Chapter 11 Learning Objectives Assess the fairness of Texas’s budgeting and taxing policies. Describe the sources of Texas’s state revenue. Describe the procedure for developing and approving a state budget. Evaluate the effectiveness of the financing of education by the state of Texas. Describe the uses of Texas’s state revenue. Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Fiscal Policies Concerned with taxes, government spending, public debt, and management of government money Texas Budget Compact Pledge to oppose any new taxes, restrict spending, and eliminate using accounting devices to balance the budget Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Fiscal Policies Taxing Policy Texans traditionally oppose taxes Regressive taxes the norm “The less you make, the more the government takes” Texas government depends on sales taxes Rank among the highest in the nation In addition, more than 60 separate taxes, fees, and assessments are collected. Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Percent of Average Annual Family Income Paid in Local and State Taxes in Texas Figure 11.1 Percent of Average Annual Family Income Paid in Local and State Taxes in Texas. Source: Chandra King Villanueva, ‘‘Who Pays Texas Taxes?’’ Austin: Center for Public Policy Priorities’’ September 25, 2012. Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Fiscal Policies Budget Policy Texas Constitution prohibits the state from spending more than its anticipated revenue. State comptroller must certify revenue and budget Four-fifths of Texas legislature is required to override state comptroller General Revenue Fund Dedicated funds Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Fiscal Policies Spending Policy Texas ranked between 48th and 50th in state spending per capita Little support for spending on social/welfare programs Greater support for spending on infrastructure Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Learning Check What are three characteristics of Texas's fiscal policy? The state of Texas has one of the highest sales tax rates in the nation. It does not have a state income tax. Is Texas's tax structure an example of a regressive or a progressive tax system? True or False: Dedicated funds must be fully spent each year for the purposes for which they were created. Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Revenue Sources The Politics of Taxation Sales Taxes – 55% of state tax revenue General Sales Tax Applied to “all tangible personal property” Many exemptions Grocery food, water, telephone, goods sold via the Internet, and most professional/business services Selective Sales Tax Highway User Taxes Sin Taxes Miscellaneous sales tax Copyright © 2014 Cengage Learning

Projected Sources of State Revenue 2012–2013 Figure 11.2 Projected Sources of State Revenue 2012–2013. Source: Calculated from Susan Combs, Texas Comptroller of Public Accounts, The 2012-2013 Certification Revenue Estimate, December 2011. Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Revenue Sources The Politics of Taxation Business Taxes Sales taxes Businesses are consumers Franchise taxes Businesses try to limit personal liability of owners Imposed on businesses for doing business in Texas Payroll taxes Provides funds for payment of unemployment insurance Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Revenue Sources The Politics of Taxation Business Taxes Selective taxes Severance tax Death Tax Currently not at federal or state level Tax burden Texas ranked 48th for taxes alone Tax collection Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Revenue Sources Revenue from Gambling Racing Horse races and dog races taxed Lottery Administered by Texas Lottery Commission Profits dedicated to public education spending Bingo Tax divided evenly between state and local governments Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Revenue Sources Nontax Revenues Federal grants-in-aid 95 percent directed toward three programs Health and human services Business/economic development Education Voluntary state participation American Reinvestment and Recovery Act 2009 Allocated $22.9 billion to Texas Copyright © 2014 Cengage Learning

Annual Federal Grants to Texas (FY2001–FY2013) (in billions) Figure 11.3 Annual Federal Grants to Texas (FY2001–FY2013) (in billions). Source: Developed from information available from State Comptroller, ‘‘Texas Net Revenue by Source, 1973–2010’’ and ‘‘Texas Net Revenue by Source, 2011,’’ available at http://www.window.state.tx.us/finances/morefinancial.html. Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Revenue Sources Nontax Revenues Land Revenues Nontax revenue from public land sales, rentals, royalties, and oil and gas leases Tobacco Suit Windfall Tobacco industry must pay Texas an $18 billion settlement over twenty-five years Supports variety of health-care programs Miscellaneous Sources Fees, permits, and income from investments Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Revenue Sources Public Debt General Obligation Bonds Borrowing repaid through General Revenue Fund Revenue Bonds Borrowed amounts repaid from a specific revenue source Bond Review Must be approved by Texas Bond Review Board Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Revenue Sources Public Debt Economic Stabilization Fund (rainy day fund) Intended for use when Texas faces an economic crisis Financed with excess money in General Revenue Fund at the end of a biennium and with oil and natural gas taxes Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Learning Check What is the largest source of tax revenue for the state of Texas? On what government service must lottery profits be spent? What is the stated purpose of the “rainy day” fund? Copyright © 2014 Cengage Learning

Budgeting and Fiscal Management Budgeting Procedure Plan of financial operation Texas is one of four states that has a biennial budget Legislative Budget Board (LBB) 10-member body of Texas legislature Prepares a biennial current services-based budget Helps draft the general appropriation bill for introduction at each regular session of the legislature Copyright © 2014 Cengage Learning

