Making Democracy Work

Financing State Government; The Budget and Taxes

Laura Blackburn (Houston) laura2blackburn@gmail.com

Testimony

Coalitions and Resources

League Resource: Resources

  • Center for Public Policy Priorities: This is one of our best resources. Keep in touch with them on facebook and twitter!

  • Texas Comptroller of Public Accounts' Texas Transparency website Whether you're here for detailed information about state spending, datasets you can download and use, links to local government transparency efforts, or even general information about the state budget process, we are pleased to offer this one-stop spot for what you're looking for.

  • Texas Legislative Budget Board The Legislative Budget Board (LBB) is a permanent joint committee of the Texas Legislature that develops budget and policy recommendations for legislative appropriations, completes fiscal analyses for proposed legislation, and conducts evaluations and reviews to improve the efficiency and performance of state and local operations.

  • Texas Forward Coalition advocating for public investments that improve people's lives.

Acronyms: What Does That Mean?

Position LWV-TX

FINANCING STATE GOVERNMENT + 1975, 2003 The League of Women Voters of Texas supports constitutional and statutory provisions for flexibility within a coordinated finance structure; equitable taxation system that assures adequate revenue; and increased accountability including the following:

  • removal of provisions relating to dedicated funds, ad valorem tax exemptions, dollar amounts of debt limitations, and other such specific wording from the constitution and making them statutory

  • budget execution to be a joint responsibility of the executive and legislative branches of state government

  • application of appropriate fiscal management and business practices to conduct state business

  • an equitable system of taxation which assures an adequate revenue; is easily administered; and is consistent with economic, social, and environmental goals

  • appraisal of taxable property at full market value; state supervision to ensure equitable and uniform appraisal and taxing procedures

Position LWV-US

Issue Studies

Explanation: Financing State Government

The League studied state financing as part of its multi-year study of Texas Constitutional Revision, adopting in 1973 a two-year study titled Financing State Government. The League study first focused on constitutional provisions relating to state finances. League members found that the state's elaborate restrictions on taxing, spending, and borrowing, intended to ensure fiscal prudence, often had quite the opposite effect. Instead they created obstacles to sound fiscal planning, management, and organization and failed to limit the financial practices they were intended to restrict. An example is the flat prohibition of state debt. Texas' outstanding debt not only exists but has been on the rise, just as total state spending has risen in recent years. The prohibition has served at times to increase the debt load by forcing the state to resort to more expensive methods of borrowing, such as the issuance of revenue bonds, rather than lower-interest-rate general obligation bonds.

The League agreed that the Constitution should permit the Legislature and Governor the freedom to develop fiscal policies for the state to meet current needs. Next, League study centered on the taxes imposed by the state government. The ability-to-pay approach for new or expanded taxes is preferred, although, in some cases, a tax levied according to the benefit theory would be acceptable as long as it was equitable and certain to be collected. A graduated personal or corporate income tax meets League criteria for a new tax, but a general sales tax does not. An equitable system of taxation also requires that tax laws be rewritten and enforced so there is certainty of collection at a relatively low cost.

History of LWV-TX Action

History: Financing State Government

Late 1970's-early 1980's: League members agreed that taxation to encourage desirable economic and social goals (such as preservation of agricultural lands and open space by preferential tax treatment-see Land Use position) is valid provided that there are sufficient safeguards to ensure that the goal sought actually is met by the preferential tax-treatment, and that the cost of meeting the desired goal be accurately and truly known so responsible cost- benefit evaluations can be made.

The League worked for major changes in property tax administration to make this tax more equitable and more easily and uniformly enforced. League-supported legislation requiring the establishment of single appraisal districts, appraisal of property at full market value, state supervised reports of taxable values, and training for tax appraisers was enacted in 1979.

1980's: Progress toward LWV-TX positions on tax reform has come largely as a result of continuing economic crisis in the 1980's and early 1990's. Declining state revenues have led successive legislatures to look for new sources of funds while some legislators sought to ban constitutionally the enactment of a state income tax. The League has urged restructuring of the state's revenue sources, while opposing a constitutional ban on the income tax. In 1987, the enactment of the largest tax increase in Texas history led to the creation of a Select Committee on Tax Equity charged with recommending changes to the state's financial system. The League supported many of the committee's recommendations, including efforts to broaden the tax base by use of expanded business taxes and exploring the eventual necessity for personal and corporate income taxes; however, reforms in the 1989 session were limited in scope and did not address the need for thorough reform.

1991: Reform of the state's finance structure was given priority by LWV-TX in 1991 because the projected $5 billion gap between estimated revenues and needed expenditures indicated that funding would be a major issue. State leaders, in an unusual move, postponed action on funding and budget issues until the first special session in order to await the results of thorough reviews of both expenditures and revenue sources. A Performance Review Panel appointed by the state comptroller carried out an audit of state agencies and held public hearings on how to cut costs of state government, while the Governor's Task Force on Revenue heard from experts and the public on ways to improve the state's revenue position. LWV-TX monitored both proceedings and presented the League's positions to the Governor's Task Force on Revenue.

