The House’s proposed budget for the 2024-25 biennium, House Bill 1, is scheduled for a public hearing in the House Committee of Appropriations on Thursday. As we move forward in the budget process, it is important to consider these two key questions:
Are we spending too much or too little?
To answer this question, we need a benchmark to compare the spending growth. Thankfully, the law already provides certain legal limits based on economic indicators.
Let’s start with General Revenue funds (GR), composed mostly of all the taxes levied by the state of Texas. Comparing appropriations from GR between 2022-23 and the budgeted for 2024-25 in HB1, we get a 9.2% increase for a total of $130 billion. The Texas Constitution limits spending growth to the estimated growth of the Texas economy. According to the Legislative Budget Board (LBB), the expected growth for the next biennium is 12.33%.
Last session, an additional cap was included based on the Foundation’s Conservative Texas Budget (CTB), but more on that later.
The statutory limit caps GR funds and General Revenue dedicated (GR-D) funds to the growth of population times inflation, which LBB also estimated at 12.33%. Considering both GR and GR-D funds, the growth is 8.7% reaching $136.4 billion.
So far, so good. However, the last component of State Funds, which is consolidated under “other funds,” is not subjected to any legal limit. Unsurprisingly, other funds increased by 43.5%, leaving the total growth of State Funds at 17.3%, higher than the non-legally binding limit of 12.33%.
Like other funds, federal funds do not have a legal limit. However, federal funds present a decrease of 5% compared to the last biennium, reaching $93.7 billion. Summing up all appropriations from all the funds (state and federal), we get $289 billion, with a 9% growth.
In order to assess whether spending growth from all funds is excessive for Texans, the Foundation developed the CTB. The CTB is a fiscal rule that limits spending growth based on population growth plus inflation. The rationale behind the CTB is that any increase in spending should be only justified if there are more people to be served with public services (measured by population growth) and if the cost of such services has increased (measured by inflation). By following the CTB, spending per capita adjusted for inflation remains constant over time. The CTB for 2024-25 is 16% for All Funds excluding property tax relief and disaster relief funds.
Overall, spending limits are doing their job for now, but keep in mind that the record-high inflation has provided more room for additional spending.
Are we spending wisely?
Now that we know how much we are spending, it is important to see if we are getting the best bang for our buck. Sadly, the answer is no. The Lone Star State remains behind the middle pack on the quality and performance of public services provided to its citizens. According to the U.S. News Best State ranking, Texas occupies the 31st position in public service performance. Similarly, WalletHub ranks Texas in the 36th position on the overall quality of government services. However, states like Florida and New Hampshire have demonstrated that a low-tax environment and high-quality public services are compatible and not mutually exclusive.
One way to improve the performance and reduce wasteful spending is to follow the Foundation’s recommendation to conduct private efficiency audits to every state agency. For instance, thanks to House Bill 1516 last session, Public Consulting Group (PCG) conducted an efficiency audit on Temporary Assistance to Needy Families (TANF) and released the results in 2022. The efficiency audit reported a duplication of services from the Alternatives to Abortion (A2A) program representing a potential saving of $41 million annually. This implies a saving per user of A2A ($322), which exceeds the amount received by the average TANF recipient in 2022 ($301). Despite this finding, HB1 would allocate an additional $120 million in the next biennium for a duplicative service that other programs can absorb, according to PCG.
In conclusion, even though HB1 complies with all the limits discussed before, would you pay extra for mediocre service? Not in the private sector. Should we hold the public sector to the same standard? I think so.