In Texas Governor Greg Abbott’s first State of the State speech, he came out swinging with key budget recommendations for spending limit reform and tax relief that would help restrain the footprint of government.
Table 1 provides a comparison among the current spending limit, Governor Abbott’s recommended reforms, and TPPF’s recommended reforms.
Table 1: The Current Spending Limit Expands Government Spending at a Faster Pace than Governor Abbott’s and TPPF’s Recommended Spending Limit Reforms
We applaud his spending limit reform that would cover more of the budget based on the rate of population plus inflation for the last four fiscal years immediately preceding the regular legislative session.
Population growth and inflation are two key economic metrics that account for most of the cost of funding public goods and services to a changing population. It is also noteworthy that these are added together and not multiplied, as some suggest, because the addition of these two metrics allows for economies of scale whereby the average cost declines over time.
By comparing these spending limits during fiscal years (FY) 2006-07 to 2016-17, Table 1 shows that the recommended average growth rates are lower than the adopted average with TPPF’s being the lowest of the three.
Considering that we must include compounded growth with each budget period building on the last, Table 1 also presents data showing that the percent increases compounded over time grew the most under the current spending limit and least under TPPF’s reforms.
The last three rows of Table 1 notes how these three limits compare in the FY 2016-17 period. They each cover a different portion of the budget making them not necessarily an apples-to-apples comparison, but if all growth rates were applied to the entire budget, TPPF’s would slow spending the most.
Figure 1 illustrates these growth rates for each budget period since FY 2006-07. For TPPF’s limit, FY 12-13 is the only period when the 3.3 percent increase of population growth plus inflation in FY 09-10 wasn’t the lowest; gross state product declined by 1.05 percent.
Figure 1: Both Recommended Spending Limit Reforms Would Slow the Growth of State Spending Compared with the Status Quo
At the end of the day, we applaud the Governor’s recommended spending limit reforms. Though it doesn’t line-up exactly with our ideal reforms that closely align with Senate Bill 361, his approach is much better than the status quo.
He recommends almost $4.5 billion in tax cuts with $2.2 billion going to lower property taxes, $2 billion in business margin tax relief, and another $268 million towards ending collection of dedicated taxes and fees. As the Governor mentioned, these must provide permanent tax relief.
With that in mind, we recommend getting the biggest bang for the buck by eliminating the costly, cumbersome margin tax as quickly as possible. In addition, it’s important to have long-lasting property tax relief, combined with legislation that would ask for voter approval anytime local property taxes exceed the lower of 5 percent or population growth plus inflation.
Overall, it’s all about strengthening the Texas model and Governor Abbott set the stage for the lights, cameras, and action to take place at the Texas Capitol.