The Texas Legislature will begin to grapple with the bleak budget picture when the session opens Tuesday.
"The recent recession has had its impact on the state revenue outlook as major revenue sources, such as the sales tax generated less money in the last couple of years," state Comptroller Susan Combs told reporters. "While we have turned the corner to an economic recovery, the revenue estimate I'm releasing today is for moderate growth."
The numbers cover the 2012-2013 budget, and include a $4.3 billion deficit in the current state budget.
Texas also will have about $9 billion in the so-called Rainy Day Fund, but that money can't be used without a two-thirds vote of the Legislature -- a hurdle that may be too high with the new wave of fiscally conservative freshman Republican lawmakers.
The estimate, which gives the Legislature a roadmap as it embarks on the budget-writing process, has for months been the topic of election-year rhetoric, with Republican incumbents trying to downplay the severity of the budget mess.
Because of the recession, state tax receipts for the 2010 budget year have fallen behind projections, leaving a deficit in the current budget. The state is also on the hook to fill a hole of about $11 billion left by federal stimulus money and other state savings that were used last year but are no longer available. Added cost pressures from increased enrollment in public schools and health care programs for the poor and disabled, and spikes in health care costs, will compound the massive hole.
"When increased population and higher costs are taken into account, Texas is at least $26.8 billion short of the general revenue needed to provide for current services into the next biennium," said F. Scott McCown, executive director of the Center for Public Policy Priorities, which advocates for needy Texans. "In other words, we are short by at least 25 percent."
In public schools alone, enrollment is expected to grow by more than 153,000 at a cost of about $1.6 billion over the next two years, according to the Texas Education Agency.
The Texas constitution requires that the budget be balanced and state leaders and many of the new supermajority of conservative legislators elected in November have vowed not to raise taxes.
"With a revenue shortfall this large, the Legislature cannot write a budget through cuts alone without doing terrible damage to Texans and to the Texas economy," McCown said. "For example, cuts alone mean shortchanging our children's education from kindergarten through college. Cuts alone mean compromising public safety. Cuts alone mean suffering for children, the elderly, and those with disabilities. Cuts alone mean losing jobs and curtailing economic development."
The shortfall will be the driving force behind almost every decision the Legislature makes when it convenes for the biennial, 140-day session. From state parks and highways to health care programs for the poor and disabled, state agencies are bracing for the hatchet. With more than half of the state budget dedicated to education and health care services, those areas are likely to sustain the most severe cuts.
"Comptroller Combs' estimate provides a clear picture of the budget challenges the Legislature faces during the 82nd Session," said Rep. Jim Pitts, R-Waxahachie, who serves as chairman of the budget-writing House Appropriations Committee. "Texas remains strong, and we will make the tough choices necessary to ensure that we have a balanced budget and that our state remains the best business climate in America."
Still, conservative analysts urged the Legislature not to spend beyond its means.
"The decisions of this Legislature will determine what kind of future Texas will have," said Talmadge Heflin, director of the conservative Center for Fiscal Policy. "A budget within existing revenues will keep a light burden on Texas taxpayers, encouraging large businesses and entrepreneurs to create jobs here. However, raising taxes to expand government's footprint would send Texas down the path of California and Ohio toward economic stagnation and fiscal bankruptcy."
Republican House Speaker Joe Straus, who is in the middle of a fight to retain his post, has raised the specter of unpaid furloughs for state employees.
One Democratic lawmaker called Monday's announcement a "bitter pill to swallow."
"A $27 billion hole in the state budget means there are no easy answers and no quick fixes," said Sen. Eddie Lucio Jr., D-Brownsville. "This session is going to be about hard decisions. Do we cut vital services? Do we raise taxes? Do we spend the Rainy Day Fund?
"The budget must be compassionate. It is a moral document which speaks to our priorities as a community. I implore my fellow lawmakers to put politics aside and invest in Texas -- to place morality above ideology."
The full Biennial Revenue Estimate is available on the Comptroller's website at www.window.state.tx.us/taxbud/bre2012.