Issues

One of the most important responsibilities of the Texas Legislature is preparing the state budget.   The Legislative Budget Board (LBB) has been working over the past few months to draft a preliminary base budget.

The LBB has to take into consideration the many major budget demands when drafting the budget.  The state is responsible for funding caseload growth in Medicaid and the Children's Health Insurance Program, enrollment growth in higher education, Child Protective Services reforms, increasing prison populations, bond debt service, statutorily-required employer costs, and property tax relief and other education initiatives.

Susan Combs, the newly elected Comptroller of Public Accounts, will issue the Biennial Revenue Estimate in January 2007.  Until then, the LBB does not know how much revenue will be available to fund programs and initiatives.

As part of the budget cycle, the LBB is required to adopt a rate of growth which is used to set the Constitutional Spending Limit before each legislative session.  This Constitutional cap limits growth to not exceed the estimated rate of growth of the state's economy from one biennium to the next. It does not apply to spending dedicated by the Constitution to a specific program or dedicated state tax funds or federal funds.

In recent years, the rate of growth adopted by the LBB has been between 11 and 14 percent.  Multiplying the growth rate percentage by the previous biennium's general revenue results in a maximum amount the budget can grow between biennia.  In order to exceed this maximum amount, the Legislature would have to vote on a resolution to exceed the Constitutional Spending Limit.

The Legislature recently passed historic property tax relief for Texas homeowners by reducing local school property tax rates by one-third beginning in 2007,  giving Texans a net tax cut and shifting more responsibility of paying for public schools from local entities back to the state.

When considering setting the rate of growth to then determine the Constitutional Spending Limit, the LBB must now consider the $13.5 billion cost of this property tax relief, in addition to the state's other funding demands. The estimated cost of property tax relief represents a 25 percent increase over the 2006-2007 state spending limit base. State officials question if the framers of the Constitutional Spending Limit intended for it to limit property tax shifts. 

If the LBB adopted the lowest rate of growth, appropriations for tax relief would put the state an estimated $4 billion over the spending limit before even considering basic spending demands, such as enrollment growth in public schools, population growth in the criminal justice system, and caseload growth in health and human services programs.

Unless the state made spending cuts to these state services in the budget, setting a low percent rate of growth will not be high enough to pay for property tax relief and other funding demands.

Recently, the LBB met to discuss this issue and other issues on the agenda. The LBB decided to postpone setting the rate to allow economists to further analyze the state's economic growth.

At the LBB meeting in January, a decision should be made about the rate of growth.  If a rate of growth is not adopted, then the base budget cannot exceed the 2006-2007 appropriated amounts and there will be no new money to fund growth in essential state services. 

Under this scenario, Legislators would have to vote on a resolution to exceed the Constitutional Spending Limit during the session if they wanted to provide property tax relief and fund state services.

However, if the LBB adopts a higher rate of growth, there is a better chance the Legislature can deliver on their promise to provide much needed property tax relief, fund essential state services and even leave $4 billion in general revenue unappropriated when the 2008-2009 budget is completed.  In addition, the state's Rainy Day Fun is projected to have a balance of $4.5 billion by the end of the 2009 fiscal year.

Texas has been blessed with a vibrant economy.  Keeping taxes low and taking a conservative budget approach has served Texans well over the past few biennia and will continue to serve us well in the future.