On Thursday, the Bureau of Economic Analysis released its second-quarter GDP estimates revealing that the American economy shrank again. The revelation means that U.S. has officially entered recession territory and thoughtful policy prescriptions are needed to mitigate the economic pain and minimize the period’s duration.
With that in mind, here are five things that Texas’ local elected officials can do right now to help taxpayers through this difficult time.
- Adopt the No-New-Revenue (NNR) Tax Rate: Per the Texas Comptroller, the NNR tax rate “enables the public to evaluate the relationship between taxes for the prior year and for the current year, based on a tax rate that would produce the same amount of taxes as if applied to the same properties taxes in both years.” In simpler terms, it is the tax rate that local officials can adopt to hold tax receipts steady from one year to the next. In an era of soaring valuations, this means most people would be subject to a much lower tax rate and, as a consequence, see a reduction in their tax bill.
- Return Excess Fund Balance to Taxpayers: It is not uncommon for a local government to accumulate sizeable fund balances, oftentimes as the result of state guidance, a revenue windfall, or overcollection. Sometimes these excess fund balances can grow large that many people question what public purpose they serve. For example, in 2019, the outgoing chairman of House Public Education made an impassioned speech on the House floor that chastised school districts for the “insane” amount of money that they had set aside. It was noted at the time that school district fund balances had grown to a staggering $21.5 billion statewide. Even after accounting for 110 days’ of operating expense—slightly above the threshold recommended by the Texas Education Agency—these entities had $6.6 billion in “extra” money. Local officials should return these funds back to taxpayers in the form of lower tax rates.
- Delay going into debt: Over the years, local governments have overindulged on debt which, as a result, has put upward pressure on tax rates. Today, it’s important that local officials think twice before asking voters to approve more debt and higher taxes. This means that instead of putting more money on the taxpayer credit card, local officials should consider delaying bond propositions until the economy recovers or using a pay-as-you-go model to finance capital projects. Officials may also consider using a third-party efficiency audit to root out waste, fraud, and abuse and then redirect those funds toward needs.
- Cut spending: Prosperity and the lack of strong fiscal rules have created an environment of excess at the local level. In fact, new research suggests that: “Nearly every major city and county government in Texas spends well beyond what the average taxpayer can afford.” This is to say that local officials have an obvious opportunity to eliminate outdated programs, consolidate functions and positions, and refocus their entities on needs instead of wants. By cutting spending, local officials can lessen the cost of government and lighten the load on taxpayers and ratepayers alike.
- Build Confidence: More than ever, the public needs to have confidence that their local governments are effective and efficient. To help the public along, local officials have many tools that they can utilize. For instance, they might consider using zero-based budgeting to question every expense and build the budget from scratch. Or they might adopt a local government spending limit to show that the burden of government will not grow unsustainably. Or they might rightsize payroll expenses by implementing a hiring freeze, suspending pay raises, eliminating longevity pay, or ending certain contracts (like those with well-heeled lobbyists in Austin). Taking one or more of these actions will send a strong signal to taxpayers and build public confidence in local leadership.
With the U.S. economy is recession and protracted economic pain possible, now is the time for local officials to act decisively on behalf of Texas taxpayers everywhere.