TEXAS INTERFAITH CENTER for public policy
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.
Community Priorities, Community Resources
Building a Healthy State Budget
January 2012
produced with the generous support of Methodist Healthcare Ministries of South Texas
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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 201213 Texas budget does not appropriate enough funds to meet the states core constitutional and statutory obligations. Our budget does not appropriate enough funds to meet our obligations because the state revenue system does not generate sufcient funds to do so. The backbone of the revenue system is the state sales tax, which disproportionately falls on low and moderate-income Texans. Legislators can re-align the budget and revenue systems either by raising new revenues or by disavowing the states historic commitments.
hen the Texas Legislature convenes every two years, its primary responsibility is to set the state s budget for the following biennium. In fact, the budget is the only piece of legislation that lawmakers are constitutionally required to pass. If they fail to adopt a budget during their regular 140-day legislative session or if the Governor vetoes the budget as passed, the Legislature must meet in special session until it can pass a budget that the Governor will sign. The simple fact of the budget s constitutional pre-eminence gestures toward an equally simple fact of human existence: we live in a world of limited resources. The ways in which we divide and use our resources are at the heart of our character as individuals and as a community. Faith communities are key participants in the
state budget discussion. Faith perspectives on public budgets revolve around three areas of concern: Supporting the most vulnerable. The world s faith traditions are united in their understanding of our responsibility to take special care of the most vulnerable and disadvantaged members of the human family such as children, the elderly, the poor, and the sick. Promotion of the common good. Our faith traditions call us to collaborate to strengthen our shared existenceto improve conditions for the entire community rather than to enrich our individual lives at the expense of others. Stewardship of the resources we have been given. The sacred texts of the Jewish, Christian, Muslim and many other traditions reect a shared understanding that all resources come to us by the grace of the Creator, and that we are called to use these gifts wisely, to glorify God and improve human circumstances. The majority of Texas budget framework supports policies and programs to keep Texans safe, fund the health care system that we all use, and educate the next generation of Texans. These budget items tell the world a lot about what kind of people we are...and, maybe more important, what kind of people we mean to be. Our revenue system must give us the means to make those intentions real. Today, Texas revenue system is not reliably providing enough funding to fulll the core commitments we have made to each other in our laws and constitution. This paper explains what those core commitments are, why our revenue system isn t keeping up, and how the Legislature can bring the system into balance.
Source: General Appropriations Act of the State of Texas 2012-13. All funds.
Texas Interfaith Center for Public Policy: Building a Healthy State Budget (2012)
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The State Budget: A Framework for Community
Texas has a two-year budget cyclecalled a bienniumthat starts in the fall after each legislative session. The current biennium (2012-2013) began after the 82nd Legislative Session, on September 1st, 2011, and will last until August 31st, 2013. About six months after the start of each biennium, state agencies begin developing their proposed budgets for the next budget cycle; so, in March or April of 2012, agencies will have to start thinking about what their funding needs may be like in August of 2015, the end of the next biennium. For the 2012-13 biennium, the Legislature appropriated $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 1 shows, this is about $14 billion less than they appropriated for the previous biennium. About 97 percent of the budget reductions were in the areas of social services and education, although as Chart 1 shows, these areas make up about 75 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 more than half of the funds in this area are federal funds. Within the health and human services area, Medicaid and CHIP account for the single
greatest share of spending. The greatest investment of state dollars goes to public schools, which account for about 29 percent of the budget at $50 billion for 2012-13, but account for 42 percent of state general revenue spending. (This amount does not include the funds that local school districts provide for public schools through their local property taxes.) Beyond social services and education, the largest items of state spending are highways, which are mostly federally funded, and public safety.
Not Meeting Needs: Cutting Spending in the Face of Growing Demand
Legislators depend on state agencies to estimate how much funding they will need in the future to carry out activities. For the main items of expense in the Texas budget, estimates of future costs involve just a few key variables: How many people a program must serve How much the services will cost on a perperson basis Changes to the nature of the services that are beyond legislative control Legislators and agencies have little control over the number of people programs must serve, because it is typically a function of population growth. For example, Texas adds about 170,000 new 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 despite accounting for only 75 percent of spending.
ESTIMATED/ BUDGETED ALL FUNCTIONS IN MILLIONS Article I General Government Article II Health and Human Services Article III Agencies of Education Article IV The Judiciary Article V Public Safety and Criminal Justice Article VI Natural Resources Article VII Business and Economic Development Article VIII Regulatory Article IX General Provisions3 Article X The Legislature TOTAL, ALL FUNCTIONS 201011 $5,026 $65,464 $76,416 $673 $12,073 $3,562 $23,197 $736 $0 $369 $187,517 APPROPRIATED 201213 $4,469 $55,426 $72,871 $643 $11,507 $3,888 $23,661 $678 $0 $340 $173,484 BIENNIAL REDUCTION -$557 -$10,038 -$3,545 -$30 -$566 $326 $464 -$58 $0 -$29 -$14,032 SHARE OF BUDGET REDUCTIONS 4% 72% 25% 0% 4% -2% -3% 0% 0% 0% 100% SHARE OF BIENNIAL BUDGET 3% 32% 42% 0% 7% 2% 14% 0% 0% 0% 100%
Source: Texas Legislative Budget Board, Comparison Tables: 2012-13 Biennial Appropriations Compared To 2010-11 Base Spending By Method Of Finance.