Texas Biennial Budget Cycle Figure 11.4 Texas Biennial Budget Cycle Source: Senate Research Center, Budget 101: A Guide to the Budget Process in Texas (Austin: Senate Research Center, January 2011), http://www.senate.state.tx.us/src/pdf/Budget_101-2011.pdf. Copyright © 2014 Cengage Learning

Budgeting and Fiscal Management Budgeting Procedure Governor’s Office of Budget, Planning, and Policy Prepares and presents a biennial budget to the legislature Governor’s plan is policy based Separate budgets created by legislative and executive branches Copyright © 2014 Cengage Learning

Budgeting and Fiscal Management Budgeting Procedure Budget Preparation Begins with development of mission statement Agencies must submit five-year plan to GOBPP and LBB Budgets are reviewed by legislature with LBB plan receiving preference Budget must agree with comptroller’s revenue estimate Sent to committees, then governor signs Copyright © 2014 Cengage Learning

Budgeting and Fiscal Management Budget Expenditures Functional expenditures (public education, human services, and highway construction and maintenance) Budget Execution Process by which the governor and the LBB oversee or modify implementation of the spending plan Copyright © 2014 Cengage Learning

All Funds Appropriations by Function Figure 11.5 All Funds Appropriations by Function. Source: House Research Organization, Texas Budget Highlights: Fiscal 2012–13, State Finance Report No. 82-5 (Austin: House Research Organization, December 2011), http://www.hro.house.state.tx.us/pdf/focus/highlights82.pdf. Copyright © 2014 Cengage Learning

Budgeting and Fiscal Management Purchasing State agencies must make purchases through supervision of Texas Procurement and Support Services Council on Competitive Government required to find cost-effective purchasing methods Texas Facilities Commission Provides property management services for state facilities Copyright © 2014 Cengage Learning

Budgeting and Fiscal Management Accounting The state comptroller of public accounts oversees the management of state’s money Auditing State accounts audited by the appointed state auditor Provides random checks of financial records and transactions Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Learning Check What is a fiscal year? Texas has a dual budgeting system. What does this mean? Who has the authority to transfer money from one agency to another after a budget has been approved? Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Future Demands Public Education Accounted for almost 29 percent of state expenditure for 2012-13 Covered less than 50 percent of the actual cost of education Costs covered by hybrid of local, state, and federal funding Sources of public finding Gilmer-Aiken Law and the Foundation School Program Property Tax Relief Fund Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Future Demands Public Education Funding Equalization The ‘‘Robin Hood’’ plan In 2011, the Texas Education Agency reported that approximately 60 percent of all public school students in the Lone Star State were eligible for free or reduced-price lunches. The 82nd legislature reduced state funding of public education Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Future Demands Higher Education Increasing enrollment but declining state financial support Texas Higher Education Coordinating Board Closing the Gaps initiative HB9 Requires Texas Higher Education Coordinating Board to develop an outcomes-based formula for funding Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Future Demands Higher Education Community College Funding Hybrid of state “contact hour” funding, local property taxes, grants, tuition, and fees University Funding Legislative funding, tuition, fees, grants, and gifts Permanent University Fund Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Effect of Budget Reductions by the 82nd Legislature on State-funded Student Financial Aid Programs Table 11.2 Effect of Budget Reductions by the 82nd Legislature on State-funded Student Financial Aid Programs *Estimate based on percentage in program reduction in dollars. Source: Compiled from Office of External Affairs, Texas Higher Education Coordinating Board, Summary of Higher Education Legislation: 82nd Texas Legislature, (Austin: Texas Higher Education Coordinating Board, July 2011), http://www.tfaonline.net/LegislativeSummaryReport82ndFINAL.pdf. Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Future Demands Higher Education Tuition Deregulation Allows universities and community colleges to set tuition and fees From 2003–2011, tuition increased 90% Texas Tomorrow Funds Tuition plan provides a way for parents to save for children’s education and lock in costs State Grants TEXAS Grants Program Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Future Demands Public Assistance Poverty levels remain above national average Health Care Programs Increasing health-care costs and more people becoming eligible for Medicaid The cost of Medicaid and CHIP frequently exceed budget allocations. ChildLINK purchases insurance coverage Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Future Demands Other Needs Transportation “Pay-as-you-Ride” Increased costs have exceeded funding Texas Mobility Fund Water Texas drought has had huge impacts Texas Water Development Board Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Future Demands Other Needs (Cont’d) Public Safety Programs State agencies share the responsibility with local governments Homeland Security Unfunded mandates Border security Copyright © 2014 Cengage Learning

Copyright © 2014 Cengage Learning Learning Check True or False: Since its inception, the Property Tax Relief Fund has been adequate to meet funding needs for public education. True or False: Tuition deregulation resulted in lower tuition at the state’s public colleges and universities. What three programs provide health insurance for Texas children? Copyright © 2014 Cengage Learning