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Rick Perry: Use Texas Rainy Day Fund to Pay for Business Tax Cuts

April 17, 2013

Two weeks ago, Texas Governor Rick Perry announced his state would forego billions of dollars in expanded federal Medicaid funding that could help provide health insurance for 1.5 million of his lower-income residents. Rejecting an estimated $90 billion over the next decade for his 46th ranked health care system, Perry declared that "Texas will not be held hostage to the Obama administration's attempt to force us into this fool's errand."
As it turns out, Governor Perry has a different errand in mind for Texas' share of the money that could have dramatically reduced the ranks of the quarter of Lone Star State residents without coverage. As he explained on Monday, Perry instead wants a new $1.6 billion business tax cut package--even if he has to tap the state's rainy day fund to pay for it.
Just two years ago, Texas faced a $27 billion deficit in its biennial budget, one-third of which was resulted "from a 2006 property tax reduction that was linked to an underperforming business tax." Now thanks to a booming energy sector, the Lone Star state is flush with new tax revenue. As the Houston Chronicle explained, Rick Perry has big plans for the estimated $8.8 bill surplus and the Texas Rainy Day Fund forecast to hit $12 billion by 2015:

Perry's proposal, which he unveiled at news conference at the Austin Chamber of Commerce, would cut the franchise tax rate by 5 percent. It also would broaden the current exemption for businesses that gross $1 million or less. Instead, there would be a $1 million deduction for businesses that make under $20 million. In addition, businesses that relocate to Texas could deduct their moving costs.

As Bloomberg Businessweek reported, funding the new windfall for Texas' businesses represents a departure for Perry:

He acknowledged that it might require using some of the state's reserves, commonly known as the Rainy Day Fund, to cover the costs of his proposed tax cuts, but said he hopes the money can be found elsewhere in the budget...That concession was a dramatic departure from two years ago, when Perry -- looking to solidify his tea party credentials as he prepared for an unsuccessful presidential run -- said state reserve funds shouldn't be touched so Texas would be fully ready for a catastrophic natural disaster.

So far, the GOP-controlled legislature has had different plans for the state's currently overflowing coffers. Thus far, Republicans instead have sought "to reverse some of the $5.4 billion it cut from public schools and educational grant programs in 2011, while also considering using the Rainy Day Fund to pay for key water and infrastructure projects." As Businessweek explained, Texas legislators are understandably wary of slashing business taxes further:

Texas' business franchise tax took its current form in 2006 and was meant to soften the blow from the Legislature's voting to slash statewide school property taxes by a third. Educational leaders say that, even at the time, lawmakers were warned that the business tax wouldn't make up for the lost property tax revenue -- and in the years since then Texas' per-pupil funding has plummeted.
Reducing the tax further could mean even less money for schools.

And that can't be a good thing for Texas education. Its 14th ranked school system is only 39th in state spending per student. (That is a lot better than the dismal Texas health care system, which Rick Perry claimed provided "the best health care in the country.") Apparently in Rick Perry's Texas, every day is a rainy day for business.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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