Texas Interfaith Center for Public Policy: Building a Healthy State Budget (2012)
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Legislators have more control over the cost of services, especially in terms of setting salaries for state employees and constraining the specic goods and services that programs may provide. Legislators have little control over budget requirements that are dictated by the courts. For example, the Texas Medicaid program operates under a court order to set provider rates at levels that will ensure Medicaid enrollees have meaningful access to services in their local communities. In 2010, the agencies responsible for social services, education and public safety developed projections of their funding needs for 201213. As Table 2 shows, based on population growth and increases in the cost of services, the agencies projected they would need about $18 billion more to keep doing what they were already doing. Including these three main budget drivers and all other agencies of state government, requested increases totaled $21.2 billion. Instead of increasing funding to keep programs consistent in the face of population and cost growth, however, the Legislature reduced funding, with a disproportionate share of the
reductions falling on the very agencies and programs accounting for the greatest share of the requests for increased funding. Texans might well ask, what happens when agencies don t get the funding they project they will need to maintain services? In the case of public safety, legislators split their approach, taking some measures to keep costs down and also shifting their emphasis in some cases from higher-cost incarceration to lower-cost community-based corrections. In the case of education, legislators left the hard choices to the local administrators of the state s colleges, universities and more than 1,000 school districts, who can either raise more funds locally through tuition, fees, local taxes or other strategies, or else cut employees or educational programming. In the case of social services, lawmakers used creative accounting. Left with the choice of reducing services to the neediest Texans or raising additional revenue to maintain the status quo, legislators intentionally underestimated the costs in the social services budget, appropriated enough funds to cover the articially low expenses, and hoped that over the biennium the state s scal situation would improve enough to cover the dierence between the amount appropriated in the
TABLE 2: State agencies estimated in 2010 that they would need $21.2 billion more in 2012-13 to maintain current services.
Related Budget Texas Education Agency Health and Human Services Higher Education Formula Funding Department of Criminal Justice Employee Retirement System Teachers Retirement System All Other Agencies and Total Programs (billions) $28.4 $23.0 $8.1 $5.9 $2.2 $3.9 $6.3 $77.8
2010-11 GR-
2012-13 GR-Related Baseline and Current Services Exceptional Items (billions) $37.5 $31.4 $8.8 $6.3 $2.8 $4.8 $7.4 $99.0 Increase
$9.0 billion $8.3 billion $730 million $361 million $576 million $908 million $2.1 million $21.2 billion
Source: Center for Public Policy Priorities and agency approprations requests.
Texas Interfaith Center for Public Policy: Building a Healthy State Budget (2012)
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budget and agencies actual requirements. If state revenue does not improve, lawmakers plan to tap the state s reserve fund (the Rainy Day Fund ) to cover the shortfall when they reconvene in January 2013. The Legislature chose to cut spending in response to its expectations about how much revenue the state probably would take in over the 2012-13 biennium through its existing revenue mechanisms. An alternative approach would have been to establish a revenue target based on funding needs, and then adjust the state s revenue strategies to meet that target.
wealthier taxpayers. In looking at Texas revenue system, it makes sense to consider not only state and federal revenue, but also the local revenues collected through property taxes and other local taxes. Property taxes are a major component of public school funding, and they also support many of the other programs in the state budget including health care and public safety. Chart 4 shows that since 1980, state funds have declined steadily as a share of public funds in Texas, while local and federal funds have increased. Texas ranks 45th among the states in state taxes collected as a percentage of total personal income, and 47th in state taxes collected per resident. However, some budgetmakers point out that, as Chart 5 shows, on an inationadjusted, per-capita basis, Texas state, local and federal revenue have increased since 1978. Some Texans question why the state should need to spend any more money per person now than it did 35 years ago, as long as ination is accounted for. They argue that no matter how much the population grows, each new person must increase overall revenue by the same percapita amount. Although public funds have increased on a
Where the Money Comes from: The Texas Revenue System
As Chart 2 shows, for the 2012-13 biennium a projected 41 percent of Texas state revenue will come from state taxes, and an equal amount will come from federal funds. The remaining 18 percent will come from a variety of non-tax revenue sources like tuition, licenses and fees. As Chart 3 shows, more than half of Texas tax revenue comes from sales taxes. Sales taxes are called regressive because they typically represent a larger share of household income for taxpayers in low income brackets than for
Source: Center for Public Policy Priorities and Texas Comptroller of Public Accounts
Source: Center for Public Policy Priorities and Texas Comptroller of Public Accounts
Texas Interfaith Center for Public Policy: Building a Healthy State Budget (2012)
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Source: Center for Public Policy Priorities and Texas Comptroller of Public Accounts
per-person basis, they have held steady or declined as a share of total personal income in Texas. As Chart 6 shows, over the 33-year period from 1979 to 2011 total state revenues net of federal funds equalled an average of six percent of total personal income, but in 2010 and 2011 they equalled less than 5.5 percent of total personal income. If total revenues in 2011 had equalled six percent of total personal income instead of 5.5 percent, Texas would have received $6.9 billion in additional state revenues.
