Fiscal

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The Texas Legislature has put $13.8 billion in spending on the November 7 constitutional amendments ballot. A vote by Texans to reject eight of these propositions  (see below) would cut Texas’ spending of state funds by $13.8 billion, or more than 6% of projected spending over the next two years. This gives Texans an unprecedented opportunity to reduce the size and scope of Texas government.

Normally, politicians—who love to spend our money—would never give us this opportunity. But Texas politicians had a choice to make this spring. With a record $80 billion of new revenue available, they could either spend the money or give it back to Texas taxpayers in the form of property tax relief. Unfortunately for Texans, for the most part they chose to spend the money.

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The Texas Legislature adjourned May 29 ending its 88^th regular legislative session. In its wake, a lot of bills were sent to Texas Governor Greg Abbott to become law with his signature. Many more bills were not passed or even considered. In this review of the Texas Legislature, we will review the bills that passed and make up the Texas Budget.

The Texas Legislature began its session this year with approximately $70 billion in new funds to spend over what they spent in 2021, including a record $32 billion surplus left over from 2023. Unfortunately, the Legislature decided to spend almost all of the money it could get its hands on.

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Only in Austin could politicians defend not cutting property taxes by claiming doing so would mean more spending. Yet that is exactly what is happening in the Texas Capitol as politicians salivate over how to spend the state’s $27 billion — and growing — budget surplus.

Texas Gov. Greg Abbott has been the most generous toward taxpayers, saying he supports giving half of the surplus back to taxpayers through lower property taxes. But Lt. Gov. Dan Patrick and House Speaker Dade Phelan are being much stingier.

Patrick started out at $4 billion for property tax relief but lately has lowered that to $2.5 billion for homeowners — while wanting to spend more on teacher pay and higher education. In a recent meeting at the Transportation Advocacy Group in Houston, Phelan indicated he is focused on using the surplus to fund infrastructure and keeping up with the higher cost of government. “I know there’s a lot of politicians who are going around saying we need to go around spending half this revenue” on property tax relief, Phelan said. “No one is even considering how much more expensive it’s going to be to run the government next cycle.”

Whatever figure they propose, however, lawmakers appear to be hiding behind some arcane rules on state spending to limit property tax cuts for Texans.

Since the local government collects property taxes, money used by the state to “buy down” property taxes is counted as spending.

To complicate matters further, in 1978, Texans voted to amend the Texas Constitution to limit state spending growth every two-year budget cycle to the rate of the state’s economic growth. There are various ways to measure that, but the Legislative Budget Board recently set the limit at 12.3%. This would allow spending growth for the upcoming biennium of about $12.5 billion — almost all of which would be spent on growing government.

One obvious solution to this is using all of that money on tax cuts. Even better would be for the Legislature to use the constitutional provision that allows the Legislature to declare an emergency to exceed the spending cap to use the entire $27 billion on property tax relief for Texans — as it did in 2007.

But this is not what Texas politicians have in store for them. Instead, two things are happening here, and both are bad news for taxpayers.

First, our state and legislative leaders call for increased spending that will use up most of $12.5 billion. Second, they use the spending limit as an excuse to avoid reducing property taxes by characterizing property tax cuts as spending. Yes, it would be dangerous from a conservative perspective to bust the spending cap for more spending. But it is disingenuous to play on conservatives’ fears by pretending that property tax cuts are equivalent to state spending.

Instead of all these shenanigans, Texas politicians must realize that reducing property taxes is actually very simple. The key to doing so? Stop the growth of government spending in Texas.

An upcoming paper by the Huffines Liberty Foundation shows that the portion of school property taxes that funds maintenance and operations could be eliminated in six to 10 years. That works out to about a 40% permanent property tax cut for Texans — without increasing other taxes or reducing funding for public schools. To make this happen, we need to take three simple steps.

One, use 90% of current and future budget surpluses to replace school property taxes with state revenue to increase state funding of schools to 100% of the total. This reallocation is a no-brainer since the state already pays for 45% of our schools. We can do this replacement within existing school funding formulas, which already control the flow of state and local funds.

Two, exercise fiscal discipline. Suppose the Legislature limited state spending growth to 2.5% annually; the M&O school tax would be gone in only 10 years. If the Legislature kept the current spending level, i.e., zero growth, it would only take six years to eliminate the M&O tax.

