The taxpayer watchdog group Citizens Lowering Our Unfair Taxes (CLOUT) filed June 14 a lawsuit against the state and several of the state’s top elected officials for allegedly exceeding the state constitutional spending cap.

“All of us can agree that Texas government needs to operate within the framework of the state constitution,” said CLOUT executive director Edd Hendee. “That isn’t happening. Instead, we have a clear constitutional provision that is routinely ignored, legislators are evading their responsibilities, and the spending burden on Texas taxpayers just keeps growing and growing.” Hendee, a morning talk radio host on KSEV in Houston, plans on making his case known on and off the air.

 The suit alleges that the state has not limited government spending as required by Article VIII, Sect. 22, of the Texas Constitution. The state constitutional cap on state spending, which was approved overwhelmingly by voters in 1978, was designed to limit the growth of government spending from non-dedicated revenue sources to the estimated growth in the state’s economy.

At issue in the lawsuit is the Legislative Budget Board’s (LBB) role in estimating how much the state’s economy will grow. The plaintiffs maintain that the LBB, which is responsible for setting the state’s spending limits, uses “artificially high estimates of economic growth to justify its high spending limits, and in some cases, sets no limit at all.”

In the brief, CLOUT criticized the LBB’s use of state personal income (SPI) as a measure to gauge the growth in the state’s economy. “The barometer has been historically proven to wildly overstate the growth in the state’s economy,” says the brief, “permitting excessive increases in spending contrary to the intent of the constitutional and statutory spending restraint provisions at issue in this case.”

“You can’t just forward guess what the growth will be then never go back and reconcile [the numbers to the actual SPI],” Hendee said. “It encourages you to guess high and spend accordingly.”

Lt. Gov. David Dewhurst, who was named as one of the defendants in the lawsuit, along with Craddick and Strayhorn, defended his work on the LBB. “The Legislative Budget Board has carefully guided us in shaping our budgets well below the current spending limits, and I am proud to have worked in balancing a $10 billion shortfall keeping increases in general revenue budget dollars each of the last 6 years lower than rate of inflation,” Dewhurst said. “I’m proud to have worked with Gov. Perry and Speaker Craddick over the past four years to balance our state budgets without increasing taxes, including enacting the largest tax cut in our state’s history this past session that will bring much needed property tax relief to the working families of Texas.”

For the 2006-2007 biennium, the LBB estimated SPI to grow at 11.34 percent. It obtained economic forecasts from five sources: the Comptroller’s office, economy.com, Global Insight, the University of North Texas Center for Economic Development & Research, and the Perryman Group. The estimates ranged from 11.34 percent to 13.16 percent. The LBB chose the conservative estimate.

CLOUT would like the state to use the growth in Gross State Product for a more accurate measure of growth of the state’s economy.

“We want meaningful and true numbers,” said CLOUT’s legal counsel Gary Polland. “We want a system that actually functions and [that is] not delegated to the legislative budget board totally…”

Polland, a former Harris County GOP chairman, said the Legislature, not the LBB, should make the final decision on setting the state spending limit.

“I am not represented, at this point, by anybody on the Legislative Budget Board,” Hendee said. “My representative, my senator are not on there. So the limits the state of Texas is setting and my tax obligations to fund that are now set by people who do not represent me. There are only 10 members on the Legislative Budget Board…

“[I]t’s never voted on by either house. It’s a mumbo jumbo, Enron math, fuzzy detailed thing that occurs in one of these rooms with a bunch of staff members cooking it up, and then most of the time the Legislative Budget Board in a meeting will approve it, not the Legislature.”

However, 10 LBB members are all elected officials, including Dewhurst, Speaker Tom Craddick, and the chairmen of the House Appropriations and Ways and Means committees and the Senate Finance committee.

Craddick said the Legislature complied with the state constitution. “While we have not yet seen the lawsuit, the House, Senate and Governor came together on a landmark school finance plan that the Legislative Budget Board and the Comptroller have determined balances the budget, lowers property taxes, and complies with all constitutional spending limits,” Craddick said. “The Attorney General will defend our plan in court, and we are confident that we will prevail.”

However, Comptroller Carole Keeton Strayhorn, who is also a defendant in the lawsuit, had a much different take. “I welcome this, and any effort, to reign in out-of-control state spending,” Strayhorn said. “During the last six years the state budget has increased $44 billion. That is 44.75 percent during the last six years.”

Strayhorn also noted that the LBB, which is made up entirely of legislators, was responsible for the calculations in determining “whether state spending is within constitutional limits.”

Whether the state has actually exceeded the constitutional spending limit is up to interpretation. According to CLOUT, actual appropriations for the 2006-2007 biennium exceeded the cap by $1.3 billion.

State leaders expressed confidence that their actions are legal and they would prevail in court.

Nonetheless, one thing is clear: state spending is dangerously close to the constitutional limit. In fact, lawmakers last April decided to forego appropriating funds for the $1.8 billion tuition revenue bond bill for fear, in part, of busting the spending cap in the current biennium.

Reining in state spending is one issue lawmakers will face in the 80th Legislature.

Reprinted by permission of the Lone Star Report

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