State Budget UpdateTexas Council of Community Centers

Annual Conference, May 31, 2012

Eva DeLuna Castro, Budget Analyst

Outline 2012-13 Budget Overview•Spending and cuts to HHS, education•Decisions made by the 2011 Legislature that are still unresolved (such as paying the Medicaid “IOU”)

•2012-13 revenue trends

2014-15 Budget Development•Budget instructions vs. budget needs

Revenue options

The Texas State Budget for 2012-13Biennial Total: $176 billion

(6% below 2010-11; 15% below current services)Federally funded = shown in white; other areas are General Revenue,

GR-Dedicated, & “Other” State Funds.

Other7%

Property tax cut 8%

Other PreK-12,

16%

HHS 18%

PreK-12 6%

Highway 3%Other federal 4%

Higher Education

13%

Highways 8%

Prisons 3%

HHS 14%

Federal 31%

Source: Legislative Budget Board, HB 1 / HB 4/ SB 2, Dec. 2011. Includes $2.3 billion delayed Foundation School Program payment.

“Balancing” the 2012-13 State Budget

Medicaid “I.O.U”: $5 billion*

General Revenue

Shortfall of $23 billion

(after using $3.2 billion in Rainy Day Fund for

2011, plus other 2011 revenue not

in January estimate)

Cuts to 2012-13 Budget:

Over $11 billion more than $5.3 b in cuts

to PreK-12

Cuts to 2011 Budget: $1.3 billion (offset by $500 m more for schools)

Nontax revenue: $800 million (net)

Growth in GR-D Balances: $1.2 billion

Accounting tricks: $3 billion

Revised 2012-13 estimate: $1.2 billion

*Note: Medicaid IOU is currently estimated at $4 billion GR, after certification estimate contingent appropriations and other budget revisions.

$0

$50

$100

$150

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Utility Fee Revenue

Utility Assistance Funding

Million $

How Dedicated GR Helps Balance the Budget: the System Benefit Fund

Balance will exceed $800 million by the end of 2013

2011 Sessions’ Budget CutsRequested

GRGR in Budget* as of Dec. 2011

General Revenue Shortfall

HHS $ 31.0 b $ 22.9 b - $8.1 b -26%

Education 56.6 b 48.2 b - 8.3 b -15%

Criminal Justice 8.2 b 7.5 b - 0.7 b -8%

The rest 6.2 b 4.9 b - 1.3 b -21%

TOTAL $102.0 billion $ 83.6 billion - $ 18.4 billion -18%

* “Budget” includes $2.3 billion Foundation School Program payment that gets made in fiscal 2014; excludes Medicaid IOU

$5.0

$49.4

$16.1

$53.8

$22.6

$12.1

$23.2

$5.3

4.5

51.9

14.9

53.1

22.1

11.5

23.7

5.5

5.0

58.4

18.8

60.6

23.9

12.5

25.0

5.7

$0 $10 $20 $30 $40 $50 $60

All Funds Budget (Billions)2010 11 2012 13 budget (with FSP delay, Medicaid IOU) 2012 13 Current Services

State Health Care Spending: $55 billion Medicaid: $41 billion

CHIP: $2 billion

Health Care in the 2012-13 State Budget

Rest of state budget = higher education, prisons, public safety, courts, transportation, parks/environmental protection, regulatory agencies, legislature, and general govt. “Budget” includes $2.3 billion school deferral.

Rest of Budget39%

PreK-12 Education

29%

Medicaid23% Other HHS

3%

Teaching Hospitals

3%Insurance for

teachers, higher ed employees

2%

Prisoners1%

State Employee Health Care

2%

Other Health Care 7%

Health care

provider rate/fee

cuts, $805 m Managed

care expansion,

$386 m

Other benefit and spending

cuts, $843 m

Medicaid I.O.U.,

$4.8 billion

How the Legislature Reduced GR Spending for Medicaid/CHIP in 2012-13 by $6.8 billion

Child Protective Services, 2012-13Fared better than most other state services: •Proposed rate cuts for foster care & adoption payments were not implemented; some caseload growth was funded;•State proposal to redesign foster care (to help children move to permanency faster) will move forward; •CPS can start hiring new staff to work with children & families at the start of fiscal year 2012;•Funding for family services was maintained at 2010-11 levels.

