Texas Governor Seeks Deeper Cuts for Universities, Health. - Knight Ridder/Tribune Business News

Houston Chronicle Knight Ridder/Tribune Business News

Feb. 12--AUSTIN, Texas--Still beating the drums against raising state taxes, Gov. Rick Perry proposed deeper cuts Tuesday in higher education and health care for the poor but asked lawmakers to set aside $390 million for a new fund to provide incentives to lure new businesses to Texas.

The governor's new spending reductions, designed to help bridge a $9.9 billion revenue shortfall, would average 9 percent for most state agencies -- and would be even more for state universities -- during the next two-year budget period beginning Sept. 1.

Perry and legislative leaders already have demanded 7 percent cuts from agencies to enable state government to end this fiscal year in the black.

'Texas families don't want, don't need and don't deserve new taxes,' Perry said in his State of the State Address, receiving much applause from the Republican-dominated Legislature.

But the governor reiterated his support for a proposal to let university governing boards raise tuition, an item that could add thousands of dollars to college costs.

He continued to express doubts that the Legislature will be able this session to overhaul a controversial school finance system under which local property taxes continue to rise.

Another of the governor's proposals, which would reduce the state's share of insurance premiums for community college employees, also could result in higher local taxes to make up the difference.

In all, Perry -- who last month was criticized for submitting a budgetary proposal that contained zeros rather than specific spending amounts -- outlined $9.1 billion in cuts, money transfers, tightened tax loopholes and other spending reductions on Tuesday. He also sought $390 million in new spending for his economic development fund.

The Legislature, subject to the governor's veto powers, will make the final decision on any spending plan.

The Legislature's budget-drafting arm has told state agencies to draft a starting-point budget that cuts 12.5 percent from state spending. That would cut public education funding by $2.7 billion, health and human services by $1.4 billion and the state criminal justice system by $607 million.

Perry, however, said he would protect the basic public education allotment from reductions, and he presented education initiatives that, he said, would increase federal funding for public schools by $500 million.

State employees and teacher retirement funds also would be protected.

Perry said the 9 percent reductions were an average. A cut of that size, he said, 'may be too much for certain critical agencies, and not enough for others.'

He proposed a 6 percent cut in state funding for Medicaid, a health insurance program for the poor. That will include a reduction of $600 million in state Medicaid funding and another $900 million in federal matching funds.

'We must examine the structure, benefits and costs of programs like Medicaid,' he said, suggesting the state may be able to make up the difference through increased federal dollars.

Scott McCown, director of the Center for Public Policy Priorities, which advocates for poor and middle-income Texans, said he feared the Medicaid cuts would reduce actual services, not just administrative costs.

'He (Perry) glossed over what would be $4 billion in cuts to poor families. Health care was not in his list of priorities,' said Rep. Jim Dunnam, D-Waco, chairman of the House Democratic Caucus.

Despite the revenue crunch, Perry said he opposed dipping into the state's so-called 'Rainy Day Fund' to meet recurring budgetary obligations. He said that would be 'short-sighted.'

But he proposed taking $390 million from the fund -- about 30 percent of its projected worth -- to create a 'Texas Enterprise Fund.' He said part of the money could be used to fund health care initiatives in El Paso and the Rio Grande Valley but said most should be used to attract new industry and boost the state's economy.

'We could set aside $200 million to close the deal with companies like Toyota, recognizing that not one dollar would be spent without the guarantee of jobs and paychecks coming to Texas,' he said.

Last week, Toyota Motor Corp. picked San Antonio for an $800 million plant that will initially employ 2,000 people making Tundra pickups.

Toyota chose San Antonio in a high-stakes national competition after receiving $133 million in state and local incentives that the governor actively supported.

The chairman of the Mexican-American Legislative Caucus said Perry should not put job creation ahead of programs that improve the future of Texans.

'Job creation is important, and I support his (Perry's) efforts to bring jobs to Texas. But if we want to reap the benefits of economic security and fiscal responsibility, we must first invest in the health and education of our children,' said Rep. Pete Gallego, D-Alpine.

Perry said the Texas Enterprise Fund also could be used to finance efforts to 'attract Nobel laureates and endowed chairs in the promising fields of technology and biotechnology.'

But, in the same speech, he proposed hundreds of millions of dollars in cuts to university budgets, which would be only partially offset by higher tuition, if the so-called tuition deregulation proposal passes.

In addition to the 9 percent reductions, Perry proposed axing $600 million for higher education 'special projects,' a major source of funding for numerous programs and institutions, such as the McDonald Observatory in far West Texas and the Texas Center for Superconductivity at the University of Houston.

By Clay Robison and R.G. Ratcliffe. Chronicle reporters Polly Ross Hughes, Janet Elliott and Melissa Drosjack contributed to this story.

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