Stimulus leaves state on mountain of cash

February 28, 2009 6:58:23 AM PST
Texas lawmakers started off the year staring down a multibillion dollar budget hole. Thanks to Uncle Sam, they'll soon be sitting on a mountain of cash. About $17 billion of President Barack Obama's economic stimulus package is headed for the Lone Star State, some of it helping to fill the gaps that otherwise would have strained the two-year state budget and its Rainy Day Fund savings account. Officials are still trying to figure out how and where to spend it, but fears of deep cuts and a looming future deficit have all but faded.

Republicans, who control both houses of the Legislature and every statewide office, have expressed misgivings about the mound of federal debt required to pass the stimulus package. Traditional deficit spending is not allowed in Texas, which has a pay-as-you-go budgetary system.

"We can balance the budget," with or without the stimulus money, said Sen. Steve Ogden, the Senate's budget leader. "We do it every session. We are not the federal government."

Still, legislative leaders say if Texans have to go into debt to help pay for the federal pork, they might as well get their share of the benefits. That, in turn, has relieved the pressure on them to balance a budget that began with a $9 billion drop in available revenue compared to the last budget cycle.

And the state has to spend the money. The federal law, intended to jumpstart the economy with an immediate infusion of cash, prohibits states from saving any of the money. Analysts say about $8 billion in state money will be freed up in the budget.

The law says "if you receive these funds, you can't add it to your Rainy Day or reserves -- there's a question about what that means," said Rep. Jim Dunnam, chairman of the House Committee on Federal Economic Stabilization Funding, who plans to take his panel to Washington to try to get answers -- or possibly have to pay some of the money back.

For example, if the Legislature simply leaves the money in the treasury, unobligated, does that violate the law?

Even if the answer is no, state law requires that a portion of any unexpended balances be transferred to the Rainy Day Fund, a reserve fund explicitly prohibited under the federal law.

While the stimulus committee is trying to untangle the bureaucratic knots, the Legislature is working to fit each piece of the stimulus into the 2010-2011 budget, which lawmakers are now writing and starts later this year.

The stimulus money is prescribed for education, health and human services, transportation, labor, criminal justice, and housing and infrastructure. Education will get the largest share -- more than $6 billion -- closely followed by health and human services programs, which are expected to get more than $4 billion, according to an analysis by the Legislative Budget Board.

That means more than $4 billion that lawmakers had budgeted for health care costs alone will likely be supplanted, and the $4 billion must be used elsewhere.

Eva DeLuna Castro, a budget analyst with the Center for Public Policy Priorities in Austin, said there are plenty of spending demands for the leftover money.

In addition to a shortfall left in the current budget period, DeLuna Castro said the state should pay to extend the eligibility period for children's Medicaid from six months to a year.

"That could be affordable with this money that they're getting," said DeLuna Castro, whose group advocates for low- and middle-income Texans.

Others are advocating more spending in public schools and dozens of other requests.

"It's an awful lot of money," said Dale Craymer, chief economist for the Texas Taxpayers and Research Association. "The wisest use of the money is to focus on economic development initiatives that will create jobs and help pull Texas out of this (recession) quicker and that will have the greatest payback down the road."

Gov. Rick Perry has been critical of the economic stimulus and has not ruled out rejecting some of the money. Perry has been adamant that the money not be used on items that will require continued state funding once the stimulus money has dried up.

A draft version of the budget for 2010-2011, which is expected to exceed $170 billion in all funds, is short as much as $4 billion without the stimulus dollars.

But in addition to the regular budget, the Legislature also expected to spend about $3 billion in supplemental funding -- mostly on caseload growth in Medicaid -- to close out the current budget period.

But the rescue package eases that burden, too, by increasing the federal match rate for state spending on Medicaid, dating back several months. Some analyst have surmised that the increase might even leave a surplus from the current budget cycle.

"The biggest problem, in all honesty, is timing," Craymer said. "There's so much money coming so quickly in a very complicated bill. The federal bureaucracy has yet to dot all the i's and cross all the t's.

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