Texans should consider the extent to which the state s current commitments reect their hopes for our state: would reducing our commitment to education, safety or the social safety net make us more like we mean to be, or less? Likewise, Texans should consider whether increasing state revenues would reect our beliefs about public and private resources: would increasing taxes or fees for any group of Texans be fair? If lawmakers decided that increasing revenues represented the better path, possible revenue strategies they could consider include raising the sales tax rate; eliminating sales tax exemptions; raising various sin taxes including taxes on alcohol, tobacco and sugary drinks; and raising fees. Some fees, like drivers license fees, apply to a large part of the population, while others, like professional licensing fees, target a small group. Taxing business and professional services (except health care) such as legal and accounting services alone could have raised $6.1 billion in the 2012-13 biennium, according to the Center for Public Policy Priorites. Some Texans support the establishment of a state personal income tax to stabilize and modernize Texas revenue system. Texas
Re-Aligning the Budget and Revenue Systems
Lawmakers have two available options to bring state revenue into alignment with core funding needs. First, they could reduce funding needs by diminishing commitments and expectations. Second, they could increase the state s revenue through the imposition of new taxes or fees. Budget cuts do not t into either of these options. Instead, budget cuts are a short-term strategy for reducing spending without overtly reducing or eliminating policies or programs that are important to the Legislature and the public. Over the past ten years, lawmakers have made many signicant budget cuts, culminating in the cuts in the 2012-13 budget.
Texas Interfaith Center for Public Policy: Building a Healthy State Budget (2012)
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Source: The Urban Institute-Brookings Institution Tax Policy Center. Data from U.S. Census Bureau, Annual Survey of State and Local Government Finances.
is one of only nine states without a state personal income tax. Texas has a constitutional provision that any revenue raised from an income tax in the future must be applied to public education, including increasing the state s share of public school funding by reducing local property taxes. An income tax is generally considered to be a progressive tax,
since individuals with more income usually pay more than those with less income. Some Texans wonder if expanding statesponsored gambling would bring in enough new revenues to oset some portion of the expected shortfall. However, the experience of other states and Texas experience with the lottery
Source: Center for Public Policy Priorities and Texas Comptroller of Public Accounts
Texas Interfaith Center for Public Policy: Building a Healthy State Budget (2012)
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demonstrate conclusively that gambling does not result in signicant new state revenues. Instead, gambling tends to create new expenses for states by fostering new addictions and destabilizing the nances of low and moderateincome families.
Moving Forward Together
As the Texas Legislature works to align our budget and revenue systems, faith communities can encourage them to focus on the following priorities: Protecting services that meet basic human needs. The state s primary concern in the current shortfall should be to uphold its commitment to the most vulnerable members of the community by maintaining core services such as health care and education. Alleviating suering for at-risk Texans will help the whole state move past the current crisis with minimal long-term damage. Planning for the common good. Promoting the common good requires lawmakers to take proactive steps to prevent budget crises. The
Legislature should develop budget strategies that incorporate planning for population increases and economic changes. Furthermore, the budget development process is long and complexbut it is not always transparent, collaborative or accountable. Lawmakers could build public trust and shared accountability into the budget by expanding opportunities for public participation and working to increase public understanding of the state s budget framework. Long-term stewardship of our resources. The current shortfall reects a serious mismatch between the expectations Texans have for government, the size and trajectory of the state s population, and the realistic potential for income under the current revenue system. Good stewardship of our state s resources will demand that lawmakers commit to aligning our budget and revenue systems, so the budget can continue to support the programs and services that Texans need.
The Texas Interfaith Center for Public Policy is a faith-based, 501(c)(3) non-prot organization providing theologically grounded public policy analysis to people of faith and other Texans. The Center is the research and education arm of Texas Impact, the state s oldest and largest interfaith legislative network. Texas Impact was established by Texas religious leaders in 1973 to be a voice in the Texas legislative process for the shared religious social concerns of Texas faith communities. Texas Impact is supported by more than two dozen Christian, Jewish and Muslim denominational bodies, as well as hundreds of local congregations, ministerial alliances and interfaith networks, and thousands of people of faith throughout Texas.
TEXAS INTERFAITH CENTER for public policy
Methodist Healthcare Ministries (MHM) is a faith-based, 501(c)(3), not-for-prot organization whose mission 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 fullling the needs of the underserved in local communities, and supports policy advocacy and programs that promote wholeness of body, mind and spirit. The mission also includes MHM s one-half ownership of the Methodist Healthcare System the largest healthcare system in South Texas. This creates a unique avenue to ensure that the Methodist Healthcare System continues to be a benet to the community by providing quality care to all and charitable care when needed, and it provides revenue to MHM for its programs.
Texas Interfaith Center for Public Policy 221 East 9th Street, Suite 403, Austin, Texas 78701 www.texasinterfaithcenter.org 512.472.3903
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