Rick Perry - Debt, Deficit, Spending, and the Size of Government

Last Updated: Oct 25, 2011

Summary

Governor Perry is a vocal advocate for keeping government spending as low as possible while balancing the state and federal budget. He credits the lack of debt and future burdens with the ability of Texas to grow it's economy and create jobs.

The Texas constitution requires the debt of Texas to remain below 5% of it's average general revenue from the previous three years. Texas passes a budget every two years and this rule effectively forces the Texas budget to be balanced over this time. Governor Perry and the state legislature have kept the state expenditures from rising too quickly and while there are years with deficits and years with a reliance on special funding from the Stimulus, the budget has been balanced overall.

Although this rule helps reduce state spending, it made it difficult to invest in large scale public works projects. Governor Perry pushed for and obtained a series of changes to Texas budgeting laws relating to the funding of transportation projects not long after he entered office. These changes allowed the issuance of bonds to allow them to be issued for construction projects against the full faith and credit of the state. This has led to an explosion of local debt relating to construction projects. Texas ranks 2nd overall in local debt per capita for local debt, and 5th overall per capita in total debt with $8,874 per person.

Governor Perry has been vocal since the economic down turn in stating that the federal government must begin to pay down it's debt and balance it's budget. He supported the cap, cut, and balance act during the 2011 debt crisis.

In October of 2011, Governor Perry introduced his plan to reduce spending by the federal government if elected President.

Balance the Budget by 2020
Reduce Non-Defense Discretionary Spending by $100 Billion in the First Year
Require Presidential Signature on Every Federal Budget
Institute Automatic Government Shutdown Protection
No More Earmarks
Require Emergency Spending to be Spent Only on Emergencies
End Baseline Budgeting and Require Common-Sense Scoring Rules
PAYGO for New Federal Programs
Freeze Federal Civilian Hiring and Salaries Until the Budget is Balanced
No More Bailouts

Texas Budget

In 1997 the 75th Legislature passed and voters approved HJR 59 that added Section 49-j to Article III of the Texas Constitution. This amendment states that additional tax-supported debt may not be authorized if the maximum annual debt service on debt payable from general revenue, including authorized but unissued debt, exceeds 5% of the average annual unrestricted General Revenue Fund revenues for the previous three fiscal years. This has forced spending in Texas to remain relatively steady from 2002 to 2007 and then rose sharply after that point as revenues have risen.

Texas State and Local Debt

Although the state of Texas requires a balanced budget, this does not include debt relating to bonds for highway construction, water utilities and other items. Some of this debt is owed directly by the state, but most of it is owed by local municipalities. As of 2010, Texas had $33 Billion in debt owed by the state and ranked 9th highest per capita in the US. Local municipalities owed $182 Billion is debt, which is second highest in the US per capita with $7,505 dollars per person owed. Combined, this debt ranks 5th per capita in the nation with $8,874 owed per person.

Types of Debt

General Obligation (GO) debt carries a constitutional pledge of the full faith and credit of the state to repay the debt and requires passage of a proposition by a vote of two-thirds of both houses of the Texas Legislature and by a majority of Texas voters.

The repayment of non-GO (revenue) debt is dependent only on the revenue stream of a project or enterprise or an appropriation from the legislature. Any pledge of state funds beyond the current budget period is contingent upon appropriation by future legislatures, and such an appropriation cannot be guaranteed under state statute. Due to the higher risk associated with non-GO debt, it requires a higher rate of return.

Self-supporting GO and revenue debt rely on sources other than the state’s general revenue to pay debt service; thus self-supporting debt does not directly impact state finances. However, debt that is not self-supporting depends solely on the state’s general revenue fund for debt service and draws upon the same sources used by the legislature to finance the operation of state government. The image below shows the amounts for the types of debt and was taken from the Texas Bond Review Board 2010 Annual Report.

Texas Rainy Day Fund

Due to an economic downturn in the late 1980's, the state of Texas passed an Economic Stabilization Fund (ESF), also known as the "Rainy Day Fund." The ESF receives most of its funding based on a formula involving the base year of 1987. If the state’s annual oil and/or gas production tax collections exceed those collected in fiscal 1987, 75 percent of the amount above that level is transferred into the fund. The Comptroller’s office typically makes these transfers in November of each year with the first deposits made in 1990.

