Texas Impact Advocacy Camp Revenue Background January 13, 2009 Dick Lavine

New Revenue Replaces Only 60% of Lost Property Taxes Source: Legislative Budget Board, Fiscal Notes for HB 1, HB 3, HB 4, HB 5 (79 th Legislature, 3 rd Called Session) In billion $ New business tax Increased tobacco tax Used car sales0.1 TOTAL REVENUE$8.3$9.1 Lost property tax revenue -$13.5-$14.9 SHORTFALL-$5.2 B-$5.8 B

Sources: Comptroller of Public Accounts, Annual Property Tax Report; Cash Report. Major State & Local Taxes in Texas, 2005

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

Sources: Comptroller of Public Accounts, Annual Property Tax Report; Cash Report. Texas State Government Revenue, 2006 Total $72 billion

Source: Comptroller of Public Accounts, Annual Cash Report Texas State Government Revenue, 2009 Total $79 billion

Source: Comptroller of Public Accounts, Annual Cash Report State Tax Collections, 2006 Total $33.5 billion

Source: Comptroller of Public Accounts, Biennial Revenue Estimate , January Increased Importance of the Franchise Tax State Tax Collections, 2009: Total $41 billion

The Consequences: Incidence by Household Income Source: Legislative Budget Board, Tax Equity Notes for HB 1, HB 3, HB 4, HB 5 (79th Legislature, 3rd Called Session); Calculations by CPPP. Net change resulting from property tax reductions funded by franchise and cigarette tax increases and General Revenue

Who Pays School Property Taxes?

Property Taxes Still Pay For Half of Public Education Source: Legislative Budget Board, Fiscal Size-Up, Biennium

School Spending Same As In Inflation-Adjusted Per-Student Source: Legislative Budget Board, Texas Education Agency, U.S. Bureau of Economic Analysis. Calculations by CPPP.

Pressure for More Revenue 900 school districts (of 1,000+ total) immediately raised rates by 4 cents available in school districts asked for voter approval of further increase in tax rates in 2007, with 78% success rate 104 school districts held elections in 2008, with 60% approval $9.75 billion in state general obligation bonds (including first use of these for highways) Bond $3 billion for cancer research, while reserving $3 billion for tax cuts

How About the “Surplus”? Rainy Day Fund$6.8 billion for emergency spending only Property Tax Relief Fund 3.0 billion to replace lost tax revenue Cash Balance 2.0 billion 2.5% of current budget “Surplus” $11.8 billion

How About Other Sources of Revenue? 2007 RevenueForecasted Growth in 2008 Actual Growth in 2008 Forecasted Growth in 2009 Sales Tax$20.3 billion3.1%6.6%2.2% Franchise$3.1 billion86.8%41.6%2.9% Natural Gas$1.9 billion- 4.7%41.6%-3.4% Tobacco$1.3 billion-8.8%8.5% Oil$0.8 billion-5.0%72.1%-1.9% TOTAL TAXES$37.0 billion8.9%11.9%1.8%

Texas’ Need for Public Services Texas US average Texas’ rank Uninsured nonelderly population, %17.1%1 st Population under age 18, %24.5%2 nd Birth rate, 2005 (live births per 1,000 women) nd Adults without high school diploma, %15.9%2 nd Limited-English students in public schools, (% of all students) 15.7%9.1%4 th Child poverty rate, %18.0%7 th Family income ratio Top 20% to bottom 20%, th Median household income, 2007$47,548$50,74029 th (up from 37 th ) Sources: U.S. Census Bureau, American Community Survey; Economic Policy Institute and Center on Budget and Policy Priorities; National Center for Education Statistics.

Above-Average Needs Below-Average Effort United StatesTexas Expenditure need$6,007$6,4566 th Actual expenditure $6,007$5,12747 th Revenue capacity$4,659$4,27133 rd Actual revenue$4,659$4,01737 th Fiscal capacity th Source: Measuring Fiscal Disparities across the U.S. States. Urban Institute Tax Policy Center, Federal Reserve Bank of Boston

Source: Comptroller of Public Accounts Sales Tax Captures Less of Services Than of Retail Trade But Services Grow Faster

Households with the Lowest Income Pay the Highest Percentage in State and Local Taxes Source: Comptroller of Public Accounts

One-Fifth of Texas Households Pays Less Than Their Fair Share Source: Comptroller of Public Accounts

Texas Has High Sales and Property Taxes Because It Has No Income Tax

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