Talmadge Heflin says claims that state government is $27 billion in the red are false

After State Comptroller Susan Combs said Jan. 10 that Texas lawmakers will have $72.2 billion in state revenue to budget for fiscal 2012-13 -- $15 billion less than what the state has budgeted for the two years ending Aug. 31, 2011 -- Talmadge Heflin of the right-leaning Texas Public Policy Foundation cautioned against overreaction.

Heflin’s same-date "legislative update," headlined "the myth of the $27 billion shortfall," points out that Combs declined to pinpoint a budget shortfall figure. The post by Heflin, a former Texas House member and past chairman of the House Appropriations Committee, closes: "This is not to say that the process of developing a 2012-13 state budget will be a walk in the park. But claims that Texas is $27 billion in the red are flat-out false."

Flat-out for real?

We wondered because news organizations including the Austin American-Statesman included the $27 billion figure in their analyses of Combs’ forecast.

The Statesman’s Jan. 11 news article states: "The comptroller's estimate sets the limit for spending and would put the budget shortfall at $27 billion if the state were to maintain the same level of service in public education, health and human services, prisons and more."

Similarly, the San Antonio Express-News quotes Scott McCown, executive director of the left-leaning Center for Public Policy Priorities, saying the shortfall is at least $26.8 billion--the difference between Combs’ predicted state income and at least $99 billion in state revenue needed to maintain the current level of services, given the state's growing population and rising costs, including that of health care.

The newspaper quotes Rep. Jim Pitts, R-Waxahachie, who chairs the House Appropriations Committee, saying that a shortfall of at least $27 billion is "in the ballpark" when looking at the money needed to provide the current level of services.

In his update, Heflin writes that the $27 billion figure is "premised on the  belief that the state should carry forward all current spending and assumptions regarding program growth." He adds that policy advocates touting the figure are simply tallying agencies’ wish lists; his post links to a Legislative Budget Board website compiling requests filed by more than 200 agencies. Heflin’s post continues: "But these requests are almost never fully funded -- even at the start of the budget process -- because they include many unnecessary spending items that appropriators recognize and quickly weed out."

Seeking the basis of the $27 billion figure, we contacted McCown, who pointed us to his Jan. 10 statement saying that based solely on requests from several major agencies and expected formula-driven costs of higher education, Texas needs to spend $19.9 billion more in state funds in 2012-13 than what’s budgeted for 2010-11. That would bump the budget to $99 billion, McCown said, which exceeds Combs’ estimate of available state revenue by $27 billion.

According to his statement, the center reached the $19.9 billion figure by adding up requested budget increases tied to population and cost growth made by five agencies -- the Texas Education Agency ($9 billion increase), the Texas Health and Human Services Commission ($8.3 billion increase), the Texas Department of Criminal Justice ($730 million increase), the Employees Retirement System ($576 million increase) and Teacher Retirement System of Texas ($908 million increase). It then added increases for public colleges and universities that would be driven by state higher-education funding formulas, McCown’s statement says. All told, the statement says, the selected agencies and education institutions account for 82 percent of state spending.

Footnotes to the center’s summary of its calculations indicate that more than $8 billion in the identified education and health and human services funding is needed to replace federal stimulus aid used in the last budget but not expected again this year.

Eva DeLuna Castro, the center’s senior budget analyst, said she excluded some of the selected agencies’ requests, such as one for staffing a health center for prisoners, that don’t reflect what the agencies are already doing.

In an interview, McCown said those who question the shortfall "are not being honest. They’re trying to confuse the public . . . We’re short $27 billion to do what we’re doing. Obviously, if you don’t want to do what we’re doing, then we’re not short."

According to the Statesman, state leaders including GOP Gov. Rick Perry are dismissive of needing to cover $27 billion in additional spending. Perry said in a Jan. 10 interview with the newspaper: "I'll let somebody else talk about that, because that's not reality."

In the end, we suppose, the final budget and its impact will determine reality.

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But that’s down the road. For now, what legislative budget-writers have to go on are what they always have early in the process: State agencies’ self-reported funding needs. And for now, it looks like the cost to continue services as they are exceeds the $27 billion suggested by the CPPP's analysis, which did not consider all agency requests.

Finally, we followed up with Heflin, who said in an interview that he composed his post before reading McCown’s numerical analysis. Heflin said he has no quibble with its methodology, but disputes the premise that lawmakers should maintain existing services. When "you know you don’t have the money, you know you have to trim back," Heflin said. He followed up via e-mail: "There was never a possibility of funding a current-services’ budget plus wish lists and growth."

Our sense: Heflin’s statement rejects a shortfall calculation that seems a reasonable way to estimate how much it would cost Texas to keep up services. We rate the statement False.