BUDGET

The state’s commitment to reduce school property taxes by one-third in fiscal 2008 has called into play a little-known restriction on state budgeting--the constitutional limit on spending--which limits the amount of state taxes that may be spent. The Legislative Budget Board met November 27 to consider setting the amount of the cap, as required by statute, but adjourned until January without taking action. This Policy Page explains the cap, the restrictions it imposes on the state budgets, and how it should be applied.

At a meeting hosted by the Dallas Women's Foundation, Eva DeLuna Castro made a presentation on the local impact of state government spending. Information available through the Kids Count project was also described.

The Speaker has projected $15.5 billion in “surplus funds” for the 2008-09 budget cycle. If “surplus” means “more than we had,” the Speaker may be right. If “surplus” means “more than we need,” then, as this Policy Page explains, we do not have a surplus at all; we are $3 billion short.

CPPP delivered a legislative preview on Texas' tax and buget situation at the William P. Hobby Policy Briefing. As part of the briefing, CPPP and Governor Hobby presented Houston Mayor Bill White and Harris County Judge Robert Eckels with the William P. Hobby Visionary Award for their leadership during hurricanes Katrina and Rita.

Presentation by Eva DeLuna Castro at Houston One Voice Pre-Legislative Forum, focusing on how federal funds in the state budget help pay for social services in Harris County.

Presentation by Eva DeLuna Castro to the Austin chapter of the National Association of Professional Mortgage Women.

Some may be shocked that in less than a month’s time, Texas has gone from having an $8 billion “surplus” to considering 10 percent almost-across-the-board cuts�"about $3 billion in General Revenue. The reason is the huge gap between the spending side of what the Legislature approved in the special session ($23 billion more in state funds for K-12 from 2007 to 2009, most of it to pay for local property tax cuts) and what it raised in new revenue ($8.8 billion from 2007 to 2009). Filling the $14 billion hole dug in the special session entirely wipes out the so-called surplus and still requires finding another $6 billion.

The fiscal notes for the tax and school-finance bills passed during the special session reveal a gap of $10.5 billion between the expected costs of HB 1 and anticipated revenues from HB 3, 4, and 5 in 2008-09. This deficit will place tremendous pressure on the next state budget, which could cause severe budget cutbacks, an increase in the state sales tax or other state taxes, an expansion of gambling as a source of revenue, or all of the above.

On Friday, the Senate Finance Committee adopted the Williams Amendment to HB 1, which would lower school property taxes to $1.00 per $100 of property valuation for the 2007-08 school year. The more money the state spends to reduce local property taxes, the less money the state can spend on anything else. The Senate may vote on HB 1 as early as Monday afternoon. We urge you to contact your Senator at once, asking him or her to support an amendment to remove the Williams Amendment from HB 1.

Using state revenue to replace school property taxes, cutting tax rates to $1.00 in 2008, would force a 16% cut in state spending subject to the constitutional cap on spending in the 2008-09 budget. Such a cut would needlessly force damaging cuts in vital state services.

Policy Page 263 described the spending needs that are still not a part of the state budget for 2006-07. The latest version of the supplemental appropriations bill, SB 16 by Ogden, identifies $2.95 billion in immediate needs. The state’s ability to respond to these needs, while reducing school property taxes and improving public education, has called into play a little-known restriction on state budgeting �" the constitutional limit on spending �" which limits the amount available for spending in the current biennium. An additional limit �" the dedication of all revenue from tax changes made in the special session to further reducing property taxes �" proposed by HB 2 by Pitts would further hamstring the next Legislature in writing the 2008-08 budget. This Policy Page explains the constitutional cap and the proposed dedication and the restrictions they would impose on the current special session and on future state budgets.

