Lawmakers reach budget compromise after Abbott demands incentive money


Highlights

Budget conferees agreed to Gov. Abbott’s demand for $100 million for incentive programs.

The agreement was a major hurdle as the session heads into its final week.

Texas House and Senate budget negotiators agreed on a state budget for 2018-19 late Saturday — deciding to tap the state’s rainy day fund, a key sticking point — but not before Gov. Greg Abbott demanded they add $100 million to programs that are controlled by his office.

“He clearly felt that he needed more in the area of his trusteed funds in order carry out some of the economic development,” Rep. John Zerwas, the House’s top budget writer, told reporters after the committee adjourned about 1 a.m. Sunday. “If we had had a little bit more of a heads-up, we might have been able to make the accommodations. But it works out fine.”

Daniel Hodge, Abbott’s chief of staff, said that the last-minute demands were not new. “What we asked for last night was what we had been asking for since January in new money,” he said Sunday. The committee added the money.

While Zerwas, R-Richmond, was characteristically diplomatic about the demand, other lawmakers showed their frustration. When the committee was getting ready to reconvene, Rep. Sarah Davis, R-West University Place, jokingly said: “Is this about more corporate welfare? Is that why we’re still here?”

After the negotiations with staffers from Abbott’s office, the 10-member committee approved the budget and settled a key dispute over how to come up with an extra $2.5 billion by using elements of both chambers’ plans.

“White smoke has emerged from our conclave, and we have reached a consensus,” Senate Finance Committee Chairwoman Jane Nelson, R-Flower Mound, said as she opened the meeting shortly after 5 p.m. Saturday and announced that the committee had completed its work a month after it first convened and nine days before the Legislature adjourns.

The compromise budget, which will need to be approved by both chambers before it heads to Abbott’s desk, is lean and will result in cuts for many state agencies and public colleges and universities. The final price tag has not yet been determined.

Tight budget

With sluggishness in the oil and gas sector cutting into state revenue and past fiscal decisions limiting their options, lawmakers had less money to spend in the next budget than they did for the current two-year spending plan. To lessen the severity of cuts, the House and Senate came up with separate plans for coming up with an extra $2.5 billion.

The version of the budget initially approved by the House took that amount from the state’s more than $10 billion rainy day fund, while the Senate instead used an accounting maneuver to delay a $2.5 billion payment to the state highway fund until the following budget cycle, making it the next Legislature’s problem.

In the end, the compromise plan used both ideas, taking $1 billion from the reserve fund and deferring payment of $1.8 billion of the transportation money.

Despite House Speaker Joe Straus having called the Senate’s maneuver “Enron-esque,” Zerwas said he came around to the idea during the negotiations.

“We were able to get comfortable over time,” Zerwas said.

Another key dispute centered on how to pay for higher education programs known as “special items,” which the Senate proposed eliminating. The budget maintains them for now but phases them out over time while a joint committee studies how to change their funding structure.

In a win for the Senate, the budget maintains the current $800 million funding level for the state’s border security campaign, which Democrats and some Republicans had hoped to reduce or eliminate given the Trump administration’s plans to increase the ranks of the U.S. Border Patrol.

Funding for public schools gets a $530 million boost, well below the House’s plan to add $1.6 billion.

The two sides compromised on the House’s proposal to partially undo severe cuts to the rates that therapy providers are paid through Medicaid, adopted by the 2015 Legislature.

The House this year proposed restoring about 50 percent of what was cut in 2015, while the Senate’s initial plan left the cuts in. The compromise budget restores only 25 percent, at a cost of $24 million over two years.

Governor’s gambit

Abbott’s demands were delivered by Hodge and Steve Albright, the governor’s budget director. While they didn’t directly state that Abbott would veto the budget without more money for his office, “it was a clear indication to me that the governor would have a hard time signing off on a budget without that,” Zerwas said.

The money would go primarily to the Texas Enterprise Fund — which provides subsidies for companies considering moving to or expanding in Texas — and to incentive programs meant to lure filmmakers to Texas and to support the music industry.

Hodge said the governor’s office all along had made clear that Abbott was seeking a total of $110 million for economic incentive funds administered through his office — $60 million for the Texas Enterprise Fund, $40 million for the Governor’s University Research Initiative and $10 million for film and music incentives. The budget agreed to by the conference committee, before the governor’s office intervened, included only $10 million for the university program and no new money for the other incentives.

After squabbling over that issue, Zerwas said he asked to get to the point: “They said, ‘We asked for $100 million more, and we only got $10 million.’ I pointed out that’s totally incorrect and asked, ‘Where does the governor feel like he needs to be?’”

After two late night conversations between Abbott and Zerwas and another between Abbott and Lt. Gov. Dan Patrick, the issue was resolved, Hodge said.

To free up the money to pay for Abbott’s demand, Zerwas said the committee will probably lower its projections for how much the Medicaid program will cost, an accounting maneuver Texas lawmakers employ regularly.

Zerwas said that, before Saturday night, he thought the only program Abbott might threaten to veto the budget over was the governor’s high-quality prekindergarten initiative.

“In terms of what we thought might cause the governor to veto, we thought that was probably the single most important thing,” he said.

After the House and the Senate ignored the pre-K program for most of the legislative session, the conference committee directed $293 million for it, although the money came out of funding already earmarked for schools, not new funding.



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