January 20, 2003

Inaugural Event Schedule

Tuesday, Jan. 21, 2003

10:00 a.m., Private Prayer Service
First United Methodist Church
1201 Lavaca

12:00 p.m., Swearing-In Ceremony
Texas Capitol Building
South Steps
1100 Congress Ave.

Immediately Following Swearing-In
Barbecue on the Capitol Grounds
1100 Congress Ave.

2:30 p.m., Inaugural Parade
Congress Avenue

7:30 p.m., Inaugural Ball
Austin Convention Center
500 E. Cesar Chavez

None scheduled

Late last week the Legislative Budget Board released a current services budget prepared by outgoing Lieutenant Governor Bill Ratliff and former Speaker Pete Laney. That budget, which continues programs at current levels of funding, plus growth in Medicaid and CHIP, as well as employee and teacher retirement and health benefits, would cost the state about $64.6 billion in general revenue in 2004-05. It exceeds the Comptroller‚s revenue estimate by about $10.5 billion, and the 2002-03 appropriations by about $3.1 billion.

The LBB document contrasts sharply with the Governor's Zero-based budget, which was also released late last week. While widely reported in the media that the Governor simply submitted, as his proposed budget, the Governor's budget is in fact a more controversial blueprint for changing the format of the current appropriations bill, but without specific funding amounts. For example, the Governor is proposing to require state agencies, including institutions of higher education, to identify specific functions for which they are spending state dollars, instead of the lump sum, performance-based budget under which they currently operate. If this type of appropriations pattern is indeed adopted, it could substantially increase gubernatorial and legislative control of the appropriations process.

However, whatever form the appropriations bill ultimately takes, it will still require the Legislature to come up with the appropriate funding levels. That‚s where the LBB document will probably re-exert some of its former influence. In other words, as a practical matter it is virtually impossible to start from zero because there is no frame of reference in which to work. So the LBB budget is hardly irrelevant.

So where might the Legislature come up with the $10 billion or so dollars it might need to make the budget work? Is a tax bill inevitable? The answer is probably not, at least not yet. According to the Texas Taxpayers and Research Association, a number of ideas are circulating that may make it possible for the Legislature to escape one more time without a general tax increase. Some of those ideas include:

• Securitizing the tobacco settlement. This would generate a one time lump sum of about $4-5 billion. The problem is, once the rights to the future proceeds from the settlement are sold, they are gone forever and can‚t be used to fund children's health insurance and other health care programs.

• Spend the Rainy Day Fund. While the Comptroller continues her efforts to protect the $1.2 billion in the Economic Stabilization Fund, the fact is that it‚s already raining pretty hard.

• Use one-time accounting measures once again. By deferring Medicaid premium payments and other items into the next biennium, the Legislature could save up to $1.5 billion. However, they would have to find a way to pay for it out of the next budget.

• Continue the Telecommunications Infrastructure Fund. Slated to sunset this year, continuing the fund could allow the Comptroller to certify an additional $500 million next biennium.

• Lieutenant Governor Dewhurst has suggested changes in the way the Permanent School Fund capital gains are realized, with a potential for $200 million in additional state revenue.

• Close the Delaware sub loophole in the franchise tax. The Comptroller estimates that this could generate $400 million for the next biennium. However, some legislators might view it as a general tax increase.

• Raise the cigarette tax by $1 per pack. Already proposed by Senator Judith Zaffirini (D-Laredo), Vice Chair of Appropriations, a cigarette tax increase would generate $1.5 billion. It really is a tax increase, though.

• Allow universities to set their own tuition rates. This has been recommended by the Comptroller and could realize several hundred million dollars. But it would loosen the Legislature‚s control of institutions of higher education.

• Repeal the homestead exemptions, franchise tax credits, and sales tax exemptions adopted in 1997 and 1999. While it is highly unlikely that the Legislature would take back the homestead exemptions and sales tax holiday, it might take a look at the research and development tax credit and other business tax incentives passed during Governor Bush‚s last session. It‚s hard to see the current Governor sitting idly by while the President‚s legacy is dismantled, however.