Funding the 2012-13 Budget: Legislature Kicks the Can Down the Road

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Dick Lavine /(512) 320-0222 x 101

June 1, 2011

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At the beginning of the session, the state faced a $27 billion gap between anticipated revenue and the amount needed to fund current services. Rather than relying on cuts alone to close the gap, CPPP urged a balanced approach that used the state’s Rainy Day Fund and added new revenue to minimize damaging cuts. With the Governor putting the Rainy Day Fund and new revenue off limits, however, the Legislature has been left with no alternative but larger-than-necessary cuts reduced only to the extent possible by payment delays and tax speedups.

This Policy Page highlights the major provisions of Senate Bill (SB) 1 and House Bill (HB) 1, the fiscal matters bills introduced in the special session to fund the state budget for 2012-13. The bills are scheduled for hearing in Senate Finance and House Appropriations on Thursday. The bills are almost identical to the conference committee report for SB/HB 1811 from the regular session.

These bills create the appearance of an additional $7.55 billion in General Revenue. In reality, almost all of this “revenue” comes from a permanent reduction in state support for public education by $4 billion, deferral into the next biennium of a $2.3 billion payment to school districts and other transfers, and acceleration of certain tax payments. In addition, the bills would actually reduce state revenue by $171 million by extending the small business exemption from the franchise tax and creating new exemptions for certain other businesses.

Between now and 2013, Texas needs to give serious consideration to developing a tax system adequate to meet our needs.