Lawmakers passed a tax swap four years ago that has turned out to be a tax swamp.

The Legislature’s top budget-writing staff member told a panel Wednesday that the built-in fiscal gap the state faces is nearly $5 billion a year. While they knew that a reworked business tax meant to make up for a large chunk of property tax cuts has sputtered, legislators hadn’t been told in such precise – and stark – terms how big the problem was.

“We expected that of the $7.1 billion a year in property tax relief that the state paid for, that the revenue increases would cover about 60 percent of that,” John O’Brien, director of the Legislative Budget Board, told a newly created House panel. “As it turned out … the new revenue covers about 36 percent of the change in state spending.”

O’Brien, testifying before the House Select Committee on Fiscal Stability, which Speaker Joe Straus created in January to see if shortfalls are mostly recession-driven “or a more systemic problem,” said higher taxes on smokers and some businesses and used-car purchasers have produced $2.5 billion a year. That’s less than an expected $4.2 billion, he said.

Overall, that leaves a $4.6 billion annual gap, he said.

Lawmakers and Gov. Rick Perry approved the trade-off – including a 33 percent cut in school property taxes – in 2006 to meet a Texas Supreme Court edict that they come up with a new way to finance schools. But now that the state and country are reeling from recession, Texas leaders are expecting next session to grapple with a two-year shortfall of perhaps $15 billion or more.

Working through the budget woes “will be at least a four-year deal,” O’Brien said.

Rep. Rene Oliveira, D-Brownsville, said it will take “five or six years and probably more. So those of us who are crazy enough to still be around here … we have to do some things now.”

Otherwise, lawmakers in future sessions will “face crises that make this deficit look minimal.”

Rep. Jim Keffer, R-Eastland, countered that the 2006 tax swap was intended by GOP leaders to be a “true tax and spending cut.” He said it’s a top priority to keep paying for the property tax cuts.

“We have to cover that,” Keffer said.

No members of the panel, though, offered spending cuts or tax increase ideas. O’Brien said the expected gap will be at least $11 billion, without adding money for any more public school students and Medicaid recipients. Sen. Eliot Shapleigh, D-El Paso, said the shortfall will be at least $19 billion.

O’Brien and chief state revenue estimator John Heleman, who works for Comptroller Susan Combs, said no one foresaw the recession roiling the tax swap.

Texas was in the middle of a four-year economic boom when it passed, they said. Neither state leaders nor forecasters grasped how fleeting the good times would be, as Texans filled state coffers by buying expensive vehicles and drilling for natural gas in the Barnett Shale field and elsewhere, Heleman testified.