Speaking at a Capitol news conference yesterday, Lt. Gov. David Dewhurst said "We don't have a 14.3 billion dollar surplus." He asserted that "when you look at promised property tax cuts out to 2011, we're looking at a balanced budget with just a modest increase in our expenditures." Dewhurst made similar remarks today at the Legislative Budget Board meeting where the LBB set the constitutional spending limit, which based on projected personal income growth, will allow a 13.11 percent increase in general revenue expenditures for the 2008-09 biennium.
At the LBB meeting today, Dewhurst repeated his comments questioning the reality of the surplus after Comptroller Susan Combs on Monday certified a $14.3 billion surplus for the 2008-09 biennium. Dewhurst, however, argues that the Legislature needs to consider the cost of bringing property taxes down to $1 from $1.50 in the 2010-11 biennium as well.
The assumption is that economic growth will not be as robust in 2010-11, meaning that revenues will not grow at a high enough rate to pay for the property tax cuts in that biennium. On this basis, Dewhurst advocated today that the Legislature stash away at least $6 billion of the current surplus for 2010-11.
The problem with this approach is that no one can say with much certainty how the economy will perform three or four years from now. Why not instead make further property tax cuts now and then, if revenues three or four years from now don't materialize, hold the line on spending at that point. Moreover, the LBB Director John O'Brien reminded legislators today that the state has over $4 billion in the Rainy Day Fund so we already have that substantial cushion to fall back on in the event of an economic slowdown and a resulting slowdown in revenues.
The bottom line is that the best way to avert an economic slowdown is to return as much of the surplus as possible to taxpayers so that money can be productively spent and invested, fueling more economic growth.