Warning Against Overspending

In April of 2003, Governor Perry released a press statement discussing the need to resist the urge to fall into a cycle of undisciplined spending.

Gov. Perry Warns Against 'Vicious Cycle of Undisciplined Spending'
Organizations Representing 400,000 Texans Join Call to Hold the Line on State Spending
Wednesday, April 23, 2003 • Press Release
AUSTIN – Gov. Rick Perry today joined members of organizations representing more than 400,000 Texas families and businesses in urging Texas lawmakers to hold the line on spending and not raise the price of state government on taxpayers.
"Texas families and Texas small businesses may not be organizing petition drives or marching on the Capitol, but they are keenly interested in who is working to give them a government at a price they can afford,” Perry said. “Even if their voices are quiet, legislators would be wise to hear it.”
The governor was joined at the Governor’s Mansion by representatives from 12 statewide organizations. The groups included Citizens for a Sound Economy, Free Market Foundation, Independent Bankers Association of Texas, National Center for Policy Analysis, National Federation of Independent Business, Texas Association of Business, Texas Citizen Action Network, Texas Conservative Coalition, Texas Hispanics Educating on Law and Politics (Texas HELP), Texas Public Policy Foundation, Texas Women’s Alliance and the Young Conservatives of Texas.
“We must resist the vicious cycle of undisciplined spending that leads to higher taxes that then leads to more undisciplined spending,” Perry said. “If higher taxes ensure sufficient revenue, then why does California now face a $35 billion budget gap? Over the long-term, tax hikes do not alleviate economic and budgetary problems. They exacerbate them.”
The governor also warned against budget tricks such as draining the state’s Rainy Day Fund for on-going expenses or “payment deferrals,” which allow government to push expenditures into the next budget cycle.
“We must not attempt short-term solutions that come at the expense of long-term prosperity,” Perry said. “We cannot create jobs and additional revenue by passing the tax hikes that kill jobs and dry up sources of revenue.”
Perry noted that practicing fiscal discipline is not easy and sometime means “saying no to worthwhile programs” or “accepting reductions in one’s own favored initiatives.”
Perry also praised state legislators for working to develop a budget within available revenue.
“The legislative process is working,” the governor said. “I want to encourage members of the House and Senate to continue to hold the line on spending, investing in priorities and spending what the state can afford, but not one cent more.”

Tax Reform Instead of Rainy Day Fund

In March of 2006, Governor Perry issued a press statement noting recent and projected budget issues due to falling tax revenues. Governor Perry noted that the falling revenue was due to outdated taxing methods and that those should be dealt with instead of dipping into the states rainy day fund.

Gov. Perry: Cut Property Taxes and Reform Tax Structure
Says Upcoming Special Session Can Achieve Both Goals
Tuesday, March 21, 2006 • Press Release
AUSTIN – Gov. Rick Perry today told the Texas Association of Manufacturers that the upcoming special session of the legislature is an opportunity to give Texans a significant property tax cut that stands the test of time and to make lasting improvements to the state’s tax structure so that it is more modern, broader and fairer.
“If Texas is to continue to be a national leader in job creation, any new tax system we adopt must reward jobs and investments, not penalize them,” Perry said. “And just as importantly, our tax structure needs to treat businesses in different industries with an even hand.”
He said the economic growth the state has experienced in recent years occurred because Texas has created an environment that welcomes job creation and rewards entrepreneurship like no other state.
“My philosophy is simple: You can’t tax, spend, regulate and litigate your way to prosperity,” Perry said.
The governor acknowledged that some view the state’s $4 billion budget surplus as “money that can be used to buy a ticket on a fast train out of Dodge,” but he said we can do better. Perry explained why passing comprehensive tax reform is a better approach than merely using surplus revenue to fulfill the bare bone requirements of the Supreme Court’s ruling:

That option doesn’t provide any long-term solution. In 1997, Texas tried the same strategy with a $1 billion tax cut. Eight years later the property tax cuts have evaporated, school finance has been litigated, and taxpayers are now exasperated.

It is only fiscally responsible to spend as much as you can generate going forward. “Using some of the budget surplus to pay for property tax relief is wise. Using all of the surplus will leave a huge budgetary hole for future legislatures to fill,” Perry said.