But overall budget is 10% less than what CPS estimated it needed: •Caseload growth for family services was not funded;•Statewide intake staff, adoption services, and child abuse and neglect prevention programs were cut.

What Did the 2012-13 Budget Do to PreK-12 Education?

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Inflation-adjusted (2011 $) Spending Per Student

LocalFederalState

$10,252

$8,795

$10,272

Where Support for Schools Comes From (2010-11 School Year)

Local Taxes, 41%

Other Local, 4%

State Lottery, 2%

State, 43%

Federal,12%

What Schools Spend Money On(2010-11 School Year)

Of non-debt service spending: 40% goes to Regular Instruction

10% for Education of Students with Disabilities; 4% for Accelerated Ed.; 1% for Alternative Ed;

1% to Gifted/Talented; 2% to Career/Tech Ed.; 2% to Bilingual Ed., 4% to Compensatory Ed.

2% for Athletics/Cocurriculars 3% for Instructional Resources & Curriculum/Staff Development

4% for Counseling, Social Work, & Health Services 5% for School Leadership

4% for General Admin & Data Processing 10% for Campus Maintenance/Operation/Security

2% for Transportation/Buses 5% for Cafeterias/Food

Payroll, 63%Other

Operating Costs, 17%

Debt Service,

10%

Capital,11%

Public School Grants Eliminated from State Budget for 2012-13

Pre-Kindergarten Early Start ● High School Completion/ Success ● Science Lab Funding ● Texas Reading, Math and Science Initiatives ● Tuition Credit Program (Early High School Graduation) ● Extended Year Programs ● Teen Parenting Program ● Middle School Physical Education and Fitness Programs ●

LEP Student Success Initiative ● Disciplinary Alternative Education Programs (Safe Schools) ●

Rural School Technology ● School-Based Prevention Services ● School Improvement/Parental Involvement

AVANCE ● Arts Education ● Science and Math Outreach ● One Community One Child

$0 $1 $2 $3 $4 $5

4-Year General Academic

Health-Related Institutions

2-Year, Lamar, and TSTC

Higher Ed Coord Bd

Group Insurance/ Optional Retirement

Appropriated General Revenue (in billion $)

2010-11

2012-13

Major Higher Education Cuts by Type of Institution

Higher Ed Cuts in 2012-13No funding for enrollment growth at any type of institution

Major biennial reductions for Developmental Education; Texas Research Incentive Program; Professional Nursing Shortage Reduction Program; Family Practice Residency; Advanced Research Program; Teach for Texas Loan Repayment Program; Physician Education Loan Repayment Program

Higher Education Programs Eliminated for 2012-13

College Readiness Grants ● Performance Incentive Fund ● Early H.S. Graduation Scholarships ● TANF

Scholarships ● Engineering Recruitment ● Alternative Teaching Certification ● Combat Tuition

Reimbursement ● Texas Career Opportunity Grants ●Doctoral Incentives ● Preceptorship Program ●

Primary Care Residency Program ● Graduate Medical Education ● Professional and Vocational Nursing Aid ● Dental Education Loan Repayment ● Hospital-

based Nursing Education ● Children’s Medicaid Loan Repayment Program

$7.5 $6.9 $7.0 $8.4 $10.1$6.4

$11$12

$13$15 $14

$8

$0

$5

$10

$15

$20

$25

$30

2008 2009 2010 2011 2012 2013

Bill

ion

$

Cost containment (All Funds)

Supplemental need ($3.9 b GR, $6 b F)

Federal Funds

ARRA Federal

GR/GR-D/Other nonfed spent/ appropriated

LBB on Medicaid supplemental need(as of January 2012)

Where Could Revenue Come from to Pay Medicaid IOU?

Rainy Day Fund (Economic Stabilization): had $6.1 billion in it as of December 2011; Comptroller projects $7.3 billion balance by end of 2013.

