Even Texas Feels the Heat

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DALLAS - Texas lawmakers gavel in the 2009 session today with a weakening economy, a backlog of transportation funding needs, and 10% less revenue available than in the previous biennium.

The House is expected to elect its first new speaker in six years, as Rep. Joe Straus, R-San Antonio, replaces Rep. Tom Craddick, R-Midland, who has served 40 years in the chamber. After years of chafing under Craddick's leadership, a coalition of Democrats and Republicans lined up behind Straus to overthrow the more conservative Craddick.

As a representative of San Antonio, Straus is also expected to bring an urban perspective to the speaker's post for the first time. Historically, the House has been dominated by rural lawmakers such as Craddick. Straus is also seen as less of a hardliner on social issues such as abortion, prayer in schools, and gay rights.

With the economy shrinking to a degree not seen since World War II, economic issues are expected to take priority over those social issues. The market collapse has sharply reduced the value of state retirement funds as well as the Permanent School Fund that backs local school bond issues and the Permanent University Fund that confers triple-A ratings on debt for the University of Texas and Texas A&M systems.

The PSF is out of capacity to support any new school bonds. Texas Education Agency officials are meeting today to consider options for renewing the program, but they are at the mercy of the Internal Revenue Service, which must permit a higher leverage ratio.

While Texas is in much better fiscal shape than most states, fights over funding could intensify after Comptroller Susan Combs yesterday outlined the revenue available for the next two-year budget.

The state can expect to have $77.1 billion of revenue available for general purpose spending during the 2010-11 biennium, down from $86.2 billion in the current biennium.

Combs outlined reasons for the lower revenue, which include the fact that the $2 billion ending balance carried forward from the 2008-09 biennium is significantly less than a $9 billion ending balance two years ago. The slower economy will generate slightly less tax revenue during the 2010-11 biennium compared to 2008-09.

"Given the continuing turmoil in the national economy, auto industry, housing, and financial markets, this is a cautious forecast," Combs said. "Our wisest course is to exercise prudence, just as Texas families are doing during the economic downturn."

The biennial revenue estimate includes the $2.1 billion ending balance carried forward from the 2008-09 biennium, plus an estimated $76.7 billion in anticipated general purpose revenue from taxes and other sources. Against this amount, an estimated $1.7 billion will be reserved for future transfers into the rainy-day fund, leaving the Legislature $77.1 billion for general purpose spending as they write the 2010-11 state budget, according to Combs.

"Though Texas has avoided the worst economic impacts affecting other states, the national downturn has finally begun to touch Texas," she said. "Our new economic forecast indicates Texas will be affected in fiscal 2009 before regaining economic momentum in fiscal 2010."

Combs said Texas - where lawmakers meet every two years - is trailing the nation in job losses by about six months. The state can expect to lose about 111,000 nonfarm jobs through the first three quarters of calendar 2009, but the trend should reverse in late 2009, she said.

Sales taxes, for example, are expected to increase by 2.9% to $44.4 billion, compared to $43.1 billion in 2008-09. Motor vehicle sales taxes - a separate tax and currently being affected by declines in consumer confidence - are expected to generate $5.5 billion, down 6.5% compared to 2008-09.

Revenues from oil and gas have reversed sharply from the beginning of the year. Current budget assumptions were based on $60 per barrel oil, but the price has plunged from a record $147 per barrel in July to about $40 today.

Oil and natural gas severance taxes are expected to decline 43.3% and 26.5% in the next biennium.

Texas has no state or corporate income tax.

"The economic and revenue outlook for Texas during the next two years is challenging, but we have positive factors that put us in an enviable position to ride out the national downturn and emerge strong, healthy and competitive," Combs said.

At the end of the current biennium on Aug. 31, the rainy-day fund will contain $6.7 billion, according to the comptroller. A fund designed to provide property tax relief to homeowners in the state will have a $3 billion beginning balance.

Combs outlined reasons for the lower revenue, which include the fact that the $2 billion ending balance carried forward from the 2008-09 biennium is significantly less than a $9 billion ending balance two years ago. The slower economy will generate slightly less tax revenue during the 2010-11 biennium compared to 2008-09.

While education funding - the largest portion of the state budget - remains front and center this year, lawmakers also face the task of trying to clean up the transportation funding mess left over from the 2007 session.

The Legislature's moratorium on private funding of toll roads came to an end at the end of 2008 unless lawmakers decide to extend it, a move that is seen as unlikely in a budget crunch.

Sen. John Carona, R-Dallas, chairman of the Senate Transportation and Homeland Security Committee and sponsor of SB 792, the moratorium legislation that rewrote the transportation laws in 2007, has already introduced a bill allowing private toll road leases for the next six years.

Carona has also voiced frequent support for raising the state's fuel tax to support transportation projects, and Gov. Rick Perry has said that he will not oppose such efforts in the new session.

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