Texas Comptroller Glenn Hegar certifies the two-year budget passed by the Texas Legislature after each legislative session. He does so by using projected general revenue-related (GR-R) funds, which includes collections from sales tax and other sources, to determine if those funds will sufficiently cover estimated expenditures.
Here’s the Comptroller’s comments from the 2018-19 budget certification:
“After accounting for statutory transfers, balances on hand at the close of the 2016-17 biennium and expected revenue collections and adjustments, the state will have a total of $107.33 billion in General Revenue-related funds available. This revenue will support general-purpose spending of $107.23 billion for the 2018-19 biennium, resulting in an expected ending General Revenue-related certification balance of $94 million.”
Figure 1 from a recent Legislative Budget Board (LBB) presentation shows how comptrollers have used surplus funds in general revenue-dedicated (GR-D) accounts to certify the budget for decades.
Figure 1: General Revenue-Dedicated Funds Used to Certify the Texas Budget
GR-D funds are those that are dedicated for a stated purpose. Sixty-eight percent of them are collected through fines and fees. Because these funds cannot be used outside of their stated purpose, it’s questionable whether GR-D funds should be used for certification. This is analogous to a small business owner trying to justify expenses with the next door shop’s revenue.
After a steady trend upward of this practice from 2002 to 2013, there was a decline for a couple of budgets until the $5.3 billion amount in the current 2018-19 budget. Although this latest amount remains below the previous trend, it’s a record high that’s heading in the wrong direction.
Using GR-D funds to certify the budget is misleading.
By using GR-D funds to cover estimated expenditures above general revenue, legislators can appropriate more money thereby growing the budget more than otherwise. This means that those expenditures certified by GR-D funds will eventually need to be covered with other general revenue, potentially from tax increases, or cut if funds aren’t available.
While the Texas Legislature has passed what could be a historic two consecutive conservative budgets, this practice of artificially growing the budget with GR-D funds should end by using the roll, ratchet, and adjust approach.
This approach includes: 1) Roll back the level of GR-D funds used for certifying the budget each period; 2) Ratchet down the amount of GR-D funds used to certify the budget to zero as soon as possible; and 3) Adjust taxes and fees that fund these accounts downward so these balances cease to accumulate.
The purpose of state government is to preserve liberty, thereby providing an institutional framework supporting prosperity. By ending this flawed practice of using GR-D funds for something other than their intended purpose and growing the budget, Texans can pay lower taxes and flourish more over time.