DALLAS – Texas state agencies were directed Tuesday to develop budgets for the next two fiscal years that freeze general fund spending at current levels.

The Legislative Budget Board and Gov. Rick Perry’s budget office sent a letter to agencies telling them to not request more general fund appropriations than expended in fiscal 2012 or is budgeted for fiscal 2013. It does not include federal funding or dedicated revenues.

The agencies also must prepare contingency budgets dealing with spending cuts of 5% and 10% without eliminating existing departments or services.

The proposed budgets must be submitted late August.

The budget order exempts debt service on outstanding bonds, basic state aid to local education, Medicaid programs, and state pension contributions. It does include corrections and state police and emergency agencies.

The letter also warns that fiscal 2013 spending could be curtailed “should state fiscal conditions warrant it.”

The 83rd Legislature will meet in January to review the agency requests and develop a two-year state budget. Fiscal 2014 will begin Sept. 1, 2013.

The 2011 Legislature passed a $172.3 billion budget for fiscal 2012 and 2013 that was $14 billion less than the previous biennial spending plan. The budget cut state aid to local school districts by a total of $5.4 billion and left unfunded almost $4 billion of mandated Medicaid spending in fiscal 2013.

Perry said the standstill budgets will serve as a starting point for the agencies as they prepared spending requests for legislative consideration.

“I know there are great programs that are out there that aren’t funded, or that may not be funded to the level of which people would like to see them funded,” he said Tuesday at a meeting of the Greater San Antonio Chamber of Commerce.

 “I don’t argue that, but I’ve been given a responsibility to be a leader, to not put this state in a position that is precarious from the standpoint of our economic condition,” Perry said.

House Speaker Joe Straus, R-San Antonio, said a standstill budget is necessary due to uncertainty over the national economy, even as state sales taxes and other revenues have been exceeding monthly projections.

“While our revenue growth has been healthy this year, we must plan conservatively,” Straus said. “These instructions will also leave us prepared for a slowdown in revenues as the national economy struggles to recover.”

Lt. Gov. David Dewhurst, who is in a runoff with former state solicitor general Ted Cruz for the Republican nomination for U.S. senator, contrasted the state’s budget process with federal spending.

“Unlike Washington where spending increases are automatic, Texas has maintained a balanced budget by forcing government to look for savings first -- ensuring taxpayers’ hard-earned money is put to its highest and best use,” Dewhurst said.

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