Government Spending

Big Trouble in the Lone Star State


Sure, you fought a 3,000-man army to a standstill, but did you win a Nobel Prize for economics?

"You can all go to hell, I'm going to Texas" got a little harder for fiscal conservatives and no-new-taxers to say yesterday, as it turned out longtime Gov. Rick Perry has been sitting on a pretty substantial budget deficit.

According to Texas Comptroller Susan Combs, the state that seemed miraculously to have escaped the state fiscal crisis has, not so miraculously, not escaped. From Combs' biennial review estimate [pdf]:

Offsetting the anticipated revenue collections of $77.3 billion for 2012-13 is the ending 2010-11 General Revenue-related balance, projected to be a negative $4.3 billion. This projected ending balance is a reflection of worse-than-expected revenue collections due to the recession – notably, the all-important sales tax which was battered by rapidly rising unemployment and contracting state and national economies.

The Lone Star State's current tax haul is coming in at 2.9 percent below expectations.

Texas has long been a model [pdf] for budget hawks who argue that spending, not revenue, is the word of the states' undoing. The news that the recession has hit Austin's revenues is being cheered by supporters of big and growing government, who are not just gloating over the shortfall but gleefully exaggerating it. From ThinkProgress:

Not only did Perry severely underestimate the depth of his state's budget woes, but he has also spent the last few years lecturing Washington D.C. on its supposed fiscal improprieties, giving speech after speech in which he held up Texas as the economic model for the nation to follow. Just last week, he said that Congress needs to propose a balanced budget amendment to the Constitution, or else "the hard work that Texas and states like ours have done to make prudent fiscal decisions will be washed away by Washington's growing avalanche of excess"…

In his column from Los Tiempos de Neuva York, Nobel laureate Paul Krugman, the doctor, makes some legitimate criticisms of Perry's vague budgeting habits before engaging in his newspaper's long and honored tradition of making up facts:

But reality has now intruded, in the form of a deficit expected to run as high as $25 billion over the next two years.

And that reality has implications for the nation as a whole. For Texas is where the modern conservative theory of budgeting — the belief that you should never raise taxes under any circumstances, that you can always balance the budget by cutting wasteful spending — has been implemented most completely. If the theory can't make it there, it can't make it anywhere.

How bad is the Texas deficit? Comparing budget crises among states is tricky, for technical reasons. Still, data from the Center on Budget and Policy Priorities suggest that the Texas budget gap is worse than New York's, about as bad as California's, but not quite up to New Jersey levels.

"About as bad as California's"? Not quite. California's projected deficit over the next two years is a whopping 29 percent of revenues. The worst-case interpretation of Combs' figures has Texas with a 17 percent deficit, and the actual current deficit is a mere 5 percent. As Combs points out, the Lone Star State would still be ahead even under the worst circumstances because, unlike California, Texas has a real "rainy day fund" and has kept it funded. If Krugman's $25-billion guesstimate (which is not to be found anywhere in Combs' review) were to come true, Austin would still be able to reduce it by $9 billion by drawing on emergency funds.

The contrast is even more striking if you believe there is more to the health of a region than the government's fiscal condition. The worst part of Texas' job loss appears to be in the past, and unemployment is gradually decreasing. In California it is still increasing. The state's business community and population continue to grow. They continue to shrivel in the heavy tax states. The problem for the Empire, Golden and Garden States isn't just that they face present deficits but that their tax bases are not growing. Every year they have fewer and smaller pockets to pick.

That you'll get different outcomes with different tax policies is an idea Krugman would have understood when he was still doing economics rather than demagoguery. It's true Texans' overall tax burden is more than 2 percent lower than Californians' but the most important differences are in how revenues get collected. In Texas, where property taxes are higher and zoning is looser than in California, land values didn't zoom as much during the boom, and they haven't tanked as badly during the bust. By the same token, lack of an income tax makes job and business creation easier. That's not fiscal-con cant; it's basic economics. Rick Perry deserves criticism for concealing Texas' fiscal troubles, but it won't be time to gloat until people stop voting, with their feet, in favor of his state.

NEXT: The View From the Sidelines

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  1. From Krugman:
    But reality has now intruded, in the form of a deficit expected to run as high as $25 billion over the next two years.

    Not defending my state, because the talk has generally been much more conservative than the reality, but this is still bullshit. That $25 Billion deficit number has been thrown around by everyone from the liberal State Rep Joe Deshotel just south of me to Krugman. It’s based on spending estimates for 2011-12 from some liberal groups that represent a 21% spending increase over 2009-10. I can’t imagine that happening.

