Getting Ready For the Texas Legislature: 2013

Posted by Jon Weist, on Wed November 21 2012 at 06:28 PM

When Texas Legislators hit Austin for the 83rd Legislative Session January 8 next year, they will face a considerably smoother path than the one they traveled two years ago. That’s the case if one considers the growing increases in state revenue and doesn’t look too hard at the costs that a cycle of deep budget-cutting, deferred attention to major issues and population growth places on the budget.

When Texas Legislators hit Austin for the 83rd Legislative Session January 8 next year, they will face a considerably smoother path than the one they traveled two years ago. That’s the case if one considers the growing increases in state revenue and doesn’t look too hard at the costs that a cycle of deep budget-cutting, deferred attention to major issues and population growth places on the budget.
State revenue has bounced back quickly and looks to continue, largely because of pent-up demand in motor-vehicle sales, oil and gas production and increased consumer spending driving higher-than-projected collections of motor-vehicle sales taxes, oil and gas production taxes and general sales taxes.
That is the indisputable good news.
The revenue surpluses will likely cover the costs of obligations legislators left on the table when they abandoned Austin in June of 2011, such as a $4 billion plus payment for Medicaid costs they largely punted on, as well as an accounting trick that moved, by one day, a payment of state aid to public schools into the next two-year budget cycle.
Additional tax collections might cover all of the above costs, plus the natural growth in spending resulting from population growth and inflation in a number of state programs. A full review of the last two budget cycles, some projections of future spending and their implications is posted on the Chamber’s web site at http://arlingtontx.com/images/uploads/Metro_8_11142012_Dale_Craymer.pdf.
It’s a certainty, for instance, that the surplus will not cover anything close to a restoration of cuts from public and higher-education – more than $6.5 billion in 2012-2013. State leadership made that explicit two weeks ago, when the Legislative Budget Board adopted a spending cap that amounts to $78 billion in general fund spending, an amount 13 percent less than the 2010-2011 budget. That amount, arrived at by adding inflation and population growth and coming up with a 10.71 percent growth rate, was more than some conservative groups wanted, creating another plank in their platform to oust San Antonio Republican Joe Straus as Speaker of the House.
How quickly legislators will get up to speed, with freshmen making up almost a third of the House, will determine a lot, but the good revenue news should smooth some of the rough patches.
The Medicaid fix, for instance, must be adopted in mid-March in a supplemental spending bill to keep the program from shutting down for the last six months of the fiscal year. Legislators left Austin in 2011 knowing they didn’t pay for two full years of the program. At the time, the expectation was that the hole would be patched in 2013 with money from the Economic Stabilization Fund – the rainy day fund in everyday language – since that money was explicitly not used to cushion the blow to school districts from education cuts. More a little later on the rainy day fund.
With the revenue rolling in the door, the short-term Medicaid fix seems easy in practical terms, though perhaps not in political terms. The longer-term issues are almost completely obscured by hot political rhetoric related to Governor Rick Perry’s previous (and perhaps next?) presidential campaign.
The federal Affordable Care Act includes a provision to expand Medicaid coverage to adults and families whose income is at or less than the 133 percent of the federal poverty level—$25,400 for a family of three. Medicaid is a shared program, though the feds have always paid most of the costs. In order to cushion the blow to states for the expansion, the ACA covers all of the costs – except administration – for expanded coverage in states for the next three years. In Texas, that amounts to a $300 million expenditure in the next two-year budget cycle to draw down $8 billion in federal funds. Over the next 10 years, the Texas Hospital Association projects that the total cost to the state for covering the expanded Medicaid population is $1.5 billion – about 1.5 times the annual two-year cost of the Department of Public Safety. A more expansive review of the Medicaid issue by THA is posted on the Chamber’s web site at http://arlingtontx.com/images/uploads/Metro_8_11142012_Dan_Stultz.pdf
Because this is a federal program, and Perry doesn’t like federal programs, he has signaled Texas will not cover the expanded population. Politics make picking up that additional population significantly harder to do, but it also seems difficult to walk away from $8 billion in a state with 25 percent of the population uninsured. What coverage the state does provide is in no way generous.
Even without expanding Medicaid – which currently covers the elderly, those in nursing homes and young children – state costs will go up because of population growth and because of the federal requirement that individuals have insurance or pay a fine. Medicaid is considered insurance, and the state Health and Human Services Commission estimates that there are almost 800,000 eligible participants who are not enrolled. The individual mandate is expected to drive more people in Texas’ Medicaid system, at an estimated cost of $700 million over the next two years. Rates paid to medical providers – think doctors and hospitals – are also slated to increase. That cost is estimated at $400 million to the state over the next two years. For the state’s $1.1 billion in additional cost, the feds kick in another $3 billion.
One of the enduring mysteries of the 2011 legislative session was the line in the sand drawn by conservatives, limiting use of the state’s rainy day fund to offset the damage of the one of the rainiest days Texas has seen since the fund was established in 1987. Except for plugging the recession-induced deficit in the last budget cycle, resistance to using the Economic Stabilization Fund to, well, stabilize programs, was so fierce one would have thought capitulation meant being taken over by an adjoining state or country. A vote in the House in the waning days of the session to tap the fund to offset cuts to public-school aid was reversed a day later, and there was no certainty that the necessary two-thirds majority existed for that action to clear the Senate or cancel a gubernatorial veto.
The result of this was that, in the words of Dale Craymer of the Texas Taxpayers and Research Association, the rainy day fund was “dead money” for most of the session.
With the state’s growth in revenue, and perhaps the ability to plug existing budget holes with existing revenue, the rainy day fund may end the current budget cycle in August with $8 billion, and could top $10 billion by the end of the 2014-2015 cycle.
“We’ve got to break this idea that the rainy day fund is sacred,” Craymer said in a meeting in Austin two weeks ago with government relations staffs from the state’s eight largest chambers.
Almost every governor has used the fund at one time or another, including, in previous years, Rick Perry.
Some ideas have been circulating for one-time uses of the fund, such as kick-starting planning and providing aid to localities for water-supply projects, backing another round of debt issuance for transportation projects, but nothing so far has been endorsed by Perry, Straus or Lieutenant Governor David Dewhurst.
Legislators have a few other choices to make next session. Do they take money collected for specific purposes – trauma care in hospitals, air quality improvements in urban areas – and spend them instead of holding them, unspent, to show on paper a balanced budget? Do they start moving money collected from motor-vehicle sales taxes to the transportation fund, a logical but costly enterprise that would require filling the revenue gap in the general fund (motor-vehicle sales taxes are 8 percent of the state’s total budget)?
There is likely to be a lot of noise from the far right – joined, oddly enough, by the Democrat leader of the Mexican-American caucus—about replacing Straus as House Speaker, an enterprise that seems unlikely to succeed and would, as before, consign those who vote against him to a legislative Siberia on second-tier committees they don’t care about, with very little likelihood their legislation emerges from the committee process.

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