With the regular session of the 85th Legislature behind us, let us consider how effective they were at practicing fiscal responsibility based on the legislative priorities of the 14 member organizations of the Conservative Texas Budget Coalition.
The Conservative Texas Budget
As developed by the Conservative Texas Budget Coalition, a Conservative Texas Budget (CTB) is one in which growth in spending for the current budget period does not exceed the amount of spending for the previous budget period plus population growth plus inflation.
The determination of a CTB is a three-stage process for an apples-to-apples comparison of state budget data when they are available with limits based on population growth plus inflation. Stage one is a comparison of the initial General Appropriations Act (GAA) amounts. Stage two includes a supplemental bill (Sup) that covers unfunded expenditures during the current budget period. Stage three is a comparison of expenditures. In other words, the first two stages are comparisons of appropriations and the third stage is the final comparison of spending.
The next two sections discuss how the 85th Texas Legislature fared when it came to meeting CTB goals for the 2016-17 budget and the 2018-19 budget.
Finalized a Conservative Texas Budget for the 2016-17 Budget Period
After the 84th Legislature passed a CTB at the first stage, the 85th Legislature passed a supplemental bill, House Bill 2, to fund program shortfalls during the current 2016-17 biennium. Table 1 shows the stage two comparison of GAA+Sup with the 2016-17 CTB limits—based on a 6.5 percent increase in population growth plus inflation for the 2013-14 period:
Table 1: Stage Two of a 2016-17 Conservative Texas Budget Passed
Fortunately, the Legislature has sustained a 2016-17 CTB at stage two, but the third, and final, stage determination will occur when actual expenditures are publicly available. Regardless, passage of stage two is a terrific step toward passing the first CTB in many years.
Adopted a 2018-19 Budget, after vetoes, within a Conservative Texas Budget:
Given that there is almost one complete CTB, the Legislature must pass another to continue limiting the excessive burden of government spending on taxpayers. The Conference Committee Report for Senate Bill 1 (GAA) is the 2018-19 state budget. Table 2 shows the stage one comparison of GAA, including the alternative funding mechanism of a delayed $1.8 billion Proposition 7 transportation payment, and the 2018-19 CTB limits—based on a 4.5 percent increase in population growth plus inflation for the 2015-16 period:
Table 2: Stage One of a 2018-19 Conservative Texas Budget
*Includes delayed $1.8 billion Proposition 7 transportation payment
While the 2018-19 budget fell below the CTB limit in state funds, the initial all funds figure was above the CTB limit by $45.3 million until Governor Abbott vetoed $120 million to bring the budget under the CTB limit. This is an encouraging step toward passing the second consecutive CTB.
Including the supplemental amounts in the 2016-17 base and increasing that by 4.5 percent to give the 2018-19 CTB limits, Table 3 provides the stage two comparison that highlights how the 86th Legislature could have $2.79 billion available for a supplemental bill in 2019. The supplemental bill should cover the delayed $1.8 billion Proposition 7 transportation payment, which is already included in the GAA* amount, and will likely cover underfunded amounts in Medicaid and other programs.
Table 3: Potential Stage Two of a 2018-19 Conservative Texas Budget
*Includes delayed $1.8 billion Proposition 7 transportation payment
If the Legislature can practice fiscal responsibility, this can indeed be a historic second consecutive CTB, which would be a huge win for Texans.
Failed to Eliminate Texas’ Business Margins Tax: The Legislature made initial progress in putting the onerous business franchise tax on a path to elimination, but Senate Bill 17 and House Bill 28, which had different triggers to cut the tax until it was eliminated, were left pending in the other chamber. While our research showed the best option to quickly eliminate the tax was to combine them, we are hopeful that the 86th Legislature will follow the talk this session with a permanent cut and path to abolishing this tax.
Failed to Approve a Conservative Spending Limit (Included in Special Session): The Senate passed Senate Bill 9 that would strengthen the current appropriations limit by expanding the funds covered, base the limit on population growth and inflation, and use past and projected data. While this bill was not as restrictive as the Foundation’s recommendations, SB 9 was a step in the right direction but died in House Appropriations. Considering the Legislature could soon have two consecutive budgets that increase by no more than population growth plus inflation, strengthening the constitutional limit should be a top priority moving forward. Fortunately, Governor Abbott included it in the 2017 special session.
Failed to Slow the Runaway Growth in Texas Property Taxes (Included in Special Session): The Senate passed Senate Bill 2 that increased property tax transparency and required cities, counties, and special districts to get permission from local voters if property taxes increase by more than 5 percent. The House passed Senate Bill 669 with an amendment that provided enhanced property tax transparency. Although these measures did not quite match the Foundation’s recommendations, the combination of increasing property tax transparency and adding real reform so local voters have more control over an increasing property tax burden is essential. Given these measures died during session, the Texas Public Policy Foundation has called on Governor Abbott to request a special session to address property tax reform.
Failed to Adopt the Sales Tax Reduction (STaR) Fund: The STaR Fund would allow legislators to reduce the state’s budget while keeping money in taxpayers’ pocket by reducing the sales tax rate for a determined period. House Bill 1723 would have created the STaR Fund but did not receive a hearing in the House Appropriations Committee. However, a mechanism to transfer money to the STaR Fund of using surplus tax revenue was included in other bills, including SB 17 and HB 28 to phase out the business franchise tax, but as previously mentioned they failed to pass.
Partially Provided 21st Century Budget Transparency: Increasing state budget transparency by adopting a program-based appropriations bill that is posted online in real time would allow taxpayers more opportunities to hold their government accountable. The Senate version of SB 1, though not in the Conference Committee Report, included five agencies that submitted their budget request by program, so this process continues to take hold. This initiative is a step toward state government practicing zero-based budgeting, whereby an agency starts at zero dollars and the need for every dollar is explained based on measures of effectiveness and efficiency. While House Bill 114 and Senate Bill 272 would have required forms of zero-based budgeting, neither received a hearing but they should be strongly considered next session. Other positive efforts such as the passage of Senate Bill 1831 will increase budget transparency by requiring the comptroller to issue a report on state programs that do not receive appropriations.
Excessive government spending must be controlled so that rising taxes do not unnecessarily burden Texans. While there were missed opportunities to enhance fiscal conservativism this session to strengthen the Texas model, passage of what could result in a historic second consecutive CTB and increased budget transparency provide valuable government restraint so Texans can have more freedom to prosper.