Our state constitution imposes a little-known cap on state budgeting�"a limit on the spending of tax revenue not dedicated by the Constitution. Because of the cap, even with over $8 billion in unallocated revenue, the legislature is finding it difficult to write a budget that includes additional state dollars to 1) reduce local school property taxes; 2) improve education spending, such as through a teacher pay raise, and 3) pay for supplemental needs in 2006-07. We described needed supplemental spending in Policy Page 263, which analyzes the $2.5-billion Senate Bill 16 (Ogden) as introduced. The SB 16 committee substitute laid out on April 24 has an even larger GR price tag of $3 billion. Reducing school property taxes, increasing education spending, and meeting supplemental needs can all be achieved, if the spending cap is correctly applied. This Policy Page explains the spending cap, how it should be applied, and why this is critically important.

Senate Bills 13 and 16 are scheduled for a public hearing by the Senate Finance Committee on Monday, April 24, at 9:30 a.m. Even though the governor’s call for the third special session is still limited to “school district property tax relief; modifying the franchise tax, motor vehicle sales and use tax, and tobacco product taxes, and an appropriation to the Texas Education Agency,” SB 13, 16, and other bills filed by legislators make it clear that other important matters will have to be resolved before the end of the 2006-07 budget cycle.

As the third special session of the 79th Legislature began yesterday, the Comptroller of Public Accounts revised the revenue estimate for the 2006-07 biennium, informing legislators that Texas could receive $8.2 billion more in General Revenue than is currently authorized to be spent. (Of this amount, $2.5 billion would be set aside for a constitutionally required transfer to the Rainy Day Fund.) This Policy Page explains why unused GR is so much higher than the $4.3 billion estimated in February 2006. It also explains why even $8.2 billion in unallocated revenue isn’t enough to make significant long-term reductions in local school property taxes, cover supplemental budget needs through August 2007, rebuild the state’s “rainy day fund”, and leave enough room for future revenue growth to adequately fund other state priorities such as higher education, health care, and public safety.

Memento is a great film noir about a man who has lost his short-term memory from a blow to the head while struggling to protect his wife. As he investigates her murder, he must rely on Polaroid photos to remember who his friends are and who his enemies are. Something similar has happened to Texans during our struggles to protect public education and other essential state services. Texans have taken so many blows to the head, it is hard to keep things straight.

Today, the Texas Tax Reform Commission released its Final Report. We appreciate the commission members who undertook this public service and the leadership of the chair, Mr. John Sharp. Please read on for our statement concerning this report.

Scott McCown spoke about the "Problems Facing Texas and the Likelihood of Viable Solutions" at the Texas Community College Teachers Association 2006 Convention.

Just before and after the New Year, we called upon you to make your voices heard in opposition to federal budget reconciliation, a process that cut the federal budget, particularly programs for low-income children and families. Despite your spirited efforts, budget reconciliation passed on a very close vote. Shortly after that, the Administration released its proposed budget for FY 2007, suggesting further cuts. CPPP is going to pay increased attention to federal budget issues and let you know about significant research and developments.

With a special session on school finance looming, some are interested in buying down local school property taxes using part or all of the $4.3 billion that the Comptroller has said is “available,” thus reducing the need to increase state taxes. This Policy Page explains why the $4.3 billion estimated to be available to fund the 2006-07 budget is not surplus money, and why it would be a bad idea to use any of the $4.3 billion to buy down school property taxes.

Federal funding for major programs such as Medicaid, highways, housing, education, and nutrition will be cut if President Bush’s 2007 budget proposal goes into effect, according to a preliminary analysis by the Center for Public Policy Priorities in Austin.

On Wednesday, Feb. 1, the U.S. House of Representatives is scheduled to vote on a budget reconciliation bill that would cut billions of dollars from Medicaid, child support enforcement, child care, foster care, Medicare, disability assistance, student loans, and other vital services for families to help fund $70 billion in new tax cuts. The reconciliation bill would also reauthorize the federal welfare block grant (Temporary Assistance for Needy Families) through fiscal year 2010, but with changes to the program that could hurt Texas. Act now to oppose the budget cuts!