Three, freeze school property taxes and require local governments to get permission from voters to exceed the No New Revenue tax rate. In the past, whenever the Legislature has attempted to reduce property taxes, local governments and schools have increased rates to undermine the effort. Limiting their ability to do this would turn education “spending” into real property tax cuts.

Texas politicians have failed to get property taxes under control for one reason: They have not wanted to. It is up to Texas voters and taxpayers to let our elected officials know that we want results, not excuses when it comes to reducing property taxes.

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If the Texas Legislature uses all funds available to it this session, it will appropriate at least $279 billion of taxpayer money during the upcoming biennium. That will be an increase of at least $31.5 billion, or 12.7%, from what it appropriated in 2019. Since the 2014-15 budget, the budget in place when much of the current leadership took office, biennial spending will be up by close to $80 billion--or 39%--over eight years by the end of the next budget cycle.

Yet this is not the story that you will get from the pronouncements about the budget being fiscally conservative coming from politicians and special interest groups in Austin.

In his book How to Lie with Statistics, Darrell Huff explains the myriad of ways that numbers and statistics can be used to distort reality. The folks who put together the Texas budget should teach a graduate course on this because they seem to have mastered the technique.

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Biden’s capital-gains rate of 43.4% would reduce federal revenue

By the WSJ Editorial Board

If you need more evidence that ideology more than common sense is driving the Biden Presidency, look no further than its trial balloon to raise the top tax rate on capital gains to 43.4%. It’s the dumbest way to raise taxes for many reasons, not least because it will cost the government revenue.

The premise behind the tax increase is that a preferential tax rate for long-term capital gains is an unjustified loophole. (Gains on assets held for less than a year are taxed at the individual income rate.) Yet that preferential rate has persisted for decades, through Democratic and Republican administrations. The current top rate is 23.8%, which includes a 3.8% ObamaCare surcharge. Even in the economically irrational 1970s the top capital-gains rate never broke 40%, as the nearby chart shows.

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The budgets being considered by the Texas Senate and Texas House may look fiscally conservative on their face. However, once you look at the details, it is clear these budgets will continue the recent trend of the Texas Legislature significantly increasing state spending while manipulating the data in various ways in order to pretend otherwise. The Texas Senate and House budgets are anything but conservative.

Both the Senate and House budgets claim to spend less than $251 billion, yet neither budget as written is capable of funding expected Texas spending over the next two years. Here is the Texas budget as proposed by the House in CSSB 1, which is up for a vote on the House floor this Thursday:

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In 2019, the Texas Legislature appropriated a total of $258 billion, a 24 percent increase over what it appropriated in 2017. Looking at it a different way, the $248 billion the Legislature appropriated in 2019 for the current biennium was an increase of $32 billion, or 24 percent, over what it appropriated in 2017 for the previous biennium.

No matter how you want to measure the spending, history tells us that the Texas Legislature will try to keep up the spending spree as it comes to Austin for its 87th regular session. However, the current circumstances make it the perfect time for Texas to actually cut spending and the size of Texas government.

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Did you here the one about the latest report on government efficiency? It seems the thing that government is most efficient at is spending our money.

For instance, every two years the Texas comptroller tells the Texas Legislature how much money is available for spending. And then, five months later, legislators pass a budget that spends almost all the available money.

In the most recent budget cycle, the comptroller in January 2019 projected the Legislature would “have approximately $119.1 billion in revenue available for general-purpose spending,” then later added another $518 million. In May, the Legislature appropriated $118.86 billion, or 99.4% of the available revenue.

While we can count ourselves blessed that the Texas Legislature does not follow the lead of the federal government and spend more money than it has in the bank, nonetheless we have to say that leaving only 0.6% of available revenue unspent is indeed efficient spending.

It is important to remember that spending growth in Texas has taken place exclusively under Republican leadership over the last 17 years. During that time, biennial spending has increased 109%, from $124.1 billion to $248.3 billion. Population growth plus inflation in that same period was approximately 82%.

How have we done lately?

