DALLAS — Texas lawmakers will open their 2011 legislative session Tuesday with a projected budget gap of $27 billion under the revenue estimates from Comptroller Susan Combs.

The shortfall is about $2 billion higher than the previous highest estimates, which ranged from $18 billion to $25 billion. With $99 billion in funding requests from state agencies, the gap is more than a quarter of the projected biennial budget.

“The recent recession has had its impact on the state revenue outlook as major revenue sources such as the sales tax generated less money in the last couple of years,” Combs said. “While we have turned the corner to an economic recovery, the revenue estimate I’m releasing today is for moderate growth.”

Collections for the current budget will come in $4.3 billion less than budgeted. That will be subtracted from the beginning balance of $77.3 billion for the 2012-13 biennium, Combs said. About $800 million set aside for the rainy-day fund reduces the available revenue for lawmakers to spend to about $72.2 billion, she said.

Including anticipated federal funds, the two-year revenue estimate comes to $177.8 billion, she said. That is about $4.4 billion less than the current 2010-11 budget’s $182.2 billion. General fund revenue is $80.6 billion, or $87 billion including federal stimulus funds. The loss of stimulus funding and a negative ending balance means lawmakers face a much tougher task allocating funds this year.

Though the rainy-day fund will grow from its current $8.2 billion to $9.4 billion with revenue set-asides, it would reduce the gap by about a third if all funds were used. Since 1990, lawmakers have tapped the rainy-day fund for only $100 million, Combs said.

The growing gap comes as Texas’ population expands rapidly and the demand for schools, transportation, prisons, and other services increases. The state’s economy, in inflation-adjusted terms, is projected to increase by 2.6% in fiscal 2011 compared with the previous year, and by 2.8% in fiscal 2012 and 3.4% in fiscal 2013.

Texas lost about 431,300 jobs from the time of the state’s employment peak in the summer of 2008 to the bottom of the recession in the fall of 2009. Since then, it has added back more than 220,000 jobs, and is on track to gain back all lost jobs by the second half of fiscal 2012, according to the comptroller.

The sales tax, which accounts for more than 64% of general revenue, is expected to generate around $42.9 billion in the 2012-13 biennium, an increase of about $3 billion, or 8%, from the current biennium, Combs said.

Texas has no personal income tax.

The motor-vehicle sales tax is expected to generate $5.8 billion in 2012-13, an 8.8% increase from the current biennium. Natural gas production-tax revenue is expected to grow by more than 10% to $1.5 billion the next biennium. The oil production tax is projected to generate about $1.9 billion, for a decline of around 4%. The state’s total franchise-tax revenue is estimated at $8.8 billion for 2012-13, an 11% increase.

“The state’s economy is growing, but we have not yet reached a stage of sustained and broad-based robust growth,” Combs said. “I would urge lawmakers to continue their historical practice of careful budget deliberations.”

In her most recent monthly report, Combs said that sales taxes for November totaled $1.84 billion, up 8.7% compared to November 2009. “Sales tax revenue has now grown for eight consecutive months compared to year-ago levels, with recent gains above the 5% mark,” she said. “November’s monthly gain showed growth in a range of sectors like manufacturing, the oil and natural gas industry, retail trade, and restaurants.”

Despite the sharp drop in revenue since 2008, rating analysts have noted Texas’ comparatively shallow recession compared to other states, particularly California. The state has general obligation ratings of AAA from Standard & Poor’s, Aa1 from Moody’s Investors Service, and AA-plus from Fitch Ratings.

Like several other states, Texas borrowed federal funds to provide unemployment compensation as the recession began to take a toll on the state economy. In December, the Texas Public Finance Authority issued more than $2 billion of revenue bonds to repay funds borrowed from the U.S. Treasury Department.

Vowing to bridge the budget gap without new taxes, state officials have asked government agencies to identify cuts. Most of the general revenue budget goes for public and higher education and health and human services.

The 2011 session begins Tuesday with Republicans in firm control, holding a 101-to-49 supermajority in the House, and a freshman class that makes up almost a third of the GOP vote. While that supermajority would be needed to tap the rainy-day fund, most of the new Republicans won election on a Tea Party platform of fiscal restraint.

Democrats plan to oppose major spending cuts, but they don’t have the numbers to stop bills in the House. Their chances look better in the Senate, where the gap is narrower. Still, Republicans plan to eliminate as many Democratic seats as possible through redistricting. Texas gains four congressional seats this year due to population growth.

Gov. Rick Perry, who will be inaugurated this month for an unprecedented third four-year term, indicated that he would veto new or increased taxes. House Speaker Joe Straus and Lieut. Gov. David Dewhurst, the presiding officer of the Senate, have also issued anti-tax ­commitments.

School districts have already begun preparing for belt-tightening scenarios, including the possibility that elementary-school class sizes could grow from the current limit of 22 students through fourth grade. That would allow districts to lay off more teachers, an outcome that the federal government sought to avoid last year with stimulus funding for schools.

At the Dallas Independent School District, funding losses are estimated at about 10% of the district’s annual budget.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.