Using the surplus to buy down property taxes would only provide taxpayers a one-time 20 percent cut. Perry said comprehensive reforms being developed by the Texas Tax Reform Commission would provide a 33 percent cut that is continued over time.
Without reform, the franchise tax will continue to become a dwindling source of revenue for schools at the expense of the few who pay it.
“I say let’s not substitute speed for substance,” Perry said. “And let’s not confuse doing the easy thing with doing the right thing. It may be more of a challenge to reach an agreement on comprehensive tax changes, but it is a challenge we should take head on because it is the right thing to do.”
Perry said it makes more sense to have a broader tax that captures more of the economy at a lower rate and that provides incentives for job creation, and investments in employee healthcare and pensions.
The Texas Tax Reform Commission, which has held public hearings across the state, is expected to announce soon its recommendations for lowering property taxes and reforming the franchise tax.
Perry also said he supports continued education reforms, but in the upcoming special session it would be wise to start with the property tax reform because the Supreme Court has ruled the current system unconstitutional. “But if the speaker and lieutenant governor can bring me a school reform bill that both chambers agree on, I will gladly add it to the call once the tax issue is resolved,” Perry said.

Budget Reform Measures

In January of 2007, Governor Perry issued a press statement calling for four measures to reform the budgeting process.

A truth in spending initiative that ends accounting gimmicks such as delayed payments and requires dedicated funds to be used as intended, or refunded to taxpayers.
Imposing a stronger spending limit on state government.
Requiring detailed budget line items instead of lump sum line items.
Requiring all state agencies to publish expenditures online in a clear and consistent format.

Gov. Perry Outlines Budget Reform Measures
Governor wants stronger spending limit, end to accounting gimmicks
Wednesday, January 31, 2007 • Press Release
AUSTIN – Gov. Rick Perry today outlined budgetary reform measures to promote fiscal responsibility and transparency in state government. The governor also stressed the need for a stronger state spending limit and wants to “true-up” the budget by paying for past delayed payments and ending accounting gimmicks.
“This session I am proposing a truth-in-spending measure that ends the accounting gimmicks, stops the funding diversions and that lets state government get right with the people,” Perry said. “Texans deserve a budget that makes sense, that’s accessible to the average person, straightforward on priorities, and responsible in size.”
Reform measures proposed by Gov. Perry include:

A truth in spending initiative that ends accounting gimmicks such as delayed payments and requires dedicated funds to be used as intended, or refunded to taxpayers.

Imposing a stronger spending limit on state government.

Requiring detailed budget line items instead of lump sum line items.

Requiring all state agencies to publish expenditures online in a clear and consistent format.
With a record budget surplus, Gov. Perry believes now is the time to make one-time payments to reconcile past accounting maneuvers and accurately balance the budget.
“Now is the time to true-up the Texas budget, pay for our property tax cut and then move forward with a real, meaningful spending cap,” Perry said. “I’m not trying to cast blame for past practices; I’m trying to wipe the slate clean going forward. If we don’t end these budget gimmicks now while we have a record surplus, it will never happen.”
“The spending limit we have today is not really a limit. What I will propose will be more closely aligned to population growth and inflation, allowing room for key investments with a strong check against excess spending.”
Additionally, in an effort to further promote transparency and accountability, expenditures made by the governor’s office will be available to view online beginning today.
“Transparency is the cornerstone of public trust,” Perry said. “If taxpayers are picking up the bill, they ought to be able to look at the receipt.”

Comments on Spending

In May of 2007, Governor Perry issued a press statement noting a speech he made regarding the need for greater restraint on both spending and taxes.