Well, the current leadership team of Gov. Greg Abbott and Lt. Gov. Dan Patrick took office in 2015. They, along with two speakers of the Texas House of Representatives, have presided over state spending that has increased by an average of 3.4% each year during their tenure.

That may not seem like rapid growth, but it adds up to a lot of money very quickly. Biennial spending has grown $50.6 billion since Abbott and Patrick took office.

Texas’ spending growth has also outpaced estimated annual increases in GDP (2.8%), inflation (1.4%), and population (1.5%). And inflation and population growth combined.

Of perhaps even greater concern was the explosion of spending that took place in the Texas Legislature’s 2019 regular session, out of a belief that Republicans had to spend their way to victory in the elections that took place this week.

During the session, the Texas Legislature appropriated a total of $258.2 billion, a 24.4% increase (or 11.5% annually) over what it appropriated in 2017. From a different perspective, the $248.3 billion the Legislature appropriated for the 2020-21 biennium was an increase of $31.7 billion, or 23.9%, over the 2018-19 biennial spending appropriated in 2017.

Any way you measure it, spending was out of control in 2019. Well, unless the government is doing the measuring.

Texas’ Legislative Budget Board (LBB) reported spending growth this biennium at—take your pick—3.6%, 2.7%, or 1.5%. Any of which is a long way from 24%. The numbers are accurate as far as they go, but nonetheless significantly distort reality.

The primary way this distortion happens is related to “backfilling” the budget. First, last year the Legislature backfilled the 2018-19 budget by almost $10 billion to increase the baseline from which the LBB measures growth. Then, the LBB ignored the backfilling that will take place when the Legislature comes back in session in a couple of months. In other words, the LBB is comparing apples to oranges.

In some scenarios, the LBB achieved these low growth rates by leaving out Hurricane Harvey- and education-related spending. Much of the increased education spending, for example, is counted as “property tax relief,” and thus not counted as spending growth. Which might make sense if the spending actually provided relief. But the overall property tax burden increased more than 8% in 2019. I doubt many property owners felt relieved of their tax burden.

Politicians and bureaucrats can try all they want to convince us that they are being fiscally responsible. But the truth is that government and government spending keep on growing. And has done so for the last 17 years under Texas Republicans.

Ask most Texas conservatives whether they think government is already too big and the answer will come back a resounding, “Yes!” Yet ask most Texas Republican elected officials if they are willing to cut government spending and the answer will come back hidden in jargon like “maintaining infrastructure,” “population growth plus inflation,” and “meeting the needs of Texans.”

There is only one path to liberty in Texas and that is through smaller government that interferes less in our lives. And the only way to bring that about is through less government spending. We will have to wait and see if the 87th Texas Legislature, likely facing a significant government shutdown-related revenue shortfall, will be willing to do this in 2021.

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Every two years, thousands of lobbyists, industry reps, mayors, county commissioners, and other descend into the state Capitol building in Austin when the Texas Legislature convenes.

And they all want one thing: your money. Unfortunately, for the most part, lawmakers are happy to provide it to them.

The thing is, they don’t really want you to know what they are up to. Taxpayers tend to get a bit worked up when they hear that big business and big government is making off with their cash. So legislators and state leaders have developed a number of ways to hide what they are doing from the public—at least until no one is paying attention.

This is particularly the case when policymakers are facing a budget shortfall like the one Texas will likely face in 2021 because of the COVID lockdown and collapse of oil and gas prices. Here are some examples of budget gimmicks designed to keep voters in the dark.

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This article originally ran in The Texan on April 30.

With less than two months of data from the COVID-19 lockdown, the long term revenue picture for Texas state and local governments is still unclear. But the short term is beginning to come into focus. 

Cities, which rely heavily on various sales taxes, have been among the first to be hit. 

Earlier this month, San Antonio furloughed close to 300 employees in departments funded by the city’s hotel occupancy tax. It also suspended payments through its arts programs to groups like Guadalupe Cultural Arts Center and the Public Theatre of San Antonio.

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This article originally ran April 8 on The Texan

Recently, Texas Comptroller Glenn Hegar briefed legislators on the potential fiscal effects of the coronavirus shutdown and the collapse of oil prices.  

While no one knows for sure at this point, it is likely that the state could face a significant revenue shortfall that could disrupt the ability of the Texas government to fund its $248 billion biennial budget. 

