When Is A Surplus Not A Surplus?

I, like many of you, have been wondering about that $14.3 billion dollar surplus of “new money” that Comptroller Combs announced earlier this month. In particular, I was wondering how we ended up with a surplus when, in the 2003 and 2005 sessions, we cut social services spending to the bone and were worried about having enough funds to pay for everything.

Thankfully, the Center for Public Policy Priorities has the answer: It is “carry over” from the cut budgets of the past, not actually “new” revenue, to wit:

The Comptroller has announced that the Legislature will have “$14.3 billion in new money to spend in the 2008-09 state budget.” This figure is a comparison between the amount of general revenue expected to be available for the coming biennium and the amount being spent in the current biennium. This is not the same as estimating that the state will take in $14.3 billion more in 2008-09 than in 2006-07. In fact, total net revenue to general-revenue-related funds in the next biennium is projected to increase by only $3.2 billion over the current level. [Emphasis mine]

Sounds perfectly reasonable.

The CPPP notes that general-revenue-related tax collections are likely to increase by only $4.12 billion, up to 67.68 billion for 2008-09 from $63.56 in 2006-07. Note also that:

Almost all of this growth comes from the state sales tax, which is expected to take in $3.82 billion more in the coming biennium than in the current biennium.

Remember during the special session last year how we talked about the regressive nature of the sales tax and that it hits the middle class and poor Texans hardest? Well, it’s hitting them harder to the tune of $3.82 billion.

Offsetting this and other growth, however, are anticipated decreases in other taxes:

the natural gas tax ($625 million decrease), oil production tax ($223 million decrease), and utility taxes ($113 million decrease). On the other hand, the amount of oil and gas revenues that must be set aside for the Rainy Day Fund will also decrease.

Here’s how the disasterous budget cuts from 2003 play into the picture of the surplus coming from carryover revenue:

A primary cause of this large carry-over balance is the budget cuts made in the 2003 session. Many of these services have not been restored, despite ongoing unmet needs. Although the state’s revenue system has recovered, the state’s budget has not, leaving $7 billion unspent at the end of the current budget.
Another $1.23 billion increase in available balances is due to a drop in the amount that must be set aside for constitutionally required transfers to the Rainy Day Fund (officially known as the Economic Stabilization Fund), because of declining oil and gas revenue. This is somewhat like increasing your disposable income by reducing your 401(k) contribution.
These two fund balances contribute $4.53 billion to the increase in funds available for certification – 60% of the total increase of $7.50 billion.

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