Texas Dodges Shutdown of Government : Budget crisis: State lawmakers OK a two-year, $59.4-billion spending plan on special session’s final day. The measure contains a $2.1-billion tax hike.

AUSTIN, Tex. —  On the last day of a special session, Texas lawmakers Tuesday averted a shutdown of state government by approving a two-year, $59.4-billion budget that includes $2.1 billion in tax increases.

Gov. Ann Richards pronounced the 30-day session “extraordinarily successful” and said she would sign the legislation into law. But both the new governor and her fellow Democrats, who control both houses of the Legislature, came under criticism from Republican lawmakers who had argued that any tax increase was too much.

Richards called the tax hike “not all that painful” when compared to the $4.6-billion budget shortfall projected at the start of the session. But one Republican lawmaker found the tax increase so distasteful that he filed secession legislation Tuesday to carve a new low-tax state out of the Texas Panhandle.

Among the revenue-raising items are a 5-cent gasoline tax, expansion of the 6.25% sales tax to previously uncovered items such as car washes and video games and a $200 annual fee to be paid by lawyers, doctors and other professionals.

Notably absent from the mix, though, was a personal income tax, although, for the first time in recent memory, the subject was seriously raised by a major state politician. It was promptly shot down. Critics say that decision was shortsighted and will cause local property taxes to skyrocket across the state.

Texas this year faced its third multibillion-dollar budget deficit in the last five years, prompting calls for tax reform and a reorganization of state government.

The deficit in part was caused by federal court judgments ordering relief for prison overcrowding and costly changes in the state’s mental health and school finance systems. A new state study says, however, that much of the state’s problem is structural, having to do with the fragmented, inefficient organization of state government. It urged government reorganization, a task the Legislature only halfheartedly attempted.

In an indication of how dire the state’s budget crisis had seemed at the start of the summer, Lt. Gov. Bob Bullock did what no major non-lame-duck politician has done in recent memory in Texas: He called for the creation of a state personal income tax.

The idea is anathema in Texas, which, in national rankings, is near the bottom both in taxes (48th) and in spending per person (47th). The Legislature never took the proposal seriously, despite a recommendation in favor of an income tax from a task force headed by former Gov. John B. Connally.

Any chance that an income tax would be adopted was killed with the release last month of the sweeping study headed by state Comptroller John Sharp that cited the need for a reorganization of state government to eliminate duplication and waste.

Starting with the notion that auditors would find perhaps $200 million in savings, the 100-member Texas Performance Review team assembled by Sharp found that much in its first day.

After five months of study, the review panel recommended a range of consolidations, mergers, fee hikes and budget cuts that added up to $4 billion in savings.

“Some people say it’s insidious, and some say it’s a work of monumental importance,” one member of the lieutenant governor’s staff said of the report, which began with the supposition that it was building a new government from scratch rather than merely trying to fix the old one, which it termed “a jerry-built mess.”

Richards declared that the plan, with its cost-cutting and efficiency measures, contained a message for the Democrats nationally and promptly declared talk of a state income tax dead.

Many, but far from all, of the Sharp plan’s proposals were passed by the Legislature. Also passed was another proposal pushed by Richards that will give Texans the chance to vote on a state lottery on Nov. 5. Proponents say a lottery could add $471 million to state coffers in the 1992-93 biennium and about $802 million the following biennium.

The Sharp study held that the roots of Texas’ budget problems lay in the very structure of state government as it was set up by the 1876 constitution. To that end, one of the goals of the session was to reorganize the government to eliminate duplication and waste.

Common wisdom has held that the state’s budget problems are owed to the oil bust of the 1980s. However, the report maintains that budgetary crisis is the norm in Texas, going back at least to the 1930s. The one exception, the report says, was the booming 1970s, which it calls “a fever-dream that promised unlimited growth for the state. But when the fever broke, it left the system no better than it was before--plagued by a lingering structural deficit--a perpetual gap between the state’s budget needs and the dollars on hand to pay for them”

The special legislative session was an attempt to come to terms with the problem. Bill Cryer, the governor’s press spokesman, acknowledged that not all of the reorganization goals had been accomplished.

“Some of the recommendations were passed, and some of them weren’t,” he said. Richards’ office had not yet finished a formal assessment of the session, he said.

It had appeared almost certain late last week that the Legislature would fail to adopt a budget before the end of the session and that Richards would have to immediately convene a new one. State government would have automatically shut down Aug. 31 if no budget bill had been enacted.

The budget and tax plan came together quickly, though, in the last three days of the session.