“Unexpected” tax revenue that state collects in 2012-13: some additional revenue (beyond January 2011 estimate) was already used to shrink the Medicaid IOU and avoid other state spending cuts; further “new” money could fill budget holes or create larger ending balance

Sales Tax27%

Franchise Tax5%

Motor Vehicle Sales Tax

4%

Motor Fuels Tax4%

Other taxes 7%

Licenses, fees, fines, penalties

9%

Interest & Investment

Income1%

Lottery2%

Other nontax revenue

7%

HHS 19%

Education 7%

Highway 3%

ARRA Federal 0.4%

Other Fed 4%

Biennial Total: $167 billionTexas State Revenue for 2012-13

“Regular” Federal

32%

$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 $

Sales Tax Revenue Update

Fiscal 2008

20092010

2011

Fiscal 2012

$42.5

$26.9

$41.0

$24.2

$45.2

$26.5

Sales taxes All other taxes

2008-09 2010-11 2012-13

State General Revenue:Tax Forecasts as of Dec. 2011

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

General Revenue Tax Collections as Share of Personal Income

ActualJanuary 2011 Revenue Estimate

How Conservative Was the January 2011 Forecast?

Recovering to 2009 levels would have generated $7.5 billion more in GR

(enough to avoid Medicaid & school cuts); to 2003 levels, more than $13 billion

$14.2 $14.2 $14.2

$5.0 $4.2 $4.4

$0

$5

$10

$15

2008 09 2010 11 2012 13

Cost of property tax cut Revenue from special session tax changesBillions

$10 Billion Biennial Gap Between Tax Cut Cost & Revenue Raised in 2006 Session

New Revenue Replaced Less ThanOne-Third of Lost Property Taxes

In billion $ 2008-09 2010-11May ’06

fiscal note ActualMay ’06

fiscal note Actual

Franchise tax 6.8 3.0 7.7 2.5Tobacco tax 1.4 1.9 1.3 1.7Used car sales 0.1 0.03 0.1 0.02TOTAL REVENUE $8.3 $5.0 $9.1 $4.2

Cost of property tax cut

-$14.2 -$14.2 -$14.9 -$14.2

SHORTFALL -$5.9 -$9.2 -$5.8 -$10.0

Need for Public Services

In 2010: TexasUS

Average

Texas 50-state

RankChildren (under 18) as a Percent of Total Population

27.3 % 24.0 % 2nd

Percent of Residents with No Health Insurance

23.7 % 15.5 % 1st

Child Poverty Rate 25.7 % 21.6 % 8th

Elderly Poverty Rate 10.7 % 9.0 % 8th

Share of Residents Aged 25 or over with at least a High School Diploma

80.7% 85.6 % 50th

Share of Residents Aged 25 or over with at least a Bachelor’s Degree

25.9 % 28.2 % 30th

Source: U.S. Census Bureau, 2010 American Community Survey, 1-year estimates.

Indicators of Ability to Pay

Texas US Average

Texas rank

Per Capita Personal Income, 2010 $37,706 $39,945 27th

State and Local Taxes as a Percent of Personal Income, 2009

9.2% 10.4% 39th

Sources: Bureau of Economic Analysis and the Census Bureau.

Source: Legislative Budget Board, Fiscal Size Up 2012-13. Dotted lines show impact of Medicaid supplemental funding ($6 billion Federal, $3.9 billion General Revenue)

Texas State Government Spending,Adjusted for Population and Inflation

$0

$25

$50

$75

$100

1992-93 1994-95 1996-97 1998-99 2000-01 2002-03 2004-05 2006-07 2008-09 2010-11 2012-13

Biennial billion 1992-93$

General Revenue

All Funds

Budget instructions to state agencies

(May 2010)

Agency requests go to LBB & Governor’s

Office (August)

Public hearings before LBB/Gov. (Sept./Oct. 2010)

Governor’s Budget Proposal

LBB Budget Proposal

Comptroller’s Revenue Estimate

Before the 82nd Session Started…

With a few exceptions: 2012-13 “base” = GR and GR-Dedicated Funds that agency spent in 2010-11,

minus 5%

Four-fifths vote to override

Baseline Budget Instructions

2012-13: 5% cut to 2010-11 spendingInterim: 5% cuts to 2010-11 spending (January 2010); 2.5% cuts to 2010-11 spending (December 2010)

2010-11: base is same GR amount as in ’08-09, except for amount of funding needed to “biennialize” 2% state employee pay raise. Agencies also told to submit a supplemental schedule describing the impact of 10% cuts.