    More realistically, the Dallas Morning News is calling it a $15 Billion deficit, and a taxpayer advocacy group that I get emails from says it’s more like $10 Billion.

  2. When I browsed that report, it looks like Texas’s economic forecasts pretty much trump California in every category.

    1. So I guess Krugman’s point is “Well, the fiscal conservatives are still doing better, but now they’re only dominating us, where before they were completely obliterating us!”

  3. Soo…there’s a deficit which is covered by the rainy day fund? Seems like a non-story.

    1. Save for the fact that the legislature is completely unwilling to utilize the fund……

      All the talk is that the deficit must be made up by further cuts to an already exceedingly lean budget….

      The 82nd Texas Legislature will be all about trying to squeeze an already dry sponge even drier…

      1. With government, you can always squeeze harder.

  4. Texas’ unemployment situation is “better” (?) than it looks because it has remained in the 8% range despite the state’s population increasing by several hundred thousand over the past couple years. Jobs are being created there at a fast enough clip to keep pace with the highest population growth in the US.

    It is probably a safe bet that the government in CA, IL, NY, and the other insolvent states would kill to be in TX’s economic position.

  5. One should think this would give libertarian fundamentalist some pause. Things are not as simplisticly absolutist as they seem.

    1. “Texas’s fiscal sense pulls the state budget through a downturn with a rainy day fund” doesn’t really give me much pause about fiscal conservatism.

      1. As opposed to tax and regulate everything that moves or has the potential to move. Naw, ill take my risks with libertarianism. I know Texas has a bright future as many of the people I grew up with are moving there. Cheaper housing than the state I live in, more job opportunities, more price competition and cheaper goods.

        1. reply to MNG

    2. “One should think this would give libertarian fundamentalist some pause. Things are not as simplisticly absolutist as they seem.”

      Hmmm…I think Hayek might have touched on that, you know.

      1. As opposed to the Keynesian approach: “Hey, people are buying less stuff, let’s buy more stuff! All capital is the same!”

    3. The free-market did it !

      1. Deregulationzzz!!111!

        1. B-B-B-BANKERZZZ!!

          1. …don’t forget


    4. There’s another point not made here that I saw somewhere else. This is only the proposed budget. A couple more Krugman columns and Perry and the Lege will do the same thing they did in the ’03 session, zero out everyone’s budget and let everyone fight over the money for the new projection.

      What’s really killing Texas (and Florida who also have to balance their budget) is Medicaid. Medicaid payments in Florida have increased by something like $6B/yr since the halcyon days of 2007, while revenues continue to decrease. I believe Texas’ is going up $8B this year — so something like 60%-80% of the deficit is Medicaid.

      1. Texas has discussed dumping Medicaid for that reason.

    5. “Things are not as simplisticly(sic) absolutist as they seem.”

      Pot, meet kettle. I believe you two know each other.

    6. While people in my state may have a severe aversion to anybody raising their taxes, if we keep getting compared to CA and NJ I could see people donating money to the government just to stop them.

      Also, don’t be so fast to toot that horn when the fact is that CA and NY have not just property and sales tax (like Texas), but also a state income tax and they STILL can’t raise enough revenue.

    7. As opposed to tax and regulate everything that moves or has the potential to move. Naw, ill take my risks with libertarianism. I know Texas has a bright future as many of the people I grew up with are moving there. Cheaper housing than the state I live in, more job opportunities, more price competition and cheaper goods.
      reply to this

  6. The loony fiscal conservatives down here are talking about actually cutting education and Medicare, which is driving the lefties nuts. We’ll see if it actually happens, but its a good start.

    1. Let’s also hope the state continues to peel back the draconian, expensive, and counter-productive “tough on crime” bs.

    2. cutting education and Medicare


    3. But, but teh roads?!

      1. Don’t worry. It will be hell or high water before Texas quits funding roads… or at least freeway construction. There are an orgy of freeway fly-overs being built in Austin right now.

  7. Oh, look, Rick Perry lied to us. Again. Big shock. Reminds why I haven’t voted for him, ever.

    But we’re still in much better shape than most other big states. Krugabe’s complaint is like the guy who watches his house get blown out to sea in a hurricane, then points out that his neighbor doesn’t have power, so they’re both equally screwed. Not so much, Paulie. We’ll come out of this much better than Cali if the Lege doesn’t fuck things up too much this session.

  8. Oh wow, OK thats kinda crazy when you think about it.

    1. Anon Bot, you always make me feel happy. It IS kinda crazy!



  9. Dear sirs,

    Texas is NOT sitting on a budget deficit, as BY TEXAS CONSTITUTIONAL MANDATE, the budget has to be balanced each year. IF revenues fall, then the budget must be adjusted to THAT reality. Gov. Rick Perry did NOT hide anything – he has been perfectly honest about the expected reduction in revenue.

