Chapter 12

 Discuss the mainstays of the Texas economy, the growth of lower-paying jobs, and efforts to create a favorable business climate.  Discuss where Texas gets its revenue, including state taxes.  Assess whether the revenue structure is fair and equitable.  Understand how the budget of the state is produced.  Evaluate the results of the spending plan in terms of meeting the needs of Texans by providing an adequate level of state services. 2

3 Many states reap a substantial portion of state revenues from gambling, but conservative Texans have protested against an expansion of gambling in the state. (p. 388) © Harry Cabluck/Associated Press Images.

 Cycles of “boom and bust”  Complicated by inflexible revenue policies  Historically, economy based on oil, land, water  Now based more on info. and technology, financial management 4

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 Layoffs in “new economy” fields  Sept 11 attacks, corporate scandals adversely affected the economy  Drought, unrealized NAFTA benefits eroded confidence  Home foreclosures, high unemployment continue  $27 billion budget shortfall 6

 Business-friendly tax structure  Failure to adequately support education may hinder economic gains  Discussion: Why is the state’s tax system said to lack elasticity? 7

 Disagreements over revenue sources, who should bear burden of taxation  Discussion: How does our political culture influence tax policy?  Sources of revenue:  Taxes – 43%  Federal grants – 39%  All other sources – 17% 8

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 Table 12-1 shows:  A decline in severance tax revenues  Increases in fees paid by individuals  Use of budget surpluses to balance budget  Federal stimulus money  Rainy Day Fund  Decline in sales tax revenues as a percentage of total revenues 11

 Five major funds:  General Revenue Fund  Omnibus Tax Clearance Fund  Available School Fund  Highway Motor Fuels Fund  State Highway Fund 12

 Federal Grants  Categorical grants-in-aid  General revenue sharing  Block grants  Federal government funding: highways, health care, public assistance, homeland security, etc.  Fiscal relationship fractured 13

 Borrowing (restricted)  User fees, college tuition  Interest on bank deposits  Proceeds from investments  Sales, leases of public lands  Lottery proceeds 14

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 Revenue taxes  General sales tax  Regulatory taxes  Taxes on alcohol and tobacco  Tax policy reflects economic, political, interest group climates  No personal income tax, corporate income tax 16

 Texas–a low tax state  Reliance on general sales tax, motor fuels tax  Hits poor, middle-class taxpayers more heavily than wealthy  Discussion: How does our political culture influence tax policy? 17

 47 th in per capita state tax revenue  43 rd in percentage of personal income paid in taxes  losing in federal grant formulas  Progressive vs. regressive taxes  Tax rate increases – income tax  Lower income earners pay more 18

 Institute on Taxation & Economic Policy  Poorest pay 8%, richest pay 2%  2006 restructuring of corporate franchise tax helped some  Discussion: Why has there been no move toward a progressive tax system? 19

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 General sales tax  Selective sales tax  Ex.: Gasoline, hotel room rentals, and movie tickets  Alcohol, tobacco: “sin taxes”  Inheritance tax  Local ad valorem property taxes 21

 Severance taxes  Franchise tax  Gross receipts tax  Insurance premium tax  Other special taxes and fees 22

 Logical to believe tax should benefit those paying it  Applying benefit theory difficult  Motor fuels tax: ¾ spent on highways, roads  A logical benefit 23

 Performance evaluation and management  Privatization  Tax system restructuring  Ex.: 2006 special session on school finance 24

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 Spending decisions not made objectively  Discussion: Did legislators respond appropriately to the 2011 budget shortfall? 26

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 3 stages of budget process  Planning, preparation  Authorization  Execution  Dual-budgeting system  Legislative Budget Board (LBB) 28

 Budgets: two years, incremental  Planning in spring  Agencies submit budgets  Hearings refine proposals 29

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 Two stage process:  Approving state programs  Approving the money for the programs via the state budget  Legislative committees key players  Interested parties lobby for programs 31

 House, Senate versions of bill sent to conference committee  Revenues must be certified by Comptroller  Approval usually late in session  Governor: line-item veto 32

 Largest spending category  43%: K-12, higher education  44 th in combined state, local spending for public education  Higher education—formula 33

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 31% of budget  Texas ranks 46 th in spending  Programs: welfare to health  60% funded by federal government 37

 14% of budget  About ½ of from federal government  Programs: transportation to employment, training services  Texas: 28 th in spending on highways 38

 Public safety (6% of total budget)  General government, parks, natural resources, regulatory agencies (4%)  Discussion: Does Texas allocate the money appropriately? 39