Looking ahead
Serious gaps expected for 2011 state budget

State Senate Finance Committee members who served in the 2009 legislative session expect the next session in 2011 to bring serious budget cuts.

With various tax revenues missing expectations, and one-time-only federal stimulus dollars filling gaps in the 2010-2011 budget planned in the 2009 session, Committee members say the state’s next budget will see deep cuts and may require a dip into Texas’ rainy day fund.

“In order to balance the budget this biennium, which is $182 billion, we used $14 billion in federal stimulus money to balance it,” said State Sen. Steve Ogden, R-Bryan. “We’re not expecting a similar amount of similar money to be available in the next two years because the federal government just doesn’t have it. So, assuming that’s true, you go into the next session with a $14 billion hole.”

According to the State Comptroller’s office, Texas requested and was allocated almost $20 billion in federal stimulus funds from the American Recovery and Reinvestment Act, and has so far been awarded about $13 billion. About $3.6 billion has been received, and nearly all of the received funds have been spent.

Ogden chaired the Senate Finance Committee in the 2009 legislative session, and has said he doesn’t plan to run for the State Senate again.

Ogden said committee members decided to stay out of Texas’ rainy day funds in the 2009 session in anticipation of the $14 billion budget hole legislators will have to fill in the 2011 session.

Along with the hole federal stimulus funds covered in 2009, another issue worsening budget concerns is an expected shortfall in oil, natural gas and sales tax revenues because of dropping energy prices and the economic downturn.

“Sales taxes are clearly not growing fast enough to fill that hole,” Ogden said. “And the rainy day fund probably won’t beat $14 billion. But it’ll be significant enough that… it’s not going to wreck the car.”

Oil and natural gas severance taxes – which are rated at 4.6 percent of market value for crude oil and 7.5 percent of market value for natural gas – are the primary funding sources for the rainy day fund, Ogden said.

Through 2007 and 2008, when oil and natural gas prices rose to record levels, the rainy day fund was growing at a similar pace, he said. But, since prices have dropped over the last year, the rainy day fund’s growth has slowed and the amount of taxes the state collects from the resources has dipped.

Ogden said he doesn’t want or expect to see the state raise taxes to fill the budget gaps, but said he hopes for creative efforts at stimulating economic growth.

“I don’t think you can raise taxes enough to fill a hole like this,” Ogden said. “And, to a certain extent, raising taxes is always counter productive. What you have to do is get the economy growing and the economic growth in the economy will throw of the additional tax revenue you need.”

State Sen. Chris Harris, R-Arlington and a member of the 2009 legislative session’s Senate Finance Committee, said Texas could lose as much as $6 billion from lost severance taxes, creating another hurdle for the next budget.

“We’ve got area after area where our economy is being hit, and that results in a lessening of the future budget,” Harris said.

Harris said he expects the state’s transportation budget to be one of the hardest hit areas in the 2011 session, adding that he hopes to see a version of the Texas Local Option Transportation Act, which did not pass the legislature in the 2009 session, to pass in 2011.

The Local Option Act would have given counties the power to create local funding options to raise money for local transportation projects. Proposed funding options in Tarrant County included a drivers license fee, an increased motor fuels tax and a new resident fee. Once a county chose a set of funding options, voters would choose which options to take on in a bond-style election.

“I think what we have to do is set up some formulas as far as highway funding,” Harris said. “And, make it to where local areas, and I want to see it city-by-city, where the local areas can vote to have, say, an extra $10 on the license plate [fees]. I think it’s imperative to see something done on [the state highway] fund because the federal fund is broke.”

Ogden and State Sen. Jane Nelson, R-Flower Mound, voted against the local option in the 2009 session, but both said transportation will be a key issue in the 2011 session.

“At the end of the day I think we’ll have to come up with different ways of financing, and that is inevitably if we don’t raise gasoline taxes, which drives us to the only other possibility and that is toll roads,” Ogden said. “You can’t do it any other way, so I think what it means is we build more toll roads.”

Along with transportation, Nelson said state Medicaid and education costs also are expected to rise.

“The bad news is, first of all, the federal stimulus money gave us a false sense of financial security. We delayed some painful decisions that we are not going to have the luxury of delaying next session,” Nelson said. With “sales tax revenues down almost 13 percent right now… everybody’s going to have to be very, very careful on how we spend our money.”