  10. Perry came out last night and said the Rainy Day Fund is going to be off limits and he’ll veto any attempts to draw from it.

    “We will prioritize what’s important in this state. We will fund those. And we will craft a budget that meets those revenue projections and not raise taxes nor get into the rainy day fund,” Perry said. “And that’s been a consistent message for at least a year and a half.”

    He disputed the idea of a shortfall when the next budget has yet to be written, noting that Texas’ budget must balance: “We don’t have shortfalls in Texas. … You couldn’t spend enough to make some of those groups happy.”

    I’m conflicted.

    On the one hand, this probably is as much of a “rainy day” as we’re going to get, given some of the forecasts and the fundamentals in our economy.

    On the other hand, Perry is being adamant that the budget is going to be balanced by cutting spending and not by increasing revenues (or available cash). This is admirable, regardless of whether or not he “hid” anything.

    So I don’t know if I would put this blame at the feet of Perry, necessarily. This whole “controversy” strikes me as a manifestation of bullshit baseline budgeting-type tricks where projected spending is assumed to be as constant as gravity and untouchable and anyone who refuses to touch the other side of the ledger is portrayed as being fanatical and unresponsible.

    Beware the politics here and the people who are drawing attention to the situation and attempting to portray Rick Perry in a bad light. Given the balanced budget amendment we have, it’s not as big a deal – or at least the type of big deal – as it’s being portrayed.

    1. “Perry is being adamant that the budget is going to be balanced by cutting spending and not by increasing revenues.” Way to go!

      The false austerity in both other states and other countries of the world along with the results they’ve produced show how valuable this attitude is. Now if only the rest of US politicians would realize that the proof of the pudding is in the eating… see

  11. Do any of you people actually read anything Krugman says? In my opinion, he has been throughly discreditied, much like the rest of the NYT.

  12. Though I suspect it’s this kind of thing that makes the Krugman intellectual whack-a-mole game so delightfully predictable, you could find no better simple evidence of his inability to reason when faced with an opportunity to instead make partisan points than in Sunday’s column about the Arizona shooting:

    It’s true that the shooter in Arizona appears to have been mentally troubled. But that doesn’t mean that his act can or should be treated as an isolated event, having nothing to do with the national climate.

    And it’s the saturation of our political discourse ? and especially our airwaves ? with eliminationist rhetoric that lies behind the rising tide of violence.

    Didja hear that? It’s the same damned handwave so many others on the left are making, starting with a call to eschew causality, and then assigning cause to Rushbo or Palin or whomsoever. Decades of macroeconomics have rotted the poor boy’s brain to the extent that he can scarcely type a paragraph without first checking to see whether it matches Democratic orthodoxy.

  13. Here’s an idea: Lift EPA restrictions on oil wells and refineries. Let Texans get back to work.

    1. That would be a violation of the equal protection clause – if these other basketcase states can’t get their acts together, it’s the executive branch’s job – through the EPA – to make sure that Harrison Bergeron doesn’t get a job.

      Why do you hate America?

  14. Wait – Krugman lies? Not the Nobel Prize winning Paul Krugman! That Krugman?

  15. The article states that Rick Perry has been “concealing Texas’ fiscal troubles.”

    I have not detected any attempts at concealment on the part of any state official. This is not a surprise to me. I also think the whole notion is blunted by the balanced budgeting requirements and the so-called rainy-day fund. In any case, budgeting is a legislative process, so failure to inform Texans would fall on state legislators.

    This is a non-story.


  16. The other thing to remember is that Texas has not yet made super painful cuts to their budget. California’s budget next year was smaller than their 2006 budget even before the cuts just announced! California has already cut A LOT of fat and is still coming up wanting.

  17. Spin it anyway you want. Texas is not in BIG TROUBLE. We will do what we always do…tighten our belt, cut spending, not raise taxes, and we will be ok. We don’t need anyone’s help. We are more than able to take care of ourselves. $17 Bill Defifict minus $10 Billion (rainy day fund) = $7 billion deficit for 2 year divIDed by 2 = $3.5 billion deficit PER YEAR for trhe next two years. That is not even a big problem…no more than a very very small speed bump. Bottom Line, we have hope. We know that we will be adding thousands of new jobs this year, we know that the sales tax revenue will start rising again with a growing economy, we know that the budget will be balanced with no new taxes. So, stop the stupid rhetoric and spin! Got it???? We have what NY, NJ, California, Ohio, Michigan do not…We have hope, the will, and the ability to do something about it, and we will, Thank yOU!

