DALLAS -- Proposals to cut as much as $4 billion in state spending have reduced the likelihood that Texas lawmakers will push major tax measures when a special budget-writing session opens July 15, officials said.
John Sharp, the state comptroller, has detailed nearly 975 proposals found by his team of over 100 auditors in the past five months that should ease the pressure for a tax increase when the state moves this summer to close a projected $4.7 billion shortfall in the two-year budget cycle that begins Sept. 1.
The budget is expected to total $57 billion for fiscal 1992 and 1993.
"I think the big thing now is that people are still digesting Sharp's report," said Paul Williams, executive assistant to Gov. Ann Richards, who yesterday issued the formal call for the special session. "My guess is the need for a tax bill of any size is no longer there."
In fact, leaders in the double-A rated state are now expected to postpone any debate over creating a corporate and personal income tax system until 1993.
"The pressure is off for a huge tax bill," said Frank Sturzl, executive director of the Texas Municipal League. "They may tinker with the franchise tax, talk about a lottery, or broaden the base for the sales tax."
If the state expands the sales tax to include certain services now exempted from the levy, which totals 8.25% in some areas of Texas, then local governments could be the major benefactors.
"My sense is that even with all the Sharp audits, there is going to be some kind of new revenue needed," said Jim Lewis, a lobbyist for the Texas Association of Counties.
But if the comptroller's sweeping proposals are any guide, many expect new revenues to come from a variety of increased fees or the redrafting of the franchise tax system, which has been virtually unchanged since its creation in 1907.
Mr. Lewis said one proposal made by auditors would add $2.50 to the court cost fee collected for the state by counties. He said that could cost counties $10 million a year, with one-fifth of that alone coming from Harris County, which encompasses Houston.
"Every time the state raises its fees, the fines the counties collect go down," he said. "It's not a ton of money, but Sharp's audit is taking a little money from everybody."
Mr. Williams, the governor's aide, expects most of the new revenue to come from a revamped franchise tax. He said the state is currently paying $400 million in refunds under a system often criticized as being outdated and antibusiness because it is capital intensive.
While not providing specifics, he said the system could be overhauled to produce a net gain of $1 billion in new revenues during the next biennium.
Just last weekend, a gubernatorial task force examining the state's revenue options voted 7-to-5 to recommend that lawmakers adopt an income tax system during their next regular session in 1993.
But they also suggested such a tax be coupled and sales taxes -- an approach backed by state policy makers.
The governor has said an income tax may not be needed until late this decade. However, others say taxpayers may demand a new revenue structure as property taxes rise to pay for school reforms and because the sales tax is already the highest in the nation.
"I think when we talk about an income tax, it's in terms of providing some property tax relief too," Mr. Williams said. "There really almost has to be an exchange of one tax for another."
So far, Wall Street rating agencies laud Texas for discussing both revenues and spending cuts in its approach to its revenue shortfall.
"They are taking the right approach to dealing with both sides of the equation," said George Leung, managing director for state ratings at Moody's Investors Service. "I think this performance review is a good first step."
Of course, how much new revenue is needed to balance the budget will be determined by which of the cost-saving measures proposed by the comptroller are adopted. And, whether the actual savings meet the projections remains to be seen.
"The big question mark is implementation," said Hyman Grossman, managing director at Standard & Poor's Corp.
Last month, Mr. Sharp revealed approximately 975 proposals in 200 areas that he said would improve state services and cut costs. They ranged from one-time measures like consolidating scores of state accounts for a $500 million savings, to long-term proposals such as better debt management and merging some agencies to eliminate 1,000 jobs from the state payroll.
"What we have proposed is very much like a string of Christmas lights," Mr. Sharp said. "Every bulb is important. If you pull one of them out, the whole string goes dark."