -- e.g. a free choice in which only one option is offered. The only choice voters are offering is cut the budget and shrink the size of government; voters emphatically stated in the 2010 elections that raising taxes is not an option. However, when you shrink the size of government, you are laying off teachers, police officers and firefighters, among others.

It has been happening across the country. According to the March 5 Wall St. Journal, "States have cut 82,000 jobs since their payrolls peaked in August 2008. Localities have eliminated 377,000 jobs since their high point in September 2008."

Layoffs now loom in Texas for state and local government employees. That is what the voters asked for. Now we will see if it is what they want.

Sunday, March 20, 2011

The Budget

Today is the 70th day of the 82nd Regular Session, the halfway mark. The budget, the only bill that must pass, is scheduled to be voted out of House Appropriations this week and to hit the House floor next week. Of the Governor's five emergency items, four have passed the Senate: eminent domain; sonogram; balanced budget amendment to the U.S. Constitution; and voter ID. The House has passed sonogram (different version from the Senate), and is scheduled to consider the voter ID legislation on the floor today. Sanctuary city has passed out of House State Affairs. In general, the legislature has made workmanlike progress on the priorities of the Republican legislative leadership.

However, there is a growing chasm between the House and the Senate on the budget. The Governor and House leadership have agreed to spend $3.2 billion from the Rainy Day Fund to balance the FY 2010-11 budget. But, the Governor and House leadership have stated that they will not spend anything from the Rainy Day Fund for the FY 2012-13 budget, nor will the House pass any tax revenue increases. This will result in a House budget for FY 2012-13 of approximately $77 billion of general revenue spending. The FY 2010-11 budget was approximately $87 billion of general revenue spending, including federal stimulus funds of $6.4 billion.

The votes are not there in the Senate Finance Committee to pass a $77 billion budget, much less in the Senate itself. To pass the Senate in Regular Session, the budget will probably need to be at least $83 billion in general revenue. In other words, the Senate is looking to spend at least $6 billion more than the House. If the House says no more Rainy Day Funds and no additional tax revenue, it is going to be very difficult to find the additional money. At this point, you would have to say one or more special sessions is a growing possibility.

Monday, March 14, 2011

All Eyes on the House

A balanced budget is the only bill that the Texas legislature must pass. However, the budget that the legislature passed in May 2009 is no longer balanced because of the economic downturn. According to the Comptroller, in January the budget was approximately $4.3 billion short for the state's fiscal year ending August 31, 2011. Budget cuts and sales tax revenue increases have reduced the shortfall, but there remains a need for additional cuts, payment deferrals or withdrawals from the Rainy Day Fund in order for the state to avoid running out of money in July of this year.

House Appropriations Chairman Jim Pitts has filed HB 275 proposing to spend $4.3 billion from the Rainy Day Fund. This bill is planned to be voted out of House Appropriations tomorrow and to hit the House floor as early as this week. It will require 90 votes (3/5ths) for HB 275 to pass the House. Gov. Perry has opposed spending the Rainy Day Fund for this shortfall, stating that it is too early to dip into the Fund before considering all possible budget cuts. Chairman Pitts says that the Appropriations Committee has scrubbed the budget and that they have made all available cuts for the current biennium.

It is unclear whether there are currently 90 votes to spend the Rainy Day Fund to balance the FY2011 budget. Republicans, particularly the freshman, want the political cover of having the Governor say it is okay. Democrats strongly believe that the FY 2012/2013 budget is too draconian, and could vote no on HB 275 in protest.

In my judgment, there is no way that the Senate will support a budget that does not at least spend the Rainy Day Fund to close the shortfall in the current biennium. Thus, all eyes will be on the House. If HB 275 does not pass in some form, we will be looking at a long, hot, summer Special Session in Austin.