The solutions ultimately adopted in 1991 for the state's fiscal crisis represented, from the League's point of view, partial progress in some areas while pitfalls were avoided in other areas. There was no movement on a personal income tax, but efforts to pass a constitutional amendment prohibiting it failed, and the sales tax rate was not increased. The corporate franchise tax, while not expanded to include other forms of business organization, was revised to include a tax on earned surplus (similar to an income tax).

The special session also produced the state lottery proposition that was approved by voters. LWV-TX took no position on the lottery as such, but opposed constitutional dedication of lottery revenues and also warned against making any essential state service dependent upon a lottery because such services require revenue sources that are both stable and adequate. The version ultimately approved contained no dedication of revenues.

1993: State leaders, facing another fiscal crisis in 1993, took a no-new-taxes stance on the budget. The League, speaking out on the proposed appropriations bill, called for increased funding for public schools and health and human services and reiterated that the state's fiscal crisis can only be resolved by restructuring Texas' tax system. The 73rd Legislature was able to adopt a balanced budget by cutting the level of services, by mandating better fiscal management, and by further shifting of tax burdens to the local level, particularly the burden of public school finance.

Implementation of suggestions set forth in the state comptroller's second performance review helped balance the budget, and some of the adopted recommendations are in accord with LWV- TX positions favoring increased accountability in the state's financial system. Of particular note was the adoption for the first time of a performance-based budget, a format advocated by the League since 1975.

LWV-TX was one of the few groups to testify against the proposed constitutional amendment adopted by voters in November 1993 that prohibits legislative enactment of a personal income tax without a majority vote of the people. This amendment also dedicates at least two-thirds of income tax revenues to local school property tax relief and the remaining revenues to education. League opposition was based on our positions that call for a flexible state finance structure and for removal of provisions relating to dedicated funds.

1995: Once again, legislators avoided a tax increase. The 6.2 percent spending increase over the previous state budget is to be financed by growth in state revenue. Yet the need for changes in Texas' tax structure is apparent to the League and to the state's political leaders as well. Governor Bush has pledged an interim study, with special attention to reducing reliance on property taxes.

1997: A tax relief bill dominated the session, but the final version bore little resemblance to that introduced by the governor's office, which had placed a high priority on the issue of reliance on property taxes. Reluctant to tackle the complicated problem of public school finance, legislators produced a last minute compromise bill that used the state's $1 billion surplus to fund property tax relief. A business tax provision in the original version held promise of broadening the tax base and developing a more equitable system of taxation, a longtime League goal. The League testified before both Senate and House committees, advocating the need for a state income tax in the long run, and a reform of the state sales tax and greater equity in taxes levied on businesses in the short term. Proponents of a state income tax were encouraged by the frequency with which the words "income tax" came up during this session.

The bill that was signed into law also dedicated lottery proceeds to fund education. The League opposes dedicated revenue funds of this type, which tend to make government less flexible and efficient. The League also has concerns about making a state service such as education dependent on a revenue source such as a state surplus, which is neither adequate nor reliable.

1999: Due to sizeable income from a tobacco suit settlement and a booming economy, debates regarding financing state government dealt with how and where to appropriate the income. League advocates were present and vocal during specific appropriations discussions. See sections regarding Health Care and Natural Resources.

2001: As in 1999, League advocates focused on the appropriations process. During this session, LWV-TX promoted funding for comprehensive health care services for women and children, increased child care subsidies, Medicaid simplification (which became a large budget issue as the session progressed), implementation of the SB 1 regional water planning process, and public participation in environmental decision-making. The League distributed a fact sheet to legislators with information on League budget priorities. State Government financing and the financing of public education will be two of the most important issues that will be examined during the interim.

2003: LWV-TX included both Financing State Government and Public School Finance in its periodic program review during the 2001-2003 biennium. Minor editorial changes were made to our Financing State Government position but no substantive changes were made. Knowing that the state was facing large deficits and there was a likelihood of significant cuts in state spending, LWV-TX joined with other organizations concerned about adequate funding of state services in the Fair Taxation Coalition under the umbrella of ProTex, a grassroots organizing group. One of the results of the coalition's work is a Fair Taxation Workshop, which can be given to community groups. It received high marks when it was presented at State Convention in April and in other venues. The League expects to be giving the workshop throughout the next year.

Although much of the focus of the legislature and LWV-TX was on public finance issues as the state was faced with a $10 billion deficit for the biennium, lack of agreement or time left most bills relating to public finance neither passed nor considered by the end of the session. The League testified for several bills which would have increased state revenues, and against several which would have further hampered the ability of the legislature to increase state revenues through taxation. The League and a few other members of the Fair Taxation Coalition were frequently the only advocates for increased funding in order to assure adequate state services. Almost all of the bills we followed, good and bad, did not pass. Only one bill, which affects local property taxes, passed. This law puts teeth into the requirement that businesses render their property for ad valorem tax purposes; it is estimated that it will increase local property taxes significantly.

Two Constitutional amendments voted on in September 2004 will impact local property taxes. One freezes school taxes for disabled homeowners, and the other allows counties, cities, towns and junior college districts to freeze other property taxes for persons over 65 and for persons with disabilities.

