Commentary: Structural Deficits

By Jennifer Nagorka

Dallas, TX –

Structural deficits are about as sexy as tooth decay. Who wants to talk about that? But these predictable, avoidable deficits are just like cavities: if you don't take care of them, sooner or later, you're going to be in a world of hurt.

Texas is headed for a lot of financial pain come 2012 and 2013.

This is one of the chief issues that all candidates ought to be discussing. Our state's budget is looking as unsustainable as the federal one - how will they fix that?

Year after year, Texas spends more money than it collects. The gap between tax revenues and state expenditures is at least $3.5 billion annually - some estimates put it at $5 billion per year. Only federal stimulus money saved us from having to make significant cuts in state services this last legislative session. But that one-time rescue won't be available when the Legislature meets again in two years.

This deficit isn't an accident or a one-time event; it's built into the budget. That's why it's called a structural deficit. It started in 2006, when Texas lawmakers slashed the state's high property tax rates. Local school districts had been raising taxes because the state was covering a smaller and smaller share of the cost of public education. Lawmakers cut local property taxes and agreed to have the state pay more of the costs of K-through-12 education.

In exchange for lowering property taxes, legislators agreed to raise other taxes and fees, and hope for continued economic growth. Most observers knew the new revenue probably wouldn't compensate for the missing property tax revenue. And it didn't. The new taxes and fees only covered about 40 percent of what was lost from the cuts.

Then the recession hit. Sales tax revenue declined sharply, and economic growth stopped. The hole in the budget grew deeper and wider. As the Legislature began work in January, it looked as if they'd need to raid the Rainy Day fund to finance two of the biggest budget items, Medicaid and public education.

President Obama saved the Legislature by playing Santa Claus, passing out gifts from the federal treasury. Although Gov. Perry made a show of declining some unemployment funds, he and lawmakers did accept about $8.2 billion for Medicaid and public education. That covered the hole in this budget.

The pesky structural deficit will be right back - and possibly even bigger -- in 2012-2013. The Rainy Day Fund may have enough money to cover that shortfall. Unfortunately, then there wouldn't be much left if a real rainy day - say a hurricane in Houston or suddenly virulent H1N1 flu outbreak - came along and the state needed lots of ready cash to help communities recover. The Rainy Day Fund isn't meant to bail lawmakers out of their own bad decisions.

Legislators could erase the deficit by cutting $10 billion in spending in the next biennial budget. But spending needs to grow just to keep pace with population growth. Take $10 billion out of the budget and Texans will almost certainly be less healthy and less educated - and that will make Texas less competitive in the future. Ask gubernatorial candidates how they plan to fix that problem.

Jennifer Nagorka is a writer from Dallas.

If you have opinions or rebuttals about this commentary, call (214) 740-9338 or email us