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In Texas, Mood Swings on Taxes
Budget Overruns Have Lawmakers Doubting Bush's '99 Cuts
By Paul Duggan
Washington Post Staff Writer
Wednesday, February 14, 2001; Page A02
AUSTIN, Feb. 13 -- In the winter of 1999, as Texas lawmakers gathered for their biennial session, the state Capitol here was a happy, even giddy, place. With the economy humming, with revenue pouring in, and with a state budget surplus projected at $6.4 billion, tax reduction topped the agenda. Gov. George W. Bush wanted big cuts that he could trumpet in his bid for the White House, and no one doubted he'd get them. The only question was, how huge?
What a difference two years makes.
Today, with Bush in Washington, championing $1.6 trillion in federal tax relief, many of the Texas legislators he left behind are wearing frowns. With the economy softening, Medicaid costs spiraling up and state budget-makers feeling the pinch of the record-setting '99 tax cuts that aided Bush's presidential campaign, the mood here clearly has changed.
In the second month of the current legislative session, reports of budget overruns in state agencies continue to mount. The state's $101.9 billion spending plan for the two-year period that ends Sept. 1 is coming up short -- by more than $700 million at last count. And lawmakers are wondering how to cover that shortage and still prepare a balanced budget for the next two-year cycle.
There has even been talk (or at least whispers) of a tax increase -- a notion that Gov. Rick Perry (R) moved to quell this week in a letter to House and Senate leaders, urging calm. Perry, who took over as governor after Bush was elected president, has said he intends to seek a full term in 2002.
So with the state budget squeeze, the happy days are over. But is it fair to blame Bush's $1.85 billion in tax cuts for the money woes? Some officials say yes, others say no, and many say the question is irrelevant.
"Oh, I don't think it's particularly constructive to look back," said acting Lt. Gov. Bill Ratliff (R), the state Senate leader. Echoing what appeared to be a popular sentiment in the Capitol today, Ratliff said in an interview, "We used the best possible judgment we could at the time."
Sen. Eddie Lucio (D), a Finance Committee member, disagreed. "Politically, it was the right thing to do," he said of the tax cuts, which were Bush's top legislative goal in the last session, in the months before his presidential campaign began in earnest. "But we should have taken a harder look at it," Lucio said. "We didn't look down the road. And so, as a result of the budget priorities of the previous administration, we find ourselves in a difficult hole."
Perry, as lieutenant governor in 1999, played a key role in helping Bush win Senate approval of the tax cuts, and he defended the reductions in his letter to lawmakers this week.
Citing "the frustrating reality" of the budget crunch, Perry said: "In recent days, the expressions of frustration have included suggestions that Texas needs new taxes or the repeal of the tax cuts enacted in 1999. I believe each of us would agree, given the slowing economy and the uncertain economic future, that this is not the time to increase taxes."
But it would be nice, lawmakers agreed, to have that $1.85 billion in the bank right now.
Before the current budget overruns began mounting, lawmakers figured to have $1 billion available for new spending in the next two-year budget cycle, in addition to the $108.5 billion that the state plans to spend to maintain existing programs. Because of the overruns, lawmakers said, that $1 billion has shrunk to less than $300 million and continues to evaporate. In the end, they said, they may have trouble coming up with the base amount of $108.5 billion.
The bulk of the overruns results from sharp, unexpected increases in the cost of Medicaid, the state-run insurance program for the poor. In that regard, Texas is not alone.
"The Medicaid monster has reared its ugly head all over the country," said Arturo Perez, a budget analyst for the National Conference of State Legislatures in Denver. He said a December survey found that 23 legislatures, including Texas's, had underestimated the cost of Medicaid in their most recent budgets. All the states were jolted by rising costs for prescription drugs, expanding Medicaid enrollments and more frequent doctor visits by enrollees.
With consumer spending slow, Perez said, more states -- especially those without income taxes, such as Texas, which depends heavily on revenue from sales taxes -- also are discovering that their revenue projections are off target.
The 1999 Bush tax cuts involved the state giving school districts $1.35 billion, allowing them to reduce property taxes. The state also gave $506 million in tax breaks to businesses and consumers -- including a sales tax reduction totaling $277 million.
Is Texas now paying the price?
"Yes, absolutely," Lucio said.
"No, the sky is not falling," said Jeremy Warren, a spokesman for Sen. Rodney Ellis (D), the Finance Committee chairman. "People got used to something that was extraordinary," Warren said, referring to the flush years now gone by. "We were living high on the hog. What we're seeing now are things the way they usually are. This is normal."
Ratliff agreed. "The aberration was the years when we had extra money," he said. "The members who've been around awhile, like me, consider this business as usual."
Meaning hard choices must be made -- much harder than those in 1999.
"We can pass a balanced budget . . . without tax hikes," Perry told Ellis and other lawmakers in his letter. "While there may be the prospect of storm clouds on the horizon, today it is not raining."
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