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Texas Budget Proposal Shows Harsh Consequences of Cuts-Only Approach

Because of the weak economy, states now project a whopping $125 billion gap for next fiscal year between the cost of services and the available revenue, our latest update shows.  That’s the worst gap on record, after accounting for federal assistance that states received under the 2009 Recovery Act and the August 2010 jobs bill.

To see what would happen if a state with a large budget gap closed it entirely through spending cuts — rather than a balanced approach that also includes revenue increases — look no further than Texas.  This week’s proposal by the state’s Legislative Budget Board (LBB), an influential joint committee of legislators, illustrates the potentially severe consequences of these shortfalls.

Texas faces a nearly $27 billion shortfall for the two-year budget period that begins September 1, an average of $13.4 billion per year.  At 32 percent of the state’s 2011 budget, this gap is one of the country’s largest.  As Scott McCown of the Center for Public Policy Priorities has pointed out, this shortfall was caused by the national recession and exacerbated by a misguided 2006 tax cut that is costing the state $10 billion every two years.

The LBB proposal takes a cuts-only approach to closing the state’s enormous shortfall, almost entirely avoiding revenue increases and the use of reserves.  As a result, it would hit hard at families and communities, including (but not limited to) many of Texas’ most vulnerable residents.  Among other things, the proposal would:

  • Reduce K-12 education funding to a level that’s 23 percent short of the minimum amount that state law requires. Texas already has below-average K-12 education funding compared to other states, and this cut would depress that low level even further at a time when the state’s school enrollment is growing.  This would likely force school districts to lay off large numbers of teachers, increase class sizes, eliminate sports programs and other extracurricular activities, and take other measures that undermine the quality of education.
  • Eliminate funding for pre-kindergarten programs that serve almost 100,000 mostly at-risk children — over 40 percent of the state’s pre-kindergarten students. Extensive research suggests that pre-K programs are an effective way to prepare children for school, especially disadvantaged children.
  • Cut public college and university funding by 16 percent. This cut would likely lead to tuition increases, reductions in course offerings, and layoffs.  The proposal would also eliminate all funding for four community colleges and most financial aid awards for new students under the Texas Grant program, which helps 87,000 students with financial need and good academic records.  As a whole, the proposal’s various education cuts would make it more difficult for Texas to train the well-educated workforce it will need to compete in an increasingly global economy.
  • Cut Medicaid provider rates by 10 percent. More and more Texas doctors already refuse to see Medicaid patients because of the state’s low reimbursement levels, relative to other states.  This additional cut likely would further restrict low-income Texans’ access to health care.
  • Eliminate tens of thousands of public- and private-sector jobs, weakening the overall economy. The state’s leading expert on school finance has estimated that the proposed cuts in state support for public education could force school districts to lay off as many as 100,000 workers.  Other cuts in the plan would eliminate almost 10,000 state jobs, such as prison guards and child protective service investigators.  Additionally, many private companies that have contracts with the state would have to eliminate jobs, as would local governments that rely on state aid.  This large-scale job loss, in turn, would weaken the state’s economy by reducing the demand for goods and services that Texas businesses produce.

Cuts of this magnitude are both counterproductive and unnecessary.  While the sheer size of Texas’ fiscal problems make spending reductions inevitable, a balanced approach that also includes additional revenues and use of the state’s $9.4 billion “rainy day” budget reserves would help to preserve core state services like education, health care, and public safety.  It would also be better for the state’s economy.

While Texas has an especially large budget gap, other states, too, are facing daunting shortfalls.  The Texas example illustrates the kinds of damage that a cuts-only approach would inflict.