Between speeches in Los Angeles, New York and New Orleans, Rick Perry is doing his best to keep people guessing if and when he’ll throw his (ten-gallon) hat into the GOP presidential primary. When the Texas governor appeared last Tuesday on “Your World with Neil Cavuto,” the conservative Fox News host was already gushing over the hundreds of thousands of new jobs created in Texas in the past two years. When Cavuto asked how Perry had lured Carl’s Jr. restaurants to Texas, the governor flashed a trademark smile. “They love the smell of freedom,” he explained.
Cavuto is hardly the only one enamored with the Perry story. Following his media blitz, few articles have cast a skeptic’s eye on the governor’s Texas record. “Texas Governor Calls for Halt of Economic Ruin” read one recent Bloomberg headline. The narrative is appealing: Small-town guy becomes Texas governor and makes (the economy) good—all by sticking to conservative principles. But while Texas remains “open for business”—the slogan of his successful re-election campaign in 2010—the state’s Legislature is in the process of a going-out-of-business sale. The Texas budget for the next two years is a mess of accounting tricks and gutted programs, thanks to an unprecedented budget shortfall. The state’s business tax has not only been unpopular, it also doesn’t generate nearly enough revenue. Operating at a structural deficit, the state has even begun to attack funding in the once-hallowed ground of education. And while Perry has spent a good bit of June on his non-campaign-campaign, state lawmakers from both parties are fighting tooth-and-nail to legislate around his dictums.
Although he campaigned in 2010 on the premise that, as he told the Associated Press, “Texas is better off than practically any state in the country,” Perry, along with the rest of the state, soon discovered that Texas’s budget gap—$27 billion short of what it would need to maintain its already lean services in the next biennium—was among the worst in the nation. Luckily, Texas did have a rainy day fund—over $9 billion saved up for “economic stabilization.” Some lawmakers, including many Republicans in the state Senate, advocated using the fund to prevent or at least soften cuts to education and health care. But Perry, who had turned “preserving the rainy day fund” into an applause line, stood firm in refusing to use it to plug holes in the budget for 2012-13. As a result, the budget cuts were draconian—initial proposals cut almost 20 percent from public schools and proposed 30 percent cuts to Medicaid providers. According to estimates from the nonpartisan state Legislative Budget Board, the initial proposal would have cost the state over 300,000 future jobs.
In the face of Perry’s promise to veto any use of the rainy day fund, lawmakers turned to accounting tricks like deferred payments to soften the blows to state programs. Fees, too, on everything from getting help collecting child support to registering as a lobbyist, are going up all over the state, and almost nowhere does the budget account for normal growth in social services enrollment. The final budget short-funds Medicaid by almost $5 billion. Legislators had to return for a special session to hammer out the cuts to education, which will likely end up around $4 billion. It will mark the first time Texas has cut funding for public schools since 1949, when the state first took a prominent role in financing them. Even the Texas Association of Business, a conservative, pro-business coalition if ever there was one, has expressed concerns over some of the cuts to schools and early childhood education. “Our state runs the risk of falling short on our commitment to Texas school children and businesses that rely on a well-educated workforce,” the group proclaimed in one March press release.
Of course, many lawmakers didn’t want to use the rainy day fund in the first place, but that’s because they know a dirty little secret: Even after this two year budget period, the state’s fiscal woes are far from over. The Lone Star State has a standing $10 billion shortfall every two-year budget cycle, thanks to a faulty tax system pushed by Perry that fails to balance the budget. Although the governor normally stays away from the state Legislature—sightings in either chamber are rare and exciting—Perry engineered a new business tax in 2006 to replace a prior one riddled with loopholes. Ostensibly a good idea, his new tax nonetheless suffered from the simple fact that it didn’t bring in enough revenue. Furthermore, it turned out to be incredibly complex, leaving many business owners scratching their heads. Those who figured it out, meanwhile, realized that, because the new tax was levied on gross margins as opposed to profits, companies could be losing money and still find themselves on the hook.
State legislators on both sides of the aisle have decried Perry’s ill-conceived fiscal planning. The chief Senate budget writer, Republican Steve Ogden, hasn’t been afraid to mince words about just how bad the business tax is. “None of us were elected to raise taxes on anybody,” he said the first day of the session. “But the margins tax is different. If we don’t fix the margins tax, local property taxes will definitely go up.” The regular legislative session came and went, however, without any real effort to fix the broken tax. The result is that the state is still operating with a structural deficit, and will very likely face more cuts the next time around.
Meanwhile, Perry continues to traverse the country, stirring up will-he-won’t-he excitement. As he told Cavuto, he may decide very late to join in the fun, keeping everyone on their toes a little longer. It also means less time for reporters to investigate the governor’s tenure in Texas. But if Neil Cavuto does find his way down to Austin, he might be a little surprised at the fiscal record of this pro-business, pro-growth governor.
Abby Rapoport covers politics and education for The Texas Observer.