Gov. Rick Perry's Comments on Spending and Tax Restraint
* Note: Gov. Perry frequently departs from prepared remarks.
Wednesday, May 02, 2007 • Speech
Thank you. I am joined today by Michael Sullivan with an advocacy group called Texans for Fiscal Responsibility. I would like to ask Michael to share some comments, Michael.
Thank you Michael. These petitions represent the voices of hardworking Texans. Most can’t afford to hire their own lobbyist, and few have time to come here and testify on bills. Because of that, the voice of the taxpayer too often gets drowned out by the voice of special interests. With 26 days left in the legislative session, I have some good news and some bad news to share with the people of Texas. Let me start with the bad news: if the session were to end today, we could point to precious few accomplishments on behalf of the taxpayer. Outside of continuing the property tax cuts of the last session and the passage of budgets in the two chambers that don’t spend every dime available, the taxpayers have been shut out. Here’s the good news: legislators have 26 days to change that and pass real taxpayer protections so that they don’t go home this summer having spent billions more without providing additional tax relief or passing a tighter spending cap.
To date, stronger tax and spending constraints have languished in committee. A stronger state spending cap, which I advocated in my own budget, resides in a subcommittee. A tax revenue limit to give property taxpayers protection from skyrocketing appraisals hasn’t even made it out of committee. And despite a record budget surplus, a modest property tax cut of $2.5 billion hasn’t even been heard on either house’s floor. I commend legislators for supporting the elimination of the TIF tax and the end of large payment delays. But there are still billions of dollars of spending gimmicks that, if not addressed when we have a record surplus, never will be.
Many of us stood before the people of this state and got elected on spending restraint, tax relief and honest budgeting. I support increased investments in education, healthcare, transportation and border security. I support a budget that spends more responsibly because we are a growing state with diverse needs. But let’s not forget the taxpayers. Behind every government program there is not only a recipient in need, but a taxpayer who funds it. They deserve greater budget transparency, such as line items that are more explicit, and greater disclosure of public funds on agency websites. They deserve a state spending limit that is actually a limit. I support tying spending increases to inflation and population growth. They deserve truth-in-budgeting where fees collected for a purpose are spent on that purpose. They deserve lasting school property tax relief, but unless legislators act to protect Texans from skyrocketing appraisals, the rate relief will be overwhelmed by appraisal creep. Let’s make sure the taxpayers have a good session and not just big spending special interest groups. Thank you.

Cut, Cap, and Balance Pledge

On July 7, 2011 Governor Perry announced that he had signed the cut, cap, and balance pledge. At the time, other signers included Governor Haley of South Carolina, Governor Herbert of Utah, Governor Parnell of Arkansas, and Governor Scott of Florida.

Governor Perry Signs the Cut, Cap, Balance Pledge
Thu, 07/07/2011 - 5:12pm — jordanroot
Today Governor Perry signed the Cut, Cap, Balance Pledge, promoting the sound fiscal policies that have Texas leading the nation.
The pledge includes:
"...Cut — Substantial cuts in spending that will reduce the deficit next year and thereafter.
Cap — Enforceable spending caps that will put federal spending on a path to a balanced budget.
Balance — Congressional passage of a Balanced Budget Amendment to the U.S. Constitution, but only if it includes both a spending limitation and a super-majority for raising taxes, in addition to balancing revenues and expenses."
Gov. Perry is currently one of only four governors to sign the pledge. Read more about the pledge at CutCapBalancePledge.com

Comments on the Debt Ceiling

In late July of 2011 Governor Perry spoke about his frustration with the debt ceiling and called it political theatre. He reasserted his support for the cut, cap, and balance approach and noted that he did not agree with President Obama's actions during the debt ceiling discussions.

