Texas agencies, universities propose cuts to deal with projected $10 billion budget gap

AUSTIN -- Under orders from Texas' top three leaders, state agencies and universities are identifying hundreds of millions of dollars in potential spending cuts to help ease a projected budget shortfall next year.

The proposals range from salary reductions and hiring freezes to scaling back programs and reducing Medicaid fees to physicians and other healthcare providers. Gov. Rick Perry said Monday that he is prepared to cut $21.5 million from his own operations, mostly through reductions in the job-creating Texas Enterprise Fund.

Monday was the deadline for agencies to comply with the directive from Perry, Lt. Gov. David Dewhurst and House Speaker Joe Straus. But most of the reduction plans won't be filed until today because most state government offices were closed Monday in observance of Presidents Day.

In a joint letter Jan. 15, the three leaders ordered agencies, universities and state courts to find ways to cut their budgets by 5 percent for fiscal 2010-11, the current biennium. Lawmakers are expected to face a shortfall of at least $10 billion -- and possibly as much as $20 billion -- when they convene in January to write a budget for the next two years.

The five agencies that form the state's health and human services system identified about $300 million in reductions, including freezing salaries, downscaling some nonessential programs and delaying purchases such as computer equipment.

Dissent has already sprouted over the Health and Human Services commissioner's proposal last week to trim at least 1 percent in Medicaid fees for doctors, dentists and hospitals for a savings of $98.5 million.

"That's going to be counterproductive," Rep. Mark Shelton, R-Fort Worth, a physician, said Monday, predicting that many physicians would no longer be able to afford to see patients under the low-income insurance program.

The University of Texas at Austin is eyeing cuts of up to $29 million, including closing an informal classes program and possible layoffs. Cancellation of merit raises is on the table at Texas' other state-funded Tier One institution, Texas A&M University.

In what Perry called "the spirit of leading by example," he surpassed the 5 percent target by outlining reductions totaling 6.7 percent.

"These reductions represent cash which can be returned immediately and will be achieved through operation efficiencies and reductions in incentive grant awards," Perry's office said in a release.

Perry also said his office could reduce other spending by $13.1 million, or 4 percent, producing total reductions of $34.6 million or 10.8 percent.

In their letter, Perry, Dewhurst and Straus suggested that state officials take a hard look at administrative expenses and purchases and said they should reduce services only as a "last option." Benefits under Medicaid, the Children's Health Insurance Program and foster care were declared off-limits for cuts. The reimbursement fee cut proposed by the state health commissioner is considered a different category of spending than Medicaid benefits.

Also deemed untouchable were the state's Foundation School Program and contributions to Social Security, the Teacher and Employees Retirement Systems and the Higher Education Fund.

Despite the exceptions, however, some social service advocates said many of the targeted reductions could harm beneficiaries of state services, particularly when many are in need during hard times. Anne Dunkelberg, associate director for the Center for Public Policy Priorities, said the state's "rainy-day fund," rather than budget cuts, should be used to help offset the shortfall.

"I think what is grim from our perspective is that our state has over $8 billion sitting in the rainy-day fund, and this is the worst economic downturn since the Great Depression," said Dunkelberg, whose Austin-based center advocates programs to help low- and moderate-income Texans. "But somehow, it's a better idea to cut these programs than it is to decide this is a rainy day."

Dewhurst, the presiding officer of the Senate, has vowed to resist a legislative assault on the rainy-day fund, saying the reserve may be needed to deal with an even more serious budget crunch in 2013.

Options on the table for state health services include closing beds for psychiatric patients at the Terrell State Hospital, reducing administrative operating costs and paring some pilot programs.

The Department of State Health Services proposed more than $2 million in savings by delaying hiring additional staff mandated by the Legislature to carry out public health, radiation and environmental inspections.

DAVE MONTGOMERY, 512-476-4294

ANNA M. TINSLEY, 817-390-7610