Budget Primer 2012

8/3/2019 Budget Primer 2012

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Community Priorities, Community Resources

January 2012

Our state laws tell the story of who we mean to be:the ways we mean to care for each other,

the investments we mean to make in each other,and the way we mean to leave our community

for future generations.Our state budget provides

the means to make those intentions real.

produced with the generous support of Methodist Healthcare Ministries of South Texas

Building a Healthy State Budget

TEXAS INTERFAITH

CENTER

for public policy

Budget Primer 2011.2.indd 1 2/15/12 2:2



Texas Interfaith Center for Public Policy: Building a Healthy State Budget (2012) 2

When the Texas Legislature convenesevery two years, its primaryresponsibility is to set the states

budget for the following biennium. In fact,the budget is the only piece of legislationthat lawmakers are constitutionally requiredto pass. If they fail to adopt a budget duringtheir regular 140-day legislative session or if the Governor vetoes the budget as passed, theLegislature must meet in special session untilit can pass a budget that the Governor will

sign.

The simple fact of the budgets constitutionalpre-eminence gestures toward an equallysimple fact of human existence: we live in aworld of limited resources. The ways in whichwe divide and use our resources are at theheart of our character as individuals and as acommunity.

Faith communities are key participants in the

state budget discussion. Faith perspectives onpublic budgets revolve around three areas of concern:

Supporting the most vulnerable. Theworlds faith traditions are united in theirunderstanding of our responsibility to takespecial care of the most vulnerable anddisadvantaged members of the human familysuch as children, the elderly, the poor, and thesick.

Promotion of the common good. Our faithtraditions call us to collaborate to strengthenour shared existence̶to improve conditions forthe entire community rather than to enrich ourindividual lives at the expense of others.

Stewardship of the resources we havebeen given. The sacred texts of the Jewish,Christian, Muslim and many other traditionsreflect a shared understanding that all resourcescome to us by the grace of the Creator, and thatwe are called to use these gifts wisely, to glorify

God and improve human circumstances.

The majority of Texas budget frameworksupports policies and programs to keep Texanssafe, fund the health care system that we alluse, and educate the next generation of Texans.These budget items tell the world a lot aboutwhat kind of people we are...and, maybe moreimportant, what kind of people we mean to be.Our revenue system must give us the means tomake those intentions real.

Today, Texas revenue system is not reliablyproviding enough funding to fulfill the corecommitments we have made to each other inour laws and constitution. This paper explainswhat those core commitments are, why ourrevenue system isnt keeping up, and how theLegislature can bring the system into balance.

Source: General Appropriations Act of the State of Texas 2012-13. All funds.

People of faith should ask three questions about the state budget. First, are we spending enough to meet our commitments; second, are we collecting enough revenue to support our spending; and third, are we collecting it in a fair way? The 2012-13 Texas budget does not appropriate enough funds to meet the state’s core constitutional and statutory obligations. Ourbudget does not appropriate enough funds to meet our obligations because the state revenue system does not generate sufficient funds to do so. The backbone of the revenue system is the state sales tax, which disproportionately falls on lowand moderate-income Texans. Legislators can re-align the budget and revenue systems either by raising new revenues orby disavowing the state’s historic commitments.





The State Budget: A Framework forCommunity

Texas has a two-year budget cycle̶called abiennium̶that starts in the fall after eachlegislative session. The current biennium(2012-2013) began after the 82nd Legislative

Session, on September 1st, 2011, and will lastuntil August 31st, 2013. About six months afterthe start of each biennium, state agencies begindeveloping their proposed budgets for the nextbudget cycle; so, in March or April of 2012,agencies will have to start thinking about whattheir funding needs may be like in August of 2015, the end of the next biennium.

For the 2012-13 biennium, the Legislatureappropriated $173.5 billion in all funds,including tax and fee revenues, federal funds,earnings on investments, and all the other

sources of funds the state relies on. As Table 1shows, this is about $14 billion less than theyappropriated for the previous biennium. About97 percent of the budget reductions were in theareas of social services and education, althoughas Chart 1 shows, these areas make up about75 percent of state spending.

The greatest share of the all-funds budget,32 percent or about $55 billion for 2012-13,goes for health and human services, but morethan half of the funds in this area are federal

funds. Within the health and human servicesarea, Medicaid and CHIP account for the single

greatest share of spending.