2012 Debt and Spending Reduction Plan

BALANCE THE BUDGET
America's Out of Control Debt
The federal government has a spending problem. Last year the government spent $1.3 trillion more than it collected, and total federal debt now approaches $15 trillion.61 62 By the end of this year, the White House Office of Management and Budget expects the gross amount of federal debt to exceed the size of America’s entire economy for the first time in over 65 years.63 And according to OECD data, America’s federal debt relative to its economy is 27% higher than the average for all other OECD countries.64
While interest rates today remain low, the inexorable rise of federal spending debt will eventually lead to higher interest rate and payments, lower economic growth, and lower standards of living. The current economic crisis affecting Europe paints a portrait of America’s future if Washington politicians refuse to make changes to the federal budget. If current spending and debt trends continue, individual Americans can each expect by 2035 to have $10,300 less to go around due to the crowding-out effects of the ever-increasing federal debt.65
Every child born today is immediately saddled with a federal debt burden of more than $46,000. The share of federal debt for each American household is now $136,000.66 67 That exceeds the 2010 median sales price of existing homes in cities like Akron, Indianapolis, and Amarillo.68 The current administration just wrapped up three consecutive years of trillion dollar deficits and added more than $4 trillion in new debt – an amount greater than the size of the entire federal debt less than twenty years ago.69 70
There exists a simple solution to America’s spending problem: a balanced budget. To get a handle on its federal debt problem, the federal government must first stop spending more than it collects each year. Only then can it begin to reduce the total amount of federal debt and free every American family from the debtor’s prison that was erected by years of overspending and fiscal mismanagement.
Balance the Budget by 2020
Demand a Balanced Budget Amendment that Does Not Raise Taxes
American prosperity has been gravely threatened by runaway spending, increasing debt and deficits, and a political class that refuses to make the tough decisions necessary to restore order to the nation’s fiscal house. A balanced budget amendment to the Constitution that limits spending and protects families from tax increases will force Washington lawmakers to finally make the tough decisions about federal spending priorities.
While some inside the Beltway have advocated a so-called “balanced” approach that would raise taxes on middle-class families who are already struggling to pay their bills, innocent American families should not be forced to forever pay the tab run up by spendthrift politicians. Congress must send a balanced budget amendment to the states as soon as possible to begin the process of getting the federal government’s spending and debt problems under control.
Cap Federal Spending at 18% of GDP and Balance the Budget by 2020If the federal budget is ever going to be balanced – the first step that must be taken before America’s enormous debt burden can be reduced – federal spending must be capped at 18% of GDP to avoid a tax burden that far exceeds the national historical average. Since 1960, the ratio of total federal tax receipts to GDP has averaged 18%.
The country’s debt and deficit problems were not created overnight and will not be solved overnight. Further, the current economic crisis requires immediate tax reform and tax reductions to spur growth that will increase the time it takes to get to balance, but will put the nation on stronger long term footing. A gradual step-by-step process that acknowledges the political realities of deficit reduction will be required to put the country back on the path to fiscal sanity.
Credible and workable plans to balance the budget within ten years by reforming entitlements and curbing discretionary spending have been proposed in both houses of Congress. A proposal put forth by Sen. Pat Toomey of Pennsylvania balances the budget by 2020 and sets federal spending equal to 18.4% of GDP.72 The Republican Study Committee budget proposal in the House also balances in 2020 at federal spending equal to 18% of GDP.73 Workable balanced budget proposals have also been proposed outside Congress. The “Saving the American Dream” plan prepared by the Heritage Foundation reduces federal spending to 18% of GDP by 2019 and reaches balance by 2022.74
By working with committed lawmakers who have put forth detailed and credible budget proposals, the president and Congress and eliminate the federal deficit by 2020.
Reduce Non-Defense Discretionary Spending by $100 Billion in the First Year
Americans who depend on entitlement programs like Medicare and Social Security will not trust lawmakers to tackle entitlement reform until they have proven they can eliminate waste and duplication from the discretionary budget. By cutting non-defense discretionary spending by $100 billion and restoring it to 2008 levels, Washington can demonstrate that it is serious about making the tough decisions necessary to balance the budget. Sen. Tom Coburn recently proposed $9 trillion worth of specific ideas on how to reduce federal spending.
Consolidating Department of Education funding for all elementary and secondary programs, reducing it by 50 percent, and returning the rest of the money to the states would save $25 billion in the first year.75 Reducing the portfolio of investments by government-sponsored enterprises like Fannie Mae and Freddie Mac would save $26.5 billion over ten years.76 And repealing the Davis-Bacon Act and paying market-based wages would save $11.4 billion.77
Require Presidential Signature on Every Federal Budget
As the individual who ultimately authorizes, via his or her signature, the expenditure of taxpayer money, the president needs to have a stake in annual budget negotiations. The country’s massive fiscal problems are not going to be solved by either the president or Congress acting alone. Giving a budget resolution the force of law via a presidential signature will also make the spending levels within the resolution subject to statutory spending caps. Under current the law, Congress adopts a concurrent resolution which does not require a presidential signature and does not carry the force of law.
