AUSTIN – Senate Republican leaders keep saying the state has no money and can't launch big initiatives to help Texas families reeling from the recession – even with billions of dollars of federal economic stimulus money in a two-year budget that could total $177 billion.

The plan, which the Senate Finance Committee is expected to approve soon, highlights a new fiscal reality that is likely to frustrate Texas lawmakers and residents for years to come: budgets with little leeway.

There are several reasons, but the biggest is that the GOP-controlled Legislature agreed to shift education costs so local property taxes can be cut. Texas already ranks last in state spending per capita, so deeper cuts to offset the education funding are unlikely. And politically, tax increases are off the table.

There are other factors forcing Senate budget writers to be tightfisted, such as past accounting tricks and reliance on a stock market portfolio to pay for school textbooks. But experts agree that the 2006 school property tax cuts, combined with the recession's late arrival in Texas, have forced lawmakers to hoard billions to help them cope with a permanent budget deficit for years to come.

"We're going to need every penny," said Lt. Gov. David Dewhurst, explaining how about $16 billion of stimulus aid offered by Washington has translated into only a $9 billion leap from last session's $167.7 billion budget.

The Republican leaders say they're trying not to let the stimulus money become a long-term obligation and to protect tax cuts that are important to Texas homeowners.

Dewhurst, the Senate's presiding officer, said it's critical for lawmakers to sock away the state's cash reserves for the next budget and "not be facing an ever-increasing deficit." A state "rainy day fund" is projected to grow to $9.1 billion by late 2011.

Thanks to a slow start in the House, where new leadership has been getting settled, Dewhurst and Senate Finance Committee Chairman Steve Ogden, R-Bryan, have dominated the budget process for months.

They've been warning of budget problems since, and they continued to do so this week. The recession may last longer than anyone expects, they said. The 2006 property tax cuts, while originally envisioned as a revenue-neutral tax swap, are eating into future budgets, Dewhurst acknowledged. And he and Ogden predicted that next session's budget will require cuts unless lawmakers resist temptation to raid the rainy day fund.

Restraint, though, is colliding with pleas for more help for the poor, particularly when more and more people are losing jobs and health coverage.

Senate budget writers did very little to make college more affordable and almost nothing to give more Texans health insurance. They rebuffed pleas to make it easier for poor children to stay on Medicaid; hire more state workers to fix the screening process for Texans who need aid, which was fouled up in a privatization push four years ago; and hire more child-welfare workers so that fewer abused youngsters languish in foster care.

"How can we get $16 billion in federal stimulus money and still have ... the most uninsured in the country – and rising – and fewer students who can afford college?" said Sen. Eliot Shapleigh, D-El Paso. "What is going on in Austin?"

Sen. Bob Deuell, R-Greenville, the Senate's chief budget writer for health and human services, said the budget's 8 percent increase in federal-state spending on social programs would cover inflation and a few raises for health-care providers and menial workers, such as home-care aides. The aides, who shop for and bathe the old and disabled, will get $8 an hour, Deuell said.

Federal aid won't last forever, though, so program expansions would be irresponsible, he said.

"We already have a biennial revenue estimate gap," Deuell said. "Do we want a 'stimulus gap' on top of it?"

Budget writers, eager to preserve the rainy day money, used stimulus money to fend off other problems. The stock market plunge has cost Texas money in the trust fund that pays for school textbooks. Also, though it was widely foreseen as an accounting maneuver, lawmakers two years ago low-balled this year's Medicaid costs, by as much as $1.9 billion.

They're also trying to avoid future court edicts on school finance, giving public schools a boost of up to $2.5 billion.

In 2006, flush with revenue from an economic boom, they tried to reverse that trend, primarily motivated by a desire to deliver homeowners and businesses relief on their property taxes.

Under court orders to relieve school districts bumping up against a state cap on property tax rates, the lawmakers and Gov. Rick Perry slashed rates by one-third, to $1 per $100 of assessed valuation. But an expanded business tax and assorted other tax increases, while they never were expected to fully pay for the property tax cuts, have yielded even less than expected.

Former state District Judge Scott McCown, who heads the Center for Public Policy Priorities, a liberal think tank in Austin, said lawmakers will need the current rainy day stash to cover the deficit created by the tax swap next session. After that, though, he foresees a "$10 billion hole," with little prospect of a replenished rainy day fund.

McCown said the long-range fix is for Texas to adopt a state personal income tax to reduce reliance on revenue from the sales tax, which hurts the poor the most. But an income tax is fiercely opposed by state GOP leaders.

Dewhurst said there's now a built-in budget deficit. "We hope to grow our way out of that, but it's going to take us a few years," he said.

Under the $177 billion two-year budget the Senate is on track to approve, education and transportation would receive significant funding increases. But the spending blueprint holds the line elsewhere, resisting major new initiatives in social programs. Here are highlights:

EDUCATION

Teachers: No across-the-board raise. A merit-pay program, the nation's largest, would grow by $148 million, to $491 million, over two years.

Retired teachers: Retirees received an extra monthly payment last year, but none appears likely this time. Also, the state's contribution to the teacher pension fund would decrease to 6.4 percent of current payroll, from 6.58 percent currently.

Public schools: Public school funding would increase by nearly 6 percent, even after covering student enrollment growth. Also, if a separate bill by Sen. Florence Shapiro, R-Plano, passes, extra spending would rise to $2.5 billion, from $1.9 billion in the Senate's "base budget."

College students: Texas Grants, the state's main financial aid program, would receive a boost, from $428 million to $514 million, though nearly half of eligible students still wouldn't get help.

State universities: With one exception, each of the 35 four-year institutions would receive at least 4 percent more from a general academics funding formula. Texas Woman's University in Denton, adversely affected by a phase-in of new formula weights, would receive $7 million less.

Dallas higher education priorities: Decisions haven't been made on whether to create more top-tier research universities. The University of North Texas at Dallas would receive $6 million to expand into a four-year school in southern Dallas. The budget doesn't include any of the $40 million requested to establish a UNT law school in Dallas.

Mentally disabled: State schools for the mentally disabled, under fire for poor care and abuse, would have their enrollments cut by one-third over four years and eventually capped, at 3,000 clients. The Senate would spend $500 million more to shorten the years-long waits for services to help the mentally disabled stay home or live in group homes. Waiting lists in three "Medicaid waiver" programs would be cut by 18 percent.

ELDERLY, PHYSICALLY DISABLED

Home care attendants who help keep enfeebled Medicaid recipients out of nursing homes are paid as little as $6 to $6.75 an hour, officials say. Their minimum pay would rise to $7.25 an hour this fall, and $8 by 2011. Also, home- and community-based services programs to keep people out of nursing homes would receive $33 million more, trimming those waiting lists by 12 percent.

CHILDREN'S HEALTH

AND WELFARE

The Senate wouldn't increase eligibility or create a buy-in program for more families to join the Children's Health Insurance Program. Child Protective Services was denied 175 more caseworkers to allow it to visit 95 percent of foster children each month, as federal rules require.

MEDICAID

Doctors, hospitals and others who treat Medicaid patients would receive a onetime, 3 percent increase in reimbursements. The Senate budget would add $750 million of state money to cover rising inflation and enrollment in the next two years – less than half the amount sought by officials.

STATE EMPLOYEES

No across-the-board pay raise. Correctional officers would get 10 percent raises, and health professionals in social programs would get either 10 percent or 15 percent raises. State troopers, game wardens and other law enforcers would get single-digit raises varying by seniority.

TRAFFIC CONGESTION

There will be at least $9 billion more for new highway construction, said Senate Finance Committee Chairman Steve Ogden, R-Bryan.