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Texas Governor Facing Up to $17 Billion Budget Battle

Texas is looking at a projected $11 billion to $17 billion budget shortfall, as lawmakers head into the 2011 session. Texas writes budgets in two-year terms, so the shortfall affects the 2012-2013 state budget.

Texas Governor Rick Perry, a Republican who is running for re-election against Democratic challenger Bill White, says spending cuts are necessary to close the budget gap.

"We have a balanced budget amendment in the state of Texas so we don't have deficit spending—very wise, the federal government should try that. You just prioritize what's important and you fund those. Then you make the reductions in spending. It's not fun, it's a tough process," Texas Governor, Rick Perry, told CNBC on Thursday.

"We did it in 2003 and it allowed Texas to really get back on course within a two-year period of time. When we came back in 2005 we had an $8 billion budget surplus," Perry said.

"It's a challenge, but the fact of the matter is we've done this before. We will prioritize, obviously that is our education, public safety, it's making sure that we keep this economy going—that's the most important thing we do," he said.

Will the Governor be dipping into the state's rainy day fund to balance the state's budget? The fund was set up in 1988 to assist in special emergencies and, according the The Texas Tribune, "defend against an economic perfect storm"—such as hurricane clean-ups as well as cover budgetary shortfalls.

"We have about $8 plus billion dollars in the rainy day fund. It takes three-fifth vote from the legislature to get into it. Are we in a rainy day? I'd say it's cloudy out there. We'll have a good discussion and debate about whether we want to get into it and use it for one time spending only," Perry said.