Spending pressures rise but Lege has opportunity to cut prison costs

The papers today are filled with relieved commentary over Texas Comptroller Susan Comb's new budget estimate which found that the state has $8.8 billion "left over" from the last budget and roughly $20 billion more in projected revenue than last session. Reported the Austin Statesman:

Combs’ official revenue estimate showed that Texas lawmakers, who convene at noon Tuesday, will have $101.4 billion in general revenue to spend in the 2014-15 budget, a 12.4 percent increase over the current two-year budget.

That amount would provide sufficient surplus revenue in the current budget to close some sizable holes and also cover the $96 billion that state agencies have said would be necessary to maintain the current level of services for a growing population. Combs also projected the rainy day fund would have $11.8 billion available.

Much of that increase, though, is an illusion. State budget writers intentionally underfunded Medicaid by $5.4 billion - an amount they must immediately pay once session begins - and once that's spent, they'll have just enough general revenue to cover the amount state agencies have requested for the biennium. That's hardly a huge windfall, and that's before they consider reimbursing the billions in "dedicated" funds they raided to balance the budget in 2011.

Legislators could free up more by spending from the so-called Rainy Day Fund (Lt. Gov. Dewhurst has suggested spending one billion of it on a water plan), but with school finance litigation pending and local districts still reeling from $5 billion in cuts last session, public education is the big dog in the room likely to gobble up most of that "extra" money.

(One potential source that wasn't discussed in the revenue estimate is expanding the Medicaid program, for which the feds would pay 100% of the costs over the coming biennium. The more Grits considers the massive sums that expansion would bring into the state economy - and the amount of economic growth the state would eschew - the idea of rejecting it, as the Governor has suggested, seems absurdly short-sighted. Federal Medicaid dollars must be spent on medical services for the poor, but the massive infusion of federal spending would boost the state's tax base as that sector of the economy adds more workers and income, increasing the state's take from sales and property taxes down the line.)

All this to say, despite the impression given in the press that the Legislature is flush, the amount of marginal extra money available for new programs or projects will likely be rather small - certainly if they don't tap the Rainy Day Fund. The Lege won't need to take a hatchet to agencies as they did last time, unless it's volitional, but neither can the state start handing out goodies to special interests.

Grits has oft-lamented that the state budgeting process doesn't properly account for legislative actions that boost long-term costs, like criminal penalty enhancements whose effects will mostly be felt in the out years thanks to time tacked onto already long sentences. Former state revenue estimator Billy Hamilton echoed that concern generally, telling the Dallas News that the state should

do a long-range forecast of revenue and expenditures that looks five or more years into the future to better plan and see the implications of policy changes.

He said the state is unlikely to do that because it’s “eye-opening” and makes people think, “We’re going to have to change our ways here and make some adjustments or this isn’t going to work. It raises a lot of questions you don’t immediately have answers to.”

On the criminal justice front, there are several areas where Grits considers the system in need of immediate additional spending, but also areas where the Lege could further cut. Let's run through a few.

First, they almost have to boost funding for inmate healthcare if they want to keep UTMB as their contractor, and IMO TDCJ is not prepared nor capable of handling the job themselves. Some new spending is inevitable: The Lege underfunded prison healthcare and likely must spend around $141 million more on it this session to keep the system operating. (I sincerely doubt any private contractor would want the job at the amounts the Lege has traditionally budgeted.)

There's a pressing need for expanded community-based mental health services, particularly after court orders requiring the state to accept more defendants into state hospitals more quickly. In the near term, there's a pressing need to expand the number of forensic mental health beds designated for competency restoration. On the mental-health services front, Grits sees little chance the Lege will invest significantly more unless, against all odds, they end up enacting the Obamacare Medicaid expansion.

Crime lab backlogs have forced the Department of Public Safety to stop accepting evidence for testing in certain misdemeanors and to limit the evidence they test for free, even in murder cases. If Texas doesn't shift to a fee for service model for crime lab services, the state has no choice but to fork over more money or watch already-large backlogs grow.

The Department of Criminal Justice has called for prison guard raises to mitigate understaffing at rural units, a suggestion which would cost big bucks. Ditto for raises for state troopers, whose salaries are increasingly uncompetitive with their counterparts in large Texas cities.

Meanwhile, the Texas Indigent Defense Commission has requested a large increase to pay for county-level indigent defense costs, which have more or less doubled since the Texas Fair Defense Act passed in 2001. Grits doesn't think the state should bear all the cost increase - population and caseload growth accounted for much of it and the counties should be responsible for that - but critics aren't wrong that the unfunded mandates in that bill have become an increasing burden for counties. If the Lege doesn't want to pony up extra money, the least they could do is reclassify certain low-level offenses to reduce county indigent defense costs.

Where could savings come from in criminal justice? For me, prison closures tops the list. Texas has by far the largest prison population in the nation, even though we release 70,000 inmates per year. State Sen. John Whitmire has suggested closing two units, but Grits thinks the state could realistically close four or five, especially if it were to beef up diversion funding for probation departments, which supervise offenders for much less money than prisons.

The other big potential source of savings could come from redirecting homeland-security grants to counties and reducing state funds aimed at the Governor's much-ballyhooed border crackdown. The state has spent hundreds of millions on these programs with little to show for them. While the Governor claims the state must spend that money because the feds won't do the job, the reality is the feds spend more money than ever on immigration and border enforcement and Texas' efforts have been both redundant and, in the big picture, trivial compared to the federal role.

Finally, there's the long-term problem of criminal penalty enhancements boosting baseline costs without the Lege budgeting for them. The Lege falsely considers penalty increases to have no cost unless the Legislative Budget Board estimates it will result in 100 or more new inmates going to prison, but each session the Lege passes dozens of "enhancements" and new crimes which, while claiming to be free individually, collectively add to the system's financial burdens. Many "enhancements" - e.g., those boosting felony penalties - generate extra costs that don't show up in the budget because their impact won't be felt until after five years out. Treating those as "free" for budgeting purposes doesn't mean there are no actual costs, only that when the costs hit later, no one has budgeted to cover them.

The Governor has called for limiting spending increases to the combined rate of population and inflation growth, but Texas' corrections system spending increased an astonishing 274% more than population and inflation over the last three decades, far outpacing other areas of the budget. This session, as in most before it, some spending increases seem inevitable. The question becomes, will the Lege avail itself of the opportunity to cut criminal justice where it's feasible, or will corrections spending continue to operate on a one-way ratchet? It's not too late to apply small-government ideology to corrections.