Institute Automatic Government Shutdown Protection
American troops overseas and senior citizens should not have to worry about their income security because Washington politicians refuse to do simple things like pass a budget or fund the government. They should not be used as hostages in a partisan political battle to see which party can hold out the longest before the other blinks. Automatic government shutdown protection would fund discretionary federal spending at the previous year’s level of spending if no budget or specific spending bills were signed into law before the end of a fiscal year.
No More Earmarks
Individuals who depend on programs like Medicare and Social Security will never trust Washington to reform those programs as long as lawmakers spend billions of dollars on Bridges to Nowhere. In order to be trusted with vital entitlement programs, Congress and the president must first prove that they can be trusted to not waste money on smaller items like earmarks. A permanent ban on earmarks will demonstrate to American taxpayers that Washington is serious about tackling the nation’s unsustainable fiscal problems.
Require Emergency Spending to be Spent Only on Emergencies
Data compiled by CBO shows that since 2003 Congress has appropriated an average of $120 billion each year in so-called supplemental spending bills.78 When “emergency” designations are applied by Congress to those bills, they become exempt from normal budget rules and spending caps. True emergencies are not nearly as predictable as Washington politicians using budget loopholes to get around spending rules.
A 2010 analysis by the Concord Coalition found that misuse of emergency spending bills has directly led to higher spending and deficits.79 Instead of pretending that predictable expenditures should be given special treatment to avoid spending caps, lawmakers should only be allowed to use the emergency declaration on true emergencies that are purely unforeseen, unpredictable, unanticipated, and entirely temporary in nature.
End Baseline Budgeting and Require Common-Sense Scoring Rules
Current Washington budget rules assume that new programs and spending increases continue forever, an assumption that has led directly to the massive increase in federal spending over the last decade. In contrast, tax relief provisions are often assumed to expire at the end of a five- or ten-year window. The result is upward pressure on spending and tax collections, all due to arbitrary scoring rules written in the mid-1970’s.
Unlike Congress, families struggling to make ends meet cannot assume an infinite stream of money to make ends meet. Every single federal agency and program should be required to justify every dime of funding they wish to receive from taxpayers, instead of continued funding being treated as a given. It is time for Washington politicians to treat taxpayer money just like taxpayers do.
Dynamic scoring should also be required for tax legislation. The current system of static scoring ignores the fact that people and companies behave differently depending on how they are taxed. Dynamic scoring would take into account the incentives of different proposed tax policies and the increased economic growth and job creation that can result from lower tax rates and long-term predictability of the tax code.
PAYGO for New Federal Programs
Before creating any new federal programs, Washington politicians must first eliminate or reduce spending in existing programs in amounts equal to or greater than the new program. For too long, Washington politicians have created new federal programs without eliminating existing programs that may be duplicative, ineffective, or wasteful. For example, an expansive 345-page GAO analysis of federal duplication identified 34 specific areas across several dozen agencies where the federal government could save billions of dollars by consolidating duplicative programs.80 A lack of political will, not credible options, is the reason for rampant duplication throughout the federal government.
Freeze Federal Civilian Hiring and Salaries Until the Budget is Balanced
The federal workforce has ballooned under the current administration, with 175,000 new positions being created since 2009.81 Americans deserve a leaner, more efficient federal workforce, not one that pays its employees far more than what comparable private employees receive, or one that hands out bonuses and promotions regardless of performance. Federal bureaucrats should not receive real increases in pay while taxpayers are losing their jobs and struggling to pay their bills.
No More Bailouts
The Troubled Asset Relief Program, also known as TARP, was wrong when it was signed into law in 2008, it is wrong today, and it will be wrong tomorrow. Instead of bailing out irresponsibly managed banks with taxpayer money, policy makers should focus on removing the government-created incentives that created the financial crisis in the first place. Although alternatives to TARP had been proposed prior to the legislation’s ultimate passage, including a proposal from the Republican Study Committee, Washington politicians preyed on the fears of a financial collapse to ram the bailout through Congress.
Contrary to the claims of many TARP proponents that the bailout would allow troubled banks to expand lending and potentially prop up the faltering economy, lending contracted even further. According to an analysis of TARP expenditures by the Washington Post, lending declined in the immediate months following TARP’s passage and banks that received TARP money “reduced lending more sharply than banks that didn’t.

References

[1] Website: Forbes.com Article: Debt Weight Scorecard Author: Kurt Badenhausen Accessed on: 07/23/2011

[2] Website: Texas Bond Review Board Article: NA Author: NA Accessed on: 07/25/2011

[3] Website: Fiscal Notes Article: Rainy Day Fund Author: Gerard MacCrossan Accessed on: 07/28/2011

[4] Website: Texas State Comptroller Article: Texas Annual Cash Report Author: NA Accessed on: 07/28/2011