“I know they are going to be looking for money,” said Talmadge Heflin, former House Appropriations Committee chairman and senior fellow at the Texas Public Policy Foundation. “Until we get any federal money and the comptroller estimates how the revenue is flowing, it is difficult to guess what the hit is going to be. But we know there is going to be one.”

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Recently, Texas Comptroller Glenn Hegar briefed legislators on the potential fiscal effects from the COVID-19 shutdown and collapse of oil prices.  

While no one knows for sure at this point, it is likely that the state could face a significant revenue shortfall that could disrupt the ability of the Texas government to fund its $248 billion biennial budget.

If Texas policymakers are going to adequately address this challenge, they should begin doing so now; especially since Texas is already facing a potential $7 billion budget crunch that has nothing to do with the current economic downturn.

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This paper was originally published by the Texas Public Policy Foundation and was coauthored with Talmadge Heflin.

The Conservative Texas Budget (CTB), which sets growth limits on state appropriations and spending to no more than population growth plus inflation, has been in place for three regular sessions of the Texas Legislature. Its purpose is to provide Texas policymakers and the public with an upper limit on how much Texas state government should be spending. Spending below the limit is “conservative”; spending above the limit is not.

Key Points

• The Conservative Texas Budget is a simple standard that the public can use in real time to see if policymakers are keeping spending growth to less than population growth plus inflation.
• Since the introduction of the Conservative Texas Budget, spending of state funds has grown more slowly than it had in the previous decade.
• The Foundation’s “appropriations to appropriations” methodology is more logical and accurate than the LBB’s “spending to appropriations” methodology for estimating spending growth.
• With six opportunities over three budget cycles, the Legislature will likely have exceeded the Conservative Texas Budget 5 out of 6 times by the end of the 2020-21 biennium.

Read the full study here.

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This commentary originally was originally published by the Texas Public Policy Foundation, and was coauthored with Talmadge Heflin.

Texas policymakers generally understand that Texans do not want bigger government and higher taxes. So they have gotten pretty good over the years at concealing how much of your money they are spending. The textbook example of this occurred in 2013 when policymakers used every trick in the book to hide the fact that they were appropriating 25.8 percent more taxpayer dollars in 2013 than they had in 2011.

After two sessions of fiscal restraint, where policymakers in 2015 and 2017 kept spending growth under population growth plus inflation, high spending has returned in 2019. If the Texas Legislature adopts the current budget approved by the Texas House of Representatives, appropriations this session will increase by 14.5 percent over 2017. If, instead, it goes with the budget adopted by the Texas Senate, the increase will be only slightly less at 13 percent.

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Do you think the Republicans will ever learn?

Here is the portrait of a dysfunctional party: On Tuesday (June 19), the House Republicans revealed a budget that set a goal of spending cuts totaling $6,454 billion. On Wednesday, Senate Republicans defeated legislation to cut spending by $1 billion. On Thursday, House Republicans voted to renew $20 billion per year in farm subsidies.

The 2018 GOP talks like Barry Goldwater and spends like Lyndon Johnson.

Start with the House budget resolution. It promises to balance the budget by 2027 by: 1) cutting spending $6.5 trillion over the decade; 2) assuming $1.7 trillion in automatic savings from faster economic growth than the Congressional Budget Office (CBO) projects; and 3) assuming much of the recent tax cut expires after 2025. That final assumption contradicts stated Republican policy, which does not matter because none of this is real.

Read the rest of the article on National Review Online.

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"No one should expect that any logical argument or any experience could ever shake the almost religious fervor of those who believe in salvation through spending and credit expansion." – Ludwig von Mises, in his book, Planning for Freedom: Let the Market System Work : a Collection of Essays and Addresses.

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It is not high finance, but short-term lending helps a lot of consumers out of tight places. This session, multiple bills would have significantly reduced or banned short-term lending.

Banks and credit unions generally won’t make short-term loans, so people in need of quick access to funds have to turn higher cost alternatives. While critics claim these higher fees harm consumers, many short-term borrowers could have been devastated if the Legislature had banned these loans.

The higher fees are necessitated in part by the small size of the loans but also driven by consumer demand.

This post was first published by the Texas Public Policy Foundation.

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