Time for Action

By: Dr. M. Ray Perryman
Published in syndication November 02, 2016

There is much to be done when the Texas Legislature convenes on January 10 for the 85th regular session. Meeting only 140 days every two years naturally leads to a long to-do list, but this time the stakes are particularly high. It is time to take action and deal with several difficult issues lest we face even larger challenges down the road.

Over the past five years, the Texas population has swelled by millions, straining infrastructure from highways to water supplies. Substantial progress is being made for roadways, but the needs are far greater than can be met with current funds. The same can be said of water resources.

The state's system for funding education was found by the Texas Supreme Court to be constitutional, but seriously flawed. In fact, Texas lags virtually every other state in the United States (and all of the major competitors for high quality economic growth) in terms of per-pupil spending, and the gap is widening. Without a court mandate to act, however, some legislators are likely to continue to ignore this pressing problem in order to focus on extraneous issues related to public education. Recent analysis has shown that past budgetary decisions have severely limited access to special education programs.

Investments in education have been shown to pay for themselves many times over when you consider the benefits, which range from increased productivity to decreased needs for social services. I estimate that the long-term return per dollar of incremental State investment in education is almost $50 in additional spending throughout the economy. Civic participation and volunteerism increase with education, not to mention the competitive advantages of having a superior workforce.

Social services networks are at critical junctures, with a need for major fixes. Of course the primary reason for improving these safety nets is to protect some of the state's most vulnerable residents, but there are also very real and measurable economic benefits. The foster care system and Child Protective Services is in dire need of redesign to better serve affected children and families, and the economic benefits over the long term would far outweigh the costs. Hundreds of crisis situations for children are not being addressed, and there is resistance to additional funding despite adverse Federal court findings and pleas from multiple sources. Other social services are also in need, and improvements can generate substantial long-term economic benefits. For example, we have studied the issue and found that for every $1 the state spends on innovative initiatives to reduce hunger, some nearly $16 in additional economic output (gross product) is likely over the long term. (Feel free to take a look at these studies; they're available on our website at www.perrymangroup.com.)

By far the biggest social service challenge is in health care, where costs are increasing, yet Texas has millions of uninsured residents who generally must access medical services through emergency rooms. Texas has refused to accept billions of dollars in Federal funds for indigent health care, despite the fact that it would be a huge fiscal win for the State (as described in another of our studies on our website). When a waiver expires in 2017, a major disruption may arise without substantial reforms. In addition, specific funding cuts have eliminated much-needed therapies for thousands of children.

Unfunded pension liabilities are mounting, and failing to adjust State contribution levels now will lead to a bigger issue in the future. It is also crucial to long-term economic vitality to keep making strides to improve the Texas business environment. The tax system compares unfavorably with many areas, with too much of a burden on capital-intensive industries. Economic development incentives can be crucial to location decisions, and we need them. Funding for basic research is another source of the right kind of development, and it is essential to the state's future.

These priorities are only some of the major issues which must be dealt with, and unfortunately resources will be relatively scarce. The end of the oil surge has had substantial implications for the economy and Texas tax receipts. The price of crude oil fell rapidly from the $80 to $100 per barrel range where it had been trending for several years down to less than $30 early this year and back up to the $50 range now. The resulting gyrations in one of the state's cornerstone industries have had substantial effects stretching far beyond energy industries.

Although the Texas economy has proven to be remarkably resilient, lower oil prices will make things more difficult in the upcoming session. The State's coffers greatly benefited from the oil boom through revenue from natural gas and oil production taxes, which peaked in 2014 at $4.6 billion (9.4% of general revenue for that year, based on the State's fiscal year, which runs from September 1 to August 31). Now, the state faces slower revenue growth due to the slack oil and gas industry activity, and whether and how to use the Rainy Day Fund (more formally the Economic Stabilization Fund, which I have discussed in a prior column) is sure to be on the agenda.

Even with tighter budgets, Texas cannot afford to take a short-term view of investments in the state's future. Being a good steward of taxpayer resources does not necessarily imply spending the least possible amount over the next two years; rather, it means strategically investing to solve major problems and ensure future quality of life and prosperity.

Texas has enormous potential--a favorable mix of industries, a young and growing workforce, and abundant natural resources. As an economist with more than three decades of intense study of the state economy and the effects of policy actions, I have analyzed and quantified the enormous benefits that can be realized by taking a long-term view. With the right policy actions now, the future can be bright indeed. The time could not be more wrong for allowing arbitrary ideological precepts to dictate short-sighted policies. The time is right for bold leadership to build the framework to permit Texas to achieve its destiny.