Governor Perry signed a $117 billion state budget on June 22. Keeping campaign promises by many legislators, the budget contained no new taxes although it does include some increases in fees. Although higher in total than the appropriations for last biennium due to anticipated increased federal spending, general revenue spending was reduced by $2.6 billion.

The new budget will result in decreased services and/or demands for increased funding of many services at the local level. Tuition increases are expected at some public universities and colleges since public institutions were given the power to set their own tuitions. While the eligibility levels for Children's Health Insurance, Medicaid, and TANF were maintained, procedural changes in these programs are expected to reduce or at least not significantly increase caseloads. In addition, for CHIP, a number of previously provided benefits, including dental and most mental health benefits, were eliminated. Services to the elderly and mentally ill were also eliminated or reduced in scope, and cuts were made in criminal justice programs including all state funding for the highly respected Criminal Justice Policy Council.

2005: Of the 59 bills related to public finance that the League followed, only one (HB 1, the General Appropriations Bill) actually passed, and this was the bill from which the governor line item vetoed all funds related to public education. Bills such as a statewide property tax and indexing of gasoline taxes didn't pass; a lot of bad bills, like greatly increased sales taxes, caps on tax rates and appraisals for example, also didn't pass. However, once the governor called a special session to consider school finance, it appeared that some of the same battles would be fought all over again.

The governor put caps on property tax rates, school funding, and education reform in the call for the special session. He also issued his proposed solution to the school funding situation. Major provisions included making partnerships owned by corporations subject to the corporate franchise tax; increasing the sales tax by 7/10 of a percent; adding certain services to the sales tax base; and increasing the cigarette tax by $1.00/pack. Presumably to offset the increase in the sales tax that would fall most heavily on the poor, the governor proposed to increase the homestead exemption by $7,500 to $22,500 in 2007. When added to vetoed funds from other bills, the governor said that there would be a $1.9 net increase in school funding for the biennium, significantly lower than the $3 billion the House was aiming for and the up-to- $7 billion cited as necessary by public school support groups. Property taxes would be reduced by 30 cents/$100 valuation in 2006 and 35 cents/$100 in 2007. None of these passed the special session.

HB 3 did not pass. It was revenue neutral, and its sole purpose was to replace the property tax with other taxes. HB 4 would reduce the increase in tax rates from 8% to 5% to trigger a rollback election if 10% of the voters petition for one.

2011: For the decades since League started recording, Texas state leadership has struggled to finance the government of a growing population while refusing to raise revenue. The attempt to reconcile the two opposing goals has continued through feast and famine, which this year involved an estimated $27 billion shortfall. That is, for this biennium, the legislature was short one-fourth of the money it needed to simply keep the same level and amount of services it provided in 2010.

The shortfall is the result of the protracted national recession that started in 2007, and of an institutional deficit created in 2006 when property taxes were reduced by one-third, and an inadequate business margins tax established to balance the loss of funds. The permanent deficit leaves Texas government $10 billion per biennium short in needed revenue. Instead of dealing with the problem, state leaders couched the fiscal crisis in terms of towing the financial line. Before the session both the governor and members of the legislature vowed there would be no new taxes. In addition, they decided not to tap the majority of the Rainy Day Fund, a renewable pot of money + estimated to be $6 billion by the end of this biennium + that was created for just this type of fiscal emergency.

By the end of the special session, the only viable finance bill, SB 1/HB 1, had cut total spending by $15 billion. To do that, the legislature cut some waste, employed a combination of fiscal tricks involving delayed payment, under-estimated future obligations to Medicare and Medicaid and raised some user fees. The final legislation was $4.8 billion short of covering projected Medicaid costs and had stripped $4 billion from public education. This amounts to about $500 per pupil across the state.

The most ominous move during this session, however, was the breaking of an almost 60-year promise Texas lawmakers have kept, until now, to provide each student in the state an adequate basic education through the Foundation School Program. It remains for the 2013 legislative session to do the hard work of fiscal reform this session shirked.

2015

We submitted detailed remarks to both the House and Senate regarding our views on the proposed budgets--both that of the Senate and that of the House. All budget bills must originate in the House, and the Senate proposes a subsitutute HB 1. Additionally, several bills were introduced which we responded to: We opposed HB 31, which decreased the state sales and use tax rate. We opposed this bill because our position states that we support "an equitable taxation system that assures adequate revenue." As we currently do not have the revenue to cover our essential needs for education, health care, transportation and infrastructure, it is illogical to cut taxes for the future. The bill died in the Finance committee. SB 1 reduced the ad valorem taxes by increasing the exemption of $15,000 for a homestead to $25,000. We presented testimony on this bill before the House Ways & Means Committee. It passed both Houses and was signed by the governor.

SB 9 limited the rate of growth of appropriations for future years. In our letter to the Budget Conference Committee, not only did we speak to issues which we support, but we also opposed any cap on future budgets, saying "But the most egregious budgetary action would be to put a cap on future budgets which would lower our ability to meet growing needs, much less address needs from past years. We strongly OPPOSE such an action." Fortunately no budget caps passed.