(Corrects Conning's description in paragraph 15 to "investment
* New formula to be based on population growth, inflation
* Governor would like to see new cap in constitution
* Texas rated AAA by Moody's, AA+ by Standard and Poor's
By Karen Brooks
AUSTIN, Dec 17 Governor Rick Perry and other
Republican lawmakers in Texas want to amend the state
constitution to cap spending at the combined rate of inflation
and population growth to maintain the state's fiscal health.
The state constitution currently limits spending to the
estimated increase in state personal income, which would tend to
be higher than the proposed cap.
"By taking this step, we can make constitutionally sure that
Texas never spends as freely as Washington, D.C.," reads Perry's
Texas Budget Compact, published on the governor's website.
A similar cap is already used in Colorado.
However any constitutional amendment must be approved by
two-thirds of the members in the state legislature. Republicans
lack a supermajority, which means some Democrats would have to
support the measure.
Once approved by the legislature, the amendment must be
ratified by voters.
Critics argue that proposing new spending limits amounts to
ignoring the needs of Texans, especially students and the
The new budget should ensure that "Texas moves forward in a
responsible way that provides for the growth of its citizens and
the needs of its children, the elderly, colleges, universities,
financial aid for college students and middle income Texans,"
said Democratic Representative Sylvester Turner, vice chairman
of the House Appropriations Committee.
During the last session in 2011, lawmakers passed a
$173.4 billion budget for fiscal 2012 and 2013 that included
about $70.4 billion in non-dedicated spending.
Last month, the state's budget advisory board, composed of
the house speaker, lieutenant governor and other lawmakers,
agreed to limit spending to a 10.71 percent increase or a total
of $77.4 billion in nondedicated funds.
POPULATION GROWTH AN ISSUE
Texas has been criticized by some bond rating agencies that
say relying on spending cuts to balance its budget or make up
for funding gaps is not a viable solution for a state that could
continue to see rising costs. Texas has no personal income
taxes, but imposes some franchise taxes on corporations.
Texas is rated AAA by Moody's investor service and AA+ by
Standard and Poor's.
The budget challenges of the state, the second most populous
after California, are mainly due to its population growth and
linked to infrastructure, transportation and rising costs of
Texas is the fastest growing state in terms of population,
adding 529,000 people since the 2010 Census.
"It's challenging to keep up with the growth, but they do
start from a very strong position," said Paul Mansour, head of
municipal credit research for Conning, an investment management
company based in Hartford, Connecticut.
"In an nutshell, Texas does have some budgetary challenges
going forward, but they enter this upcoming budget season in a
position of strength and - with the exception of Alaska -
probably the highest (rainy day fund) budget balance of any
state in America."
In its recent "State of the States" report, which evaluates
and ranks state credit quality, Conning ranked Texas third in
the nation in financial soundness - up two spots from its
ranking six months before - behind North Dakota and Wyoming.
The firm ranked Connecticut last, California at 44 and
Illinois at 46.
Texas enjoys one the lowest borrowings costs in the $3.7
trillion municipal bonds market. Texas 10-year bonds this week
were trading about 17 points above the Municipal Market Data top
rated bonds. That compares with a spread of 129 basis point for
Illinois bonds, 55 basis points for Nevada and 49 for
Texas, which requires that lawmakers pass a balanced budget,
is one of four states that crafts a budget every two years.
Lawmakers will begin writing the state's budget after the
comptroller releases revenue estimates for the 2014-15 biennium,
expected a day or two before the Legislature convenes on Jan.
(Reporting by Karen Brooks; Editing by Lisa Shumaker)