A Balanced Approach To Meeting the Needs of Texas F. Scott McCown, Dick Lavine, Eva DeLuna Castro

mccown@cppp.org, lavine@cppp.org, deluna.castro@cppp.org

The Texas State Budget for 2010-11

Higher Ed.12%

HHS13%

K-12 Ed.14%

Other8%

Prisons3%

Highways6%

Federal36%

HHS 20%

K-12 Ed. 8%

Highway 4%

Other Fed. 4%

Property tax cut, 8%

Biennial Total: $182 billion

Federally funded = shown in white; other areas are General Revenue,

GR-Dedicated, & “Other” State Funds.

We’re Still In the Hole Created in 2006

In billion $ 2008-09 2010-11

5/06 Fiscal Note

11/09 Cash Report

5/06 Fiscal Note

11/09 Certification

Franchise tax 6.8 3.0 7.7 3.4

Tobacco tax 1.4 1.9 1.3 1.8

Used car, interest 0.1 0.0 0.1 0.1

TOTAL REVENUE 8.3 4.9 9.1 5.4

Cost of property tax cut

-14.2 -14.2 -14.9 -14.9

SHORTFALL -$5.9 -$9.3 -$5.8 -$9.5

$1.4

$1.5

$1.6

$1.7

$1.8

$1.9

$2.0

$2.1

Sep Oct Nov Dec Jan Feb Mar Apr May June July Aug

Billion $

The Recession Reduced Sales Tax Revenue

Fiscal 2008

Fiscal 2009Fiscal 2010

“One-Time” Money Balanced the 2010-11 Budget

Current Budget

2012-13 Budget

General Revenue $75.0 billion $75.0 billion

ARRA Used for GR $6.4 billion $0

Cash on hand $2.6 billion $0

Property Tax Relief Fund carryover

$3.0 billion $0

Permanent School Fund $0 $1.2 billion

TOTAL GR BUDGET $87.0 billion $76.2 billion

GAP $10.8 billion

Funding a Balanced Approach:Easy Money

Potential Revenue for 2012-13

Economic growth with no change in revenue system

$800 million for each 1% growth

Accounting AdjustmentsPayment delays, etc

$2.0 billion

Funding a Balanced Approach:Spend the Rainy Day Fund

Potential Revenue for 2012-13

Beginning balance $8.2 billion

Growth during 2012-13 $1.0 billion

Total Rainy Day Fund Available

$9.2 billion

When Can the Rainy Day Fund Be Spent?

• 1) If GR forecasted for the rest of a biennium is less than the GR appropriated, RDF can be used to cover the shortfall – vote of 3/5 of members present (up to 90 in House; 19 in Senate)

• 2) RDF can be used “at any time and for any purpose” – 2/3 of members present (up to 100 in House; 21 in Senate)

Source: Comptroller of Public Accounts, Annual Cash Report

Sources of State Revenue 2009Total $84.3 billion

Licenses, Fees, Fines,

Penalties9%

Interest/Investment

Income2%

Taxes45%

Lottery2%

Other5%

Federal Funds37%

Local 8%

State 27%

Special District6%

County 8%

School District20%

City 8%

Other State Taxes25%

Sales Tax35%

Property Tax40%

Sources: Comptroller of Public Accounts, Biennial Revenue Estimate 2008-09, January 2007; Annual Property Tax Report. Forecast by CPPP.

Major State & Local Taxes in Texas 2009

Source: Comptroller of Public Accounts, Annual Cash Report.

State Tax Collections 2009Total $37.8 billion

Other3%

Insurance3%

Gas/Oil Production 6%

Franchise11%

Sin (Cigarette,

Tobacco, Alcohol)

6%

Motor Fuels8%

Motor Vehicle Sales and

Rental7%

Sales56%

How the 2004-05 State Budget was “Balanced”

Cuts to 2003 Budget: $1.4 billion

Cost shifting: $1.9 billion

“Smoke and mirrors”: $1.2 billion

Rainy Day Fund: $1.3 billion

Federal Fiscal Relief: $1.4 billion

Revenue Measures: $1.8 billion

Cuts to 2004-05 Budget:

$6.6 billion

Estimated General Revenue

Shortfall of $15.6 billion

Unfunded Items in the 2004-05 State Budget

Cost shifts23%

K-12 schools20%

General Govt, Workforce

Comm., Lottery 5%

Other HHS Cuts & unfunded

caseload growth 17%

HHS Provider rate cuts 4%

System Benefit Fund 5%

Public Safety & Prisons 7%

Natural resources

2%

State employee health care

3%

Higher Ed 14%

Budget Scenario for 2012-13

$0

$25

$50

$75

$100

2002-03 2004-05 2006-07 2008-09 2010-11 2012-13

Local School Tax Cut (GR and PTF)

GR for Higher Ed

ARRA instead of GR

Other GR

GR for HHS

Other GR for K-12

GR for Prisons

Additional GR Needed

$7 b

$1 b

None

$3 b

$3.3 b

$300 m

$700 m

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