02.22.11
GOP’s mismanagement causing more trouble for Texas
The rating service Standard & Poor’s is calling our Texas for creating a structural deficit, spending too little, and that using a “cuts only” approach to balancing the budget is bad for Texas’ future. If that sounds familiar there’s a good reason. Here’s Texas Forward’s press release from January, Revenue Estimate Shows State Needs a Balanced Approach [PDF].
The AAS brought this to our attention yesterday, More balance needed in Texas’ budget approach, bond rating agency says.
Texas’ cuts-only approach to its budget shortfall won’t solve the state’s long-term fiscal problems, according to Standard & Poor’s, a major bond rating agency.
“We believe that a balanced approach that includes both revenue enhancements and expenditure cuts has a higher potential of success in preserving the state’s long-term structural budget balance than a strategy that relies solely on expenditure cutbacks,” wrote S&P credit analyst Horacio Aldrete-Sanchez in a report released last week.
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“In our view, the state’s budget imbalance is likely to reappear or persist beyond the upcoming biennium unless other sources of revenue or additional budgetary flexibility are identified to fill this growing funding gap,” the analysis continues.
But new revenue is still not being publicly discussed as Texas seeks to close a budget shortfall topping $15 billion to $27 billion, depending upon who is doing the counting.
Legislative leaders have said they will eliminate that shortfall without increasing taxes or using the rainy day fund, though they have softened recently on tapping at least part of the $9.4 billion reserve account.
The S&P analysis stated that the proposed level of cuts is high particularly for a state that has a low level of per-capita spending already. And those cuts could have significant implications for the local governments, such as school districts, that rely heavily on state money.
In essence the state will pass down the budget pain to cities, counties, and school districts. But on further searching this was found, S&P: TX should examine education funding method.
Texas’ budget woes stem from imbalances, such as education funding, that appear during times of economic decline or slow revenue growth, according to a report released Wednesday by Standard & Poor’s Ratings Services.
The “Texas’ Budget Challenge: Structural Changes Are Key To Avoid Persistent Deficits” report by Horacio Aldrete-Sanchez, a Dallas-based credit analyst, said that “for the past four years, the school finance reforms that the legislature approved in 2006 created a long-term source of budget pressure for the state, in our opinion.”
S&P recommends a shift in education funding to a source such as state general purpose funds rather than local property taxes, especially during periods of economic decline.
While school districts were required to reduce local school district property tax rates by one-third, it also approved several tax measures to offset the gap. The report said that those measures have not been able to fully cover the expenditures, and the mismatch between when the state collects its franchise tax and when the transfer of funds goes to schools puts pressure on the state’s cash flow.
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The recommended reduction for all state funds is $28.8 billion, or about 15.4 percent below 2010-2011 spending levels.
“We view this level of cutbacks as high as a proportion of the state’s budget, particularly for a state that, in our view, has a low level of government spending per capita,” the report stated.
The report went on to state that the steps taken to balance the state’s budget could have significant implications for the underlying governments and jurisdictions that rely on state transfers to fund their regular operations.
[Emphasis added]
Maybe the financial industry, someone other than Democrats, can talk some sense into the Texas GOP. Let’s hope so, but don’t count on it.