Can Texas Beat Its Fund-Balance Addiction?

 

When Texas deregulated its electric market in 1999, legislators weren’t sure how the changes would affect low-income residents, so they tacked a fee on to electric bills to help low-income Texans pay their bills. More than a decade later, legislators themselves have come to rely on the System Benefit Fund more than many of the residents it’s designed to help.

Texas law requires that lawmakers pass a budget that doesn’t spend more than the state’s comptroller has “certified” is available. The unspent balance in multiple funds like the System Benefit Fund are available for that “certification” — to the tune of $4.9 billion for the 2012-13 budget — even though legislators can’t really access the money stashed in restricted accounts.

Eva DeLuna Castro, senior budget analyst at the progressive Center for Public Policy Priorities, compares the practice to using the balance from a college savings account to try to negotiate a better loan deal. “You don’t ever intend to touch that money,” she says, “but you tell them that money’s available so your finances look better on paper.”

In other words, it’s a budget gimmick. While Texas isn’t the only state to use a gimmick to balance its budget, legislative leaders have called for the state to move away from the growing reliance on these unspent account balances, which have more than tripled in overall size during the past 10 years.

“Let’s reverse that trend this session,” House Speaker Joe Straus said in his opening remarks this year, “and strive to use all fees as the law intends — or not collect them at all.”

Early on, the System Benefit Fund paid out roughly what it took in, but that started to change in 2004, after legislators changed eligibility requirements. After years of paying out less than it took in, the fund has grown in size, substantially. It’s $851 million now and expected to grow to more than $1 billion if nothing changes during the next two-year budget cycle.

The state’s legislative budget board released a report last month offering a few suggestions to reduce reliance on funds like the System Benefit Fund, including a gradually tightening cap on the amount of funds that can be counted toward certification and depositing interest from these accounts into the general budget pool, so that the funds don’t continue growing indefinitely.

But ending the practice would mean lawmakers would have to find money elsewhere to certify the budget. “They would actually have to raise an existing tax or create a new tax,” Castro says. Neither is likely in the tax-averse state.

While legislators might try to change the way they spend some of the funds, budget leaders acknowledge that this year’s two-year budget will rely on at least some of the unspent balances.

“It’s something that happened over a long period of time,” says Tommy Williams, chair of the Senate finance committee. “I think it will take two or three sessions to wean us off of that.”
 
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