The greatest investment of state dollars goesto public schools, which account for about29 percent of the budget at $50 billion for2012-13, but account for 42 percent of stategeneral revenue spending. (This amount doesnot include the funds that local school districtsprovide for public schools through their localproperty taxes.) Beyond social services andeducation, the largest items of state spendingare highways, which are mostly federallyfunded, and public safety.

Not Meeting Needs: Cutting Spending inthe Face of Growing Demand

Legislators depend on state agencies to estimatehow much funding they will need in the futureto carry out activities. For the main items of

expense in the Texas budget, estimates of futurecosts involve just a few key variables: • How many people a program must serve• How much the services will cost on a per-

person basis• Changes to the nature of the services that are

beyond legislative control

Legislators and agencies have little control overthe number of people programs must serve,because it is typically a function of population

growth. For example, Texas adds about 170,000new public school students every year.

TABLE 1: Health and Human Services and Education accounted for 97 percent of the cuts in the 2012-13 budget despiteaccounting for only 75 percent of spending.

Source: Texas Legislative Budget Board, Comparison Tables: 2012-13 Biennial Appropriations Compared To 2010-11 Base Spending By Method Of Finance.

ALL FUNCTIONS IN MILLIONS

ESTIMATED/

BUDGETED

2010‒11

APPROPRIATED

2012‒13

BIENNIAL

REDUCTION

SHARE OF

BUDGET

REDUCTIONS

SHARE OF

BIENNIAL

BUDGET

Article I ‒ General Government $5,026 $4,469 -$557 4% 3%

Article II ‒ Health and Human Services $65,464 $55,426 -$10,038 72% 32%

Article III ‒ Agencies of Education $76,416 $72,871 -$3,545 25% 42%

Article IV ‒ The Judiciary $673 $643 -$30 0% 0%

Article V ‒ Public Safety and Criminal Justice $12,073 $11,507 -$566 4% 7%

Article VI ‒ Natural Resources $3,562 $3,888 $326 -2% 2%

Article VII ‒ Business and Economic Development $23,197 $23,661 $464 -3% 14%

Article VIII ‒ Regulatory $736 $678 -$58 0% 0%

Article IX ‒ General Provisions3 $0 $0 $0 0% 0%

Article X ‒ The Legislature $369 $340 -$29 0% 0%

TOTAL, ALL FUNCTIONS $187,517 $173,484 -$14,032 100% 100%





Legislators have more control over the cost of services, especially in terms of setting salariesfor state employees and constraining thespecific goods and services that programs mayprovide.

Legislators have little control over budgetrequirements that are dictated by the courts.For example, the Texas Medicaid programoperates under a court order to set providerrates at levels that will ensure Medicaidenrollees have meaningful access to services intheir local communities.

In 2010, the agencies responsible for socialservices, education and public safety developedprojections of their funding needs for 2012-13. As Table 2 shows, based on populationgrowth and increases in the cost of services,

the agencies projected they would need about$18 billion more to keep doing what they werealready doing. Including these three mainbudget drivers and all other agencies of stategovernment, requested increases totaled $21.2billion.

Instead of increasing funding to keep programsconsistent in the face of population and costgrowth, however, the Legislature reducedfunding, with a disproportionate share of the

reductions falling on the very agencies andprograms accounting for the greatest shareof the requests for increased funding. Texansmight well ask, what happens when agenciesdont get the funding they project they willneed to maintain services?

In the case of public safety, legislators splittheir approach, taking some measures to keepcosts down and also shifting their emphasis insome cases from higher-cost incarceration tolower-cost community-based corrections. Inthe case of education, legislators left the hardchoices to the local administrators of the statescolleges, universities and more than 1,000school districts, who can either raise morefunds locally through tuition, fees, local taxesor other strategies, or else cut employees oreducational programming.

In the case of social services, lawmakers usedcreative accounting. Left with the choiceof reducing services to the neediest Texansor raising additional revenue to maintainthe status quo, legislators intentionallyunderestimated the costs in the social servicesbudget, appropriated enough funds to coverthe artificially low expenses, and hoped thatover the biennium the states fiscal situationwould improve enough to cover the differencebetween the amount appropriated in the

Source: Center for Public Policy Priorities and agency approprations requests.

