A Balanced Approach To Meeting the Needs of Texas F. Scott McCown, Dick Lavine, Eva DeLuna Castro

The Texas State Budget for Biennial Total: $182 billion Federally funded = shown in white; other areas are General Revenue, GR-Dedicated, & “Other” State Funds.

We’re Still In the Hole Created in 2006 In billion $ /06 Fiscal Note 11/09 Cash Report 5/06 Fiscal Note 11/09 Certification Franchise tax Tobacco tax Used car, interest TOTAL REVENUE Cost of property tax cut SHORTFALL -$5.9-$9.3-$5.8-$9.5

The Recession Reduced Sales Tax Revenue Fiscal 2008 Fiscal 2009 Fiscal 2010

“One-Time” Money Balanced the Budget Current Budget Budget General Revenue$75.0 billion ARRA Used for GR$6.4 billion$0 Cash on hand$2.6 billion$0 Property Tax Relief Fund carryover $3.0 billion$0 Permanent School Fund$0$1.2 billion TOTAL GR BUDGET$87.0 billion$76.2 billion GAP$10.8 billion

Funding a Balanced Approach: Easy Money Potential Revenue for Economic growth with no change in revenue system $800 million for each 1% growth Accounting Adjustments Payment delays, etc $2.0 billion

Funding a Balanced Approach: Spend the Rainy Day Fund Potential Revenue for Beginning balance$8.2 billion Growth during $1.0 billion Total Rainy Day Fund Available $9.2 billion

When Can the Rainy Day Fund Be Spent? 1) If GR forecasted for the rest of a biennium is less than the GR appropriated, RDF can be used to cover the shortfall – vote of 3/5 of members present (up to 90 in House; 19 in Senate) 2) RDF can be used “at any time and for any purpose” – 2/3 of members present (up to 100 in House; 21 in Senate)

Source: Comptroller of Public Accounts, Annual Cash Report Sources of State Revenue 2009 Total $84.3 billion Licenses, Fees, Fines, Penalties 9% Interest/ Investment Income 2% Taxes 45% Lottery 2% Other 5% Federal Funds 37%

Sources: Comptroller of Public Accounts, Biennial Revenue Estimate , January 2007; Annual Property Tax Report. Forecast by CPPP. Major State & Local Taxes in Texas 2009

Source: Comptroller of Public Accounts, Annual Cash Report. State Tax Collections 2009 Total $37.8 billion

How the State Budget was “Balanced” Cuts to 2003 Budget: $1.4 billion Cost shifting: $1.9 billion “Smoke and mirrors”: $1.2 billion Rainy Day Fund: $1.3 billion Federal Fiscal Relief: $1.4 billion Revenue Measures: $1.8 billion Cuts to Budget: $6.6 billion Estimated General Revenue Shortfall of $15.6 billion

Unfunded Items in the State Budget

Budget Scenario for Local School Tax Cut (GR and PTF) GR for Higher Ed ARRA instead of GR Other GR GR for HHS Other GR for K-12 GR for Prisons Additional GR Needed $7 b $1 b None $3 b $3.3 b $300 m $700 m

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