The Big Picture about Kids Texas Center for the Judiciary F The Big Picture about Kids Texas Center for the Judiciary F. Scott McCown, Executive Director Dick Lavine, Senior Fiscal Analyst Eva DeLuna Castro, Senior Budget Analyst

Lots of Kids Second largest child population, totaling over 6.1 million under the age of 18 Largest growth in child population between 2000-2003 350,000 additional children 183,000 more than California By 2040, school enrollment projected to double

Our Changing Demographics

Great Need for Public Services Texas US Average rank % of Population under 18, 2002 28.0 % 25.3 % 3rd Child Poverty Rate, 2003 22.8 % 17.7 % 8th Elderly Poverty Rate, 2003 13.0 % 9.8 % 7th % of Under-65 Population with No Health Insurance, 2003 26.9 % 17.6 % 1st % of Residents Aged 25 or over with at least a High School Diploma, 2003 77.8 % 83.6 % 49th % of Residents Aged 25 or over with at least a Bachelor’s Degree, 2003 24.5 % 26.5 % 27th Source: U.S. Bureau of the Census, March CPS and American Community Survey

What State Government Pays For Source: U.S. Bureau of the Census, State Government Finances series. Data for 2002 for Texas, total expenditures (including trust) of $70.3 billion.

What Local Government Pays For Source: U.S. Bureau of the Census, Government Finances series. Data for 2002 for Texas, total expenditures (including trust) of $77.1 billion.

Comparing 2004-05 to 2006-07 Final 2006-07 budget: $138 billion in All Funds This is 9% more than in 2004-05, less than expected growth in population and inflation Nationally, state spending per resident has been about 50% higher than Texas state spending, and this budget will leave Texas near the bottom in spending per resident As a percentage of the economy, since 1991, state spending has been roughly 7%, and this budget will be about the same

2006-07 based on SB 1, 2005 Regular Session (excludes vetoes and subsequent budget actions)

Public Education Spending 2003-04 Texas spent $7,335 per student Texas ranked 34th among the states Average state spending was $8,208 about 12% higher than Texas Costs of living adjustments are faulty Austin: 106.1% of U.S. Average Dallas: 98.5% of U.S. Average Houston: 96.1% of U.S. Average

School Funding in Next State Budget

Price Tags Biennial cost of public school enrollment growth = At least $1.5 billion Biennial cost of 3% inflation for public schools = At least $2.4 billion “Ending” Robin Hood = At least $2.3 billion “Buying down” local school property taxes by 10 cents per $100 taxable value = At least $2.2 billion Biennial cost of one candy bar per year per child is $4.3 million

From a Taxpayer’s Point of View Source: Comptroller of Public Accounts, Annual Property Tax Report; Cash Report.

From the State’s Point of View: All Revenue

From the State’s Point of View: Taxes Only

Our Tax Base is Inadequate

Indicators of Ability to Pay Texas US Average rank Per Capita Personal Income, 2003 $29,076 $31,459 29th State and Local Taxes as a Percent of Personal Income, 2002 9.3% 10.2% 41st Source: CPPP, using data from Bureau of Economic Analysis and the Census Bureau.

Households with the Lowest Income Pay the Highest Percentage in State and Local Taxes

Not Taxing Where the Money Is

Revenue Options Cigarette tax: $1/pack increase raises $1.7 billion biennially Video Lottery Terminals: $1.1 billion biennially. “Crack cocaine” of gambling Revised Franchise Tax (Business Activity Tax): Pre-tax net income, add back compensation minus first $30,000 per job times 1.95% Sales tax rate increase — but this is extremely regressive, and TX already has one of the highest rates Sales tax base expansion (to services not covered now)

If We Replaced Current School Property Taxes with Sales Taxes 21

House Proposed Tax Change (H.B. 3) Source: CPPP Policy Page 232, Tax Equity Note Confirms that Most Texas Families Would Pay More Under HB 3, the “Tax Relief Bill”, March 2005.

The Texas Constitution Article 8 - TAXATION AND REVENUE Section 24 - PERSONAL INCOME TAX; DEDICATION OF PROCEEDS (a) A general law enacted by the legislature that imposes a tax on the net incomes of natural persons . . . must provide that the portion of the law imposing the tax not take effect until approved by a majority of the registered voters voting in a statewide referendum held on the question of imposing the tax. (b) A general law enacted by the legislature that increases the rate of the tax, or changes the tax, in a manner that results in an increase in the combined income tax liability of all persons subject to the tax may not take effect until approved by a majority of the registered voters voting in a statewide referendum held on the question of increasing the income tax. (f) In the first year in which a tax described by Subsection (a) is imposed and during the first year of any increase in the tax that is subject to Subsection (b) of this section, not less than two-thirds of all net revenues remaining after payment of all refunds allowed by law and expenses of collection from the tax shall be used to reduce the rate of ad valorem maintenance and operation taxes levied for the support of primary and secondary public education. In subsequent years, not less than two-thirds of all net revenues from the tax shall be used to continue such ad valorem tax relief.

TEXAS CONSTITUTION (Cont’d.) (g) The net revenues remaining after the dedication of money from the tax under Subsection (f) of this section shall be used for support of education, subject to legislative appropriation, allocation, and direction. (h) The maximum rate at which a school district may impose ad valorem maintenance and operation taxes is reduced by an amount equal to one cent per $100 valuation for each one cent per $100 valuation that the school district's ad valorem maintenance and operation tax is reduced by the minimum amount of money dedicated under Subsection (f) of this section, provided that a school district may subsequently increase the maximum ad valorem maintenance and operation tax rate if the increased maximum rate is approved by a majority of the voters of the school district voting at an election called and held for that purpose. The legislature by general law shall provide for the tax relief that is required by Subsection (f) and this subsection. (Added Nov. 2, 1993.)

How Would An Income Tax Work?

A State Income Tax, With Property Tax Reductions, Would Benefit Most Texans

Texas: One and Indivisible