TABLE 2: State agencies estimated in 2010 that they would need $21.2 billion more in 2012-13 to maintaincurrent services.

2010-11 GR-

Related Budget

(billions)

2012-13 GR-Related Baseline and

Current Services Exceptional

Items (billions) Increase

Texas Education Agency $28.4 $37.5 $9.0 billion

Health and Human Services $23.0 $31.4 $8.3 billion

Higher Education Formula

Funding$8.1 $8.8 $730 million

Department of Criminal

Justice$5.9 $6.3 $361 million

Employee Retirement System $2.2 $2.8 $576 million

Teachers Retirement System $3.9 $4.8 $908 million

All Other Agencies and

Programs$6.3 $7.4 $2.1 million

Total $77.8 $99.0 $21.2 billion





budget and agencies actual requirements. If state revenue does not improve, lawmakersplan to tap the states reserve fund (the RainyDay Fund) to cover the shortfall when theyreconvene in January 2013.

The Legislature chose to cut spending inresponse to its expectations about how muchrevenue the state probably would take in overthe 2012-13 biennium through its existingrevenue mechanisms. An alternative approachwould have been to establish a revenue targetbased on funding needs, and then adjust thestates revenue strategies to meet that target.

Where the Money Comes from: TheTexas Revenue System

As Chart 2 shows, for the 2012-13 bienniuma projected 41 percent of Texas state revenue

will come from state taxes, and an equalamount will come from federal funds. Theremaining 18 percent will come from a varietyof non-tax revenue sources like tuition, licensesand fees.

As Chart 3 shows, more than half of Texas taxrevenue comes from sales taxes. Sales taxesare called regressive because they typicallyrepresent a larger share of household incomefor taxpayers in low income brackets than for

wealthier taxpayers.

In looking at Texas revenue system, it makessense to consider not only state and federalrevenue, but also the local revenues collectedthrough property taxes and other local taxes.Property taxes are a major component of public school funding, and they also supportmany of the other programs in the state budgetincluding health care and public safety. Chart4 shows that since 1980, state funds havedeclined steadily as a share of public fundsin Texas, while local and federal funds haveincreased.

Texas ranks 45th among the states in statetaxes collected as a percentage of total personalincome, and 47th in state taxes collected perresident. However, some budgetmakers pointout that, as Chart 5 shows, on an inflation-

adjusted, per-capita basis, Texas state, localand federal revenue have increased since 1978.Some Texans question why the state shouldneed to spend any more money per person nowthan it did 35 years ago, as long as inflation isaccounted for. They argue that no matter howmuch the population grows, each new personmust increase overall revenue by the same per-capita amount.

Although public funds have increased on a

Source: Center for Public Policy Priorities and Texas Comptrollerof Public Accounts

Source: Center for Public Policy Priorities and Texas Comptrollerof Public Accounts





per-person basis, they have held steady ordeclined as a share of total personal incomein Texas. As Chart 6 shows, over the 33-yearperiod from 1979 to 2011 total state revenuesnet of federal funds equalled an average of sixpercent of total personal income, but in 2010and 2011 they equalled less than 5.5 percentof total personal income. If total revenues in2011 had equalled six percent of total personalincome instead of 5.5 percent, Texas wouldhave received $6.9 billion in additional staterevenues.

Re-Aligning the Budget andRevenue Systems

Lawmakers have two available options to bringstate revenue into alignment with core fundingneeds. First, they could reduce funding needsby diminishing commitments and expectations.Second, they could increase the states revenuethrough the imposition of new taxes or fees.

Budget cuts do not fit into either of these

options. Instead, budget cuts are a short-termstrategy for reducing spending without overtlyreducing or eliminating policies or programsthat are important to the Legislature and thepublic. Over the past ten years, lawmakershave made many significant budget cuts,culminating in the cuts in the 2012-13 budget.

Texans should consider the extent to which thestates current commitments reflect their hopesfor our state: would reducing our commitmentto education, safety or the social safety netmake us more like we mean to be, or less?Likewise, Texans should consider whetherincreasing state revenues would reflect ourbeliefs about public and private resources:would increasing taxes or fees for any group of Texans be fair?

