April 14, 2006

Speculation Runs High about Possibility
of Dramatic Revenue Forecast Revision

By Mike Hailey
Capitol Inside Editor

Texas lawmakers could find themselves sitting on the largest budget surplus in state history when they show up for the special session that starts Monday if speculation about a new revenue estimate turns out to be true.

Lobbyists, legislators, consultants and others plugged into the state Capitol grapevine are speculating that Comptroller Carole Keeton Strayhorn will welcome the Legislature to Austin next week with the news that the projected pot of money that hasn't already been earmarked for specific spending needs has grown from $4.3 billion to as much as twice that amount if not more since the last estimate. A big boost in the surplus would likely be attributed to gasoline prices that have been substantially higher than Texas and other states had initially projected.

Riding the tide of a strong economy, Texas had a record $6 billion state budget surplus in 1998 before lawmakers drained it within a year to pay for a package of property tax cuts and business tax breaks, a teacher pay raise and other high-dollar demands that the Legislature was able to meet with the extra money on hand. By the time the Legislature convened in 2003 it faced a $10 billion budget deficit that led to deep cuts in spending and subsequent re-election losses for some key House members.

Strayhorn, who's challenging Republican Governor Rick Perry as an independent candidate in this year's gubernatorial race, knows she would be setting herself up for a barrage of criticism from lawmakers and Perry supporters if she makes a dramatic change in the revenue estimate at the start of the special session four days from now. She got a sneak preview of what she could expect from a revenue estimate increase when Perry's office accused her Friday of attempting to undermine the special session with a morning announcement that the governor's new proposal would double the tax load on Texas businesses and still fail to produce billions of dollars worth of tax relief that's been promised.

If Strayhorn boosts the revenue estimate, the comptroller's critics would accuse her on one hand of playing self-serving politics with state money predictions while ripping her on the other for not being competent enough to more accurately predict the flow of revenue into state coffers well in advance. Those are the same basic criticisms she's heard before during the past three years whenever she's cast doubts on work that lawmakers have undertaken or put the governor's efforts in a negative light.

From a cost-benefit political perspective, however, Strayhorn could conceivable come out ahead with a positive revision in the revenue estimate regardless of whether politics had ever been a consideration or not. Former Democratic Comptrollers Bob Bullock and John Sharp found during their respective tenures that they invariably experienced positive public relations boosts whenever they had the opportunity to announce good news about the state economy and government money supply.

In addition to gaining PR points for the comptroller as the messenger, a surplus that's substantially higher than lawmakers have been anticipating would presumably take the pressure off them to enact meaningful tax reform as advocated by Perry and Sharp, the head of the special panel that the governor appointed last year. The mere existence of the current projected surplus is probably already an impediment to comprehensive tax changes that typically have only been approved in Texas during fiscal downturns. An upward revision in the amount of available money to spend would almost certainly prompt conservative lawmakers and possibly others to intensify their call for a substantial reduction in property taxes during the special session without debate on tax or school reforms until next year.

With more money to spend, Strayhorn would be in a position to call for higher teacher pay and a bigger investment in children's health insurance and other popular programs while insisting that the state can afford it without increasing the tax burden on Texas businesses.

The comptroller took a shot Friday at the business tax overhaul that Perry and Sharp are proposing, saying it would amount to "a $10.6 billion hot check" because it would fall that amount short of producing the revenues projected over the first five years. Strayhorn said the proposal would give school districts "a perverse incentive" to diminish the losses from property tax cuts by increasing the tax rate $.06 a year without the need for voter approval. Five years from now a tax rate that the plan would initially reduce to $1 per $100 valuation would climb back to as high as $1.30 under the way the bill is drawn up now, Strayhorn asserted. Within five years, she declared, Texans would be paying $19 billion more in new state taxes if the special tax panel's plan becomes law.

Perry Press Secretary Kathy Walt said Strayhorn thinks the Legislature's failure in the upcoming special session will be her political gain. Walt contended that the Perry proposal has gained momentum with endorsements from most of the major state business associations.

Sharp argued that his successor in the comptroller's office was exploiting the tax plan in hopes of boosting her own political fortunes. Sharp said that the comptroller's staff had been apprised throughout the development of the tax proposal and had raised no red flags on any of the issues she mentioned in the scathing assessment.