    1. Sorry, You dont have GW to help you anymore. The chickens have come to roost. You are assuming that your deficit is going to decrease. YOU DONT HAVE ANYTHING TO CUT! You are going to see a recession in Texas worse that the 80’s. The only thing bigger than Texas is the mouth of Texans. I know you actually believe your bull**** in your heart, that will make the fall ever more pleasing to the rest of the county.

      Enjoy your 1000 sq ft track home with no lawn and a rusted 78 ford on blocks in your driveway.

      I have a idea, why dont Texans sell all their guns, and give the money to the state? You would have quite a nice surplus.
      The bigger the state the harder the fall, it’s Texas’s turn!

      You cant build your way out of this problem.

      This is going to be a big blow to the Texas ego and i couldnt be happier

  18. The first thing you should know aboute Paul Klungman is: 1) He hates capitalism 2) He hates conservatism 3) He is some combination of socialist/communist/marxist 4) He is a far left liberal zealot who uses half truths, distortions, ommissions, and sometimes lies to make his point 5) He is an alumni of an Ivy League University 6) Because of his elite education and his political ideology, he has a very low opinion of ordinary Americans and sees them as stupid/ignorant and unable to make wise decisions to control their own lives 7) He believes that America is at the heart and cause of most of the worlds problems 8) It’s not even certain that he refrains from hating America
    Got it? Now, keep that in the back of your mind anytime you read any writings by this political hack. He hates anything to do with Texas because Texas is just about as conservative, flag waving, Bible thumping place you can find in America and anything that negatively impacts Texas is a hit against Conservatism, capitalism, and the American way of life. Texas is in no way as destitute as he would have you believe. Things you need to know about Texas: 1) Texas has a $10 billion rainy day fund that can be used to offset any deficit 2) A lot of the deficit in the Texas budget is caused by some of the mandatory state funding required by the Feds for some of their programs (Medicare, schools, road building, etc etc etc) 3) Texas legislature only meets every 2 years and the current budget was put in place two years ago and a lot of the additional expenditures causing the deficit could not be foreseen two years in advance 4) Texas, by state constitution, must have a balanced budget 5) Texas will cut back on spending (the Governor has already started putting the cut backs in place) to match it’s revenue. Texas will not increase taxes to match its expenditures 7) A lot of the addditional expenses have been created by the thousands of additional illegal immigrants that have entered Texas who must be supplied with schooling and medical attention. These are folk that should not be here except that the Feds didn’t keep them out. And, some of the additional expenditures have occured because Texas has had to spend more money to help secure the border which is the Feds job and the Feds expense but has been dumped on Texas to handle 8) He assumes that the more money spent on education, the better education will be….where’s the proof? Texas has always been very efficient with school funding. Texas has a good system and has lower per student cost than most statess….that’s a very, very GOOD thing, not a failure of the conservative, capitalistic system. Simply put, it cost less to educate Texans because of the lower cost of living, the lower expense for weatherizing schools (mild winters, springs, falls), and the efficient uses of revenue,etc, etc etc. 9) It is not known what the deficit will be but revenue from sales taxes has started increasing over the last few months and that will reduce the deficit. 10) It is estimated that the worst case deficit will be around $24 billion, but that is for two (2) years 11) Unlike California, Texas will implement a reduction of expenses instead of raising taxes.
    Bottom line: Klungman believes that everyone should be assisted with housing, food, education, salaries (entitlements) and that citizens should be taxed to a level to produce revenue to pay for it. Conservatives believe in the self-sufficiency of the individual and believe only the ones that are not able to make their own way should be assisted. Conservatives believe that citizens should be allowed to keep the majority of their own earnings cause they know best how to use their resources and that expenses should be no higher than the amount of revenue coming in based on the tax rate estimated to be the best balance between allowing citizens to keep their earnings and their fair share for funding government mandated responsibilities. The writer of this column is full of hot air, hate, and feeds it to the readers as a statement of fact. Texas is ok and will have a balanced budget and not raise taxes. That is the same way your household works…if you can’t afford it, you don’t do it!

  19. nts about our disdain for the two major American political parties and the broad worldvie

  20. The news that the recession has hit Austin’s

  21. they represent. When we ding professional Republicans for coming late to the anti?Transportation Security

  22. represent. When we ding professional Republicans for coming late to the anti?Transportation Security Administration party, or bash professional Democrats for

  23. Budget and Policy Priorities suggest that the Texas budget gap is worse than New York’s

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