$12 Billion of Bad News for Texas?

Key lawmaker disputes earlier estimate; Perry says tax increases aren't the solution.

By: Polly Ross Hughes

Texas' state budget shortfall may hit a nightmarish $12 billion by early next year, according to a key Republican lawmaker.

"I think we could very easily be looking at $12 billion", Sen. Chris Harris of Arlington told the Houston Chronicle.

Harris, vice chairman of the Senate Finance Committee and a member of the Legislative Budget Board, warned that candidates are doing a disservice to the public by denying the depth of the problem.

On Thursday, in the face of growing budget problems, Gov. Rick Perry repeated his position that the state can avoid new taxes.

Likewise, a spokesman for his Democratic rival, Tony Sanchez, maintained that taxes are off the table.

"In all candor, I wish that the statewide candidates and the newspapers were doing more to alert the people of Texas to the magnitude of the problem", Harris said, "and talking about solutions".

Until now, state budget experts only privately discussed their fears that the shortfall could move closer to $10 billion, double what the state comptroller estimated more than a year ago.

Yet Perry said it is "foolish" to guess the size of a shortfall before the state knows how much revenue to expect early next year when the comptroller issues an official estimate.

The governor noted that state agencies traditionally ask for more than the Legislature gives them, but Harris said he believes the outlook is far worse on both the revenue and expense fronts than many Texans realize.

"My approach on this is for me to look at the potential worst-case scenario and then hopefully I'm pleasantly surprised and proved wrong", Harris said. "But I think if I'm looking at this with rose-colored glasses, then I'm not being fair to the people."

Sales tax, which brings in just over $13 billion annually - half of all tax revenue - is beginning to dip, Harris noted, a trend that he said is particularly ominous.

Contrasting recent years, when Texas enjoyed 4% to 7% growth in sales taxes to fund state needs, sales taxes in the first 11 months of the current fiscal year have dropped by $100 million, Deputy Comptroller Billy Hamilton said.

"It's significant. We'd rather be $100 million ahead", he said. "[All taxes are] running about dead even with last year overall for the year, which is not good."

Budget experts said sales tax revenues would look even worse, were it not for a consumer sales boom for new cars, fueled by dealers offering 0% financing.

"It's less a consumer-driven problem than it is business", Hamilton said, noting that half of all sales taxes come from business spending. "The economy has been weak. Business has pulled back making a lot of purchases."

Lt. Gov. Bill Ratliff, who heads the Legislative Budget Board, has warned lawmakers to forestall any summer vacation plans next year. If the budget picture gets dark enough, the Legislature might need to meet in special session to resolve the crisis, he said.

"I'm not going to tell you it's nutty", he said of Harris' pessimistic view. "It is possible it could be that bad if the economy does not turn back up at all. I don't want to scream: `The sky is falling.' but I don't think I've underplayed the budget situation we face. I believe it could be the hardest budget session in 50 years."

Harris said he, unlike the governor, believes budget requests could be understating state needs rather than overstating them.

He cited recent reports of poor consumer sales at national chains as an indicator that Texas sales tax might fall more before recovering.

Health care costs are especially troubling, Harris said, because they are likely to soar more than expected in light of recent spikes in medical malpractice insurance premiums.

One doctor, who has never had a claim, just saw his premium hiked from $12,000 a year to $83,000, he said.

Teachers' health insurance premiums could cost the state closer to $1,450 per teacher each year rather than the current $1,000, just to maintain the same level of coverage, he said.

Unemployment rates, if the economy continues in its slump, are creating a "moving target" that could result in even higher than expected caseload growth for health and human services, Harris said.

"There was no way in their requests they could calculate all of these additional increases", Harris said.

"We're going to have to figure out what cuts can be made in the budget. Then, in turn, if those cuts aren't enough, are we willing to bite the bullet and increase fees for certain state services, increase `sin' taxes like the cigarette tax? Do we actually have to go for an increase in the sales tax?" he asked.

The governor, who voted for a $5.6 billion tax increase in 1987, said tax hikes aren't the answer this time.

"I've done this before", Perry said, "and I know that with the right type of leadership, the right kind of focus, the right type of budget planning, you don't need to raise taxes".