Plan to tap ‘rainy day fund’ exposes GOP split


The top budget writer in the Texas House proposes to use $1.4 billion in reserves to plug budget holes.

Conservative hard-liners have balked at tapping the rainy day fund.

The supplemental budget would pay for a shortfall in Medicaid and boost funding to CPS.

Setting up a showdown among GOP factions, the top budget writer in the Texas House filed a bill Friday to plug budget holes by taking $1.4 billion from the “rainy day fund.”

Hard-line conservatives adamantly oppose tapping the $10 billion reserve fund.

But House Appropriations Committee Chairman John Zerwas, R-Richmond, said it made sense, in a difficult economy, to tap a fund that is projected to grow to about $12 billion by the end of the next budget cycle and is already the largest of its kind in the nation.

“This is a rough budget session. We need to look at all the things that are available to us to get our budget to a reasonable place, and part of that is using some rainy day money,” Zerwas said.

House Bill 2, Zerwas’ attempt to fill gaps in the current two-year budget, would add:

• $930.7 million to cover a shortfall in the state’s contribution to the federal Medicaid program.

• $188.6 million for state hospitals and supported living centers.

• $101.7 million for pay raises and new hires at the scandal-plagued Child Protective Services.

• $47 million for the foster care system.

• $80 million for inmate health care in state prisons.

• $21.5 million to partially undo controversial cuts to the rates paid by Medicaid to physical, speech and occupational therapists.

House Speaker Joe Straus called the bill “a responsible approach that combines spending reductions with a modest withdrawal from the rainy day fund.”

“This is a better option than leaving $12 billion sitting in the bank while making deep cuts to higher education and significantly increasing health care premiums on retired teachers,” Straus said in a statement.

Hours after Zerwas filed HB 2, the newly formed Texas Freedom Caucus of some of the most conservative House members voiced its opposition.

“The Texas Freedom Caucus shares the sentiment that we can take care of the state’s business without tapping the rainy day fund, and that includes the supplemental appropriations bill,” said state Rep. Matt Schaefer, a Tyler Republican who chairs the caucus.

While Straus, R-San Antonio, likely has the votes to pass the supplemental budget out of his chamber, it faces a less certain future in the Senate, which is led by Lt. Gov. Dan Patrick.

Patrick, who didn’t respond to a request for comment, has previously criticized House budget plans and said the rainy day fund should only be tapped for one-time expenditures or natural disasters. A key question will be whether Patrick will regard the supplemental measure as a one-time expenditure.

Senate Finance Committee Chairwoman Jane Nelson, R-Flower Mound, said she will work with the House “to address our supplemental needs.”

“Senate work groups are meeting around the clock to identify opportunities for savings,” Nelson said. “We will look at other options to balance this budget once that effort is complete.”

Overlapping negotiations

The rainy day fund, created in 1987 to help the state weather economic downturns, is funded primarily by oil and gas production taxes. Zerwas said he believes his use of it in HB 2 will pass muster with conservative lawmakers.

“Most of the things in there would qualify as one-time expenses, or they’re just simply things that we just absolutely need to do,” he said.

The supplemental budget, which applies to the budget cycle that ends in August, will be negotiated alongside the state budget for 2018 and 2019, which might also involve a fight over the rainy day fund. State coffers are tighter than they were in 2015 because of fiscal constraints adopted in recent legislative sessions and low oil and gas prices that hamper tax collections.

Straus’ initial proposal for the next budget, House Bill 1, spends $221.3 billion overall, including state and federal funds, while Nelson’s Senate Bill 1 spends $7.9 billion less.

After factoring in population growth and inflation, the Senate plan would amount to a 7.9 percent cut in total spending compared with the current budget, according to the Legislative Budget Board. The House plan would be a 5.6 percent cut in spending.

In state spending alone, the Straus plan exceeds by about $4 billion the amount of money that Comptroller Glenn Hegar estimates the state will have to spend next year. Because tax increases are a nonstarter with Republicans who run the Legislature, the difference would likely have to be made up by tapping the rainy day fund.

The House and Senate are unusually far apart in their initial proposals for the state budget, which is the only bill the Texas Constitution requires lawmakers to pass. If they fail to reach an agreement by the end of May, Gov. Greg Abbott will be forced to call a special session on the budget.

Plugging holes

Zerwas’ proposed supplemental budget focuses on payments the state is required to make and on programs that many lawmakers have said need a boost.

The biggest expense, covering the Medicaid shortfall, has become a routine payment because the GOP-controlled Legislature traditionally underfunds the program in its initial spending plans. Failure to pay up on the back end would result in the state defaulting on the program, risking legal challenges and billions in federal funding.

The money for programs like CPS and the foster care system comes after investigations have shown that the state is failing to meet its goals for protecting vulnerable children. Abbott, Patrick and Straus in December agreed to a $150 million emergency package that will give $12,000 raises to CPS caseworkers and pay for 829 new hires.

Zerwas’ proposal to partially undo the therapist rate cuts lawmakers adopted in 2015 comes after many providers said they would no longer be able to provide those services at the new rates. HB 2’s $21.5 million appropriation, along with $29.8 million in federal matching funds, restores only a fraction of the estimated $350 million in state and federal spending cut from the program last session.

Other provisions in the supplemental budget, such as $80 million for inmate health care, pay for cost overruns in those programs.

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