If lawmakers decided that increasing revenuesrepresented the better path, possible revenuestrategies they could consider includeraising the sales tax rate; eliminating salestax exemptions; raising various sin taxesincluding taxes on alcohol, tobacco andsugary drinks; and raising fees. Some fees, likedrivers license fees, apply to a large part of the population, while others, like professionallicensing fees, target a small group. Taxingbusiness and professional services (excepthealth care) such as legal and accountingservices alone could have raised $6.1 billion inthe 2012-13 biennium, according to the Centerfor Public Policy Priorites.

Some Texans support the establishment of a state personal income tax to stabilize andmodernize Texas revenue system. Texas

Source: Center for Public Policy Priorities and Texas Comptroller of Public Accounts





is one of only nine states without a statepersonal income tax. Texas has a constitutionalprovision that any revenue raised from anincome tax in the future must be applied topublic education, including increasing thestates share of public school funding byreducing local property taxes. An income taxis generally considered to be a progressive tax,

since individuals with more income usually paymore than those with less income.

Some Texans wonder if expanding state-sponsored gambling would bring in enough newrevenues to offset some portion of the expectedshortfall. However, the experience of otherstates and Texas experience with the lottery

Source: The Urban Institute-Brookings Institution Tax Policy Center. Data from U.S. Census Bureau, Annual Survey of State and LocalGovernment Finances.

Source: Center for Public Policy Priorities and Texas Comptroller of Public Accounts




demonstrate conclusively that gambling doesnot result in significant new state revenues.Instead, gambling tends to create new expensesfor states by fostering new addictions anddestabilizing the finances of low and moderate-income families.

Moving Forward TogetherAs the Texas Legislature works to align ourbudget and revenue systems, faith communitiescan encourage them to focus on the followingpriorities:

Protecting services that meet basic humanneeds. The states primary concern in thecurrent shortfall should be to uphold itscommitment to the most vulnerable membersof the community by maintaining core servicessuch as health care and education. Alleviating

suffering for at-risk Texans will help the wholestate move past the current crisis with minimallong-term damage.

Planning for the common good. Promotingthe common good requires lawmakers to takeproactive steps to prevent budget crises. The

Legislature should develop budget strategiesthat incorporate planning for populationincreases and economic changes. Furthermore,the budget development process is long andcomplex̶but it is not always transparent,collaborative or accountable. Lawmakers couldbuild public trust and shared accountabilityinto the budget by expanding opportunities forpublic participation and working to increasepublic understanding of the states budgetframework.

Long-term stewardship of our resources. Thecurrent shortfall reflects a serious mismatchbetween the expectations Texans have forgovernment, the size and trajectory of thestates population, and the realistic potentialfor income under the current revenue system.Good stewardship of our states resources willdemand that lawmakers commit to aligning our

budget and revenue systems, so the budget cancontinue to support the programs and servicesthat Texans need.

Texas Interfaith Center for Public Policy • 221 East 9th Street, Suite 403, Austin, Texas 78701 • www.texasinterfaithcenter.org • 512.472.3903

Methodist Healthcare Ministries (MHM) is a faith-based, 501(c)(3), not-for-profit organization whosemission is Serving Humanity to Honor God by improving the physical, mental and spiritual health

of those least served in the Southwest Texas Conference area of The United Methodist Church.MHM partners with other organizations that are also fulfilling the needs of the underserved in localcommunities, and supports policy advocacy and programs that promote wholeness of body, mind andspirit. The mission also includes MHMs one-half ownership of the Methodist Healthcare System ‒ thelargest healthcare system in South Texas. This creates a unique avenue to ensure that the MethodistHealthcare System continues to be a benefit to the community by providing quality care to all and charitable care whenneeded, and it provides revenue to MHM for its programs.

The Texas Interfaith Center for Public Policy is a faith-based, 501(c)(3) non-profit organizationproviding theologically grounded public policy analysis to people of faith and other Texans. TheCenter is the research and education arm of Texas Impact, the states oldest and largest interfaith

legislative network. Texas Impact was established by Texas religious leaders in 1973 to be a voice in the Texas legislativeprocess for the shared religious social concerns of Texas faith communities. Texas Impact is supported by more than twodozen Christian, Jewish and Muslim denominational bodies, as well as hundreds of local congregations, ministerial alliancesand interfaith networks, and thousands of people of faith throughout Texas.

TEXAS INTERFAITH

CENTER

for public policy

Budget Primer 2012

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Transcript of Budget Primer 2012