Interim: 2.5% cuts to GR spending in FY 2009 (January 2009)

Baseline Budget Instructions

2008-09: 10% cut to ’06-07 GR spending2006-07: 5% cut to ’04-05 GR spending2004-05: Spring ’02 instructions said same GR as for ’02-03; “building block” levels in January 2003 called for 12.5% cuts. Also, interim cuts of 7% for fiscal 2003.

2000, 1998, 1996, 1994: called for baseline to be held constant to previous biennium, with usual exceptions.

15% More GR !!

0%

2%

4%

6%

8%

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

% of Gross State Product

All Funds

General Revenue

Source: Legislative Budget Board; Comptroller’s Winter 2011-12 Forecast. 2013 assumes payment of Medicaid “I.O.U.” and includes $2.3 billion for schools that gets paid in 2014.

Except for federal Recovery Act Years, State Government Spending Peaked in mid-1990’s

Spending Needs for 2014-15• Public PreK-12, $7 billion: $4 billion to restore

formulas, $1.3 billion to restore grants; $2 billion for student enrollment growth

• Higher Ed: $490 million for enrollment growth at community colleges alone

• Health and Human Services: $3 to $4 billion, about half for enrollment growth, half for cost hikes

• State employee benefits: more GR needed for group health, pensions; another $500 million?

• Prisons: correctional managed health careTotal: once again, could be about a $99 billion

General Revenue budget

How Texas Got Through the 1982-92 Crisis:Other Taxes Had to Replace Falling Oil & Gas Revenue

40%

27%

6%

54%

6%12%

0%

20%

40%

60%

Sales Oil & Gas Motor Fuels Motor Vehicle Sales

Franchise

Percent of tax revenue

1982 1992

64%

18%

6% 2%

54%

28%

1%5%

0%

25%

50%

75%

Tax Revenue Federal Funding

Interest Income

Licenses & Fees

Land Income Other

1982 1992

Percent of total revenue

How Texas Got Through the 1982-92 Crisis:Federal Funds Increased as a

Source of State Revenue

Sources: Comptroller of Public Accounts, Annual Property Tax Report & Cash Report.

From a Taxpayer’s Point of View

Local 7%

State 25%

Other State20%

School26%

City8%

County8%Special

Districts6%

PropertyTaxes47%

Sales Taxes 32%

Households with the Lowest Income Pay the Highest Percentage in State and Local Taxes

14.6

8.06.8

6.0

3.6

<$29,223 $29,223 to $52,960

$52,960 to $80,882

$80,882 to $126,460

>$126,460

Taxes as a Percent of Household Income

3 8

12

20

58

8 12

16

23

40

<$29,223 $29,223 to $52,960

$52,960 to $80,882

$80,882 to $126,460

>$126,460

Percent of total income

Percent of total taxes

The Top One-Fifth of Texas Households Pays Less Than Their Fair Share of State & Local Taxes

Longer-Term Solutions

Apply Sales Tax to Business Services $6 billion

Repeal high-cost natural gas tax break $2 billion

“Healthy Texas” taxes $3.5 billion

Hospital 3.4% quality assurance fee $4 billion

TOTAL $15.5 billion

Use of This Presentation

The Center for Public Policy Priorities encourages you to reproduce and distribute these slides, which were developed for use in making public presentations.

If you reproduce these slides, please give appropriate credit to CPPP.

The data presented here may become outdated.

For the most recent information or to sign up for our free E-Mail Updates, visit www.cppp.org

© CPPP

Center for Public Policy PrioritiesP 512/320-0222 F 512/320-0227