The House supplemental appropriations bill (HB 2) appropriates state funds for the 2016-17 budget beyond the limit of the Conservative Texas Budget (CTB) and appropriates $1.4 billion from the Economic Stabilization Fund (ESF), commonly called the “Rainy Day Fund.” Neither of these are necessary; the Texas Legislature should finish the current budget cycle by using only available general revenue (GR) and by limiting the appropriations of state funds to $1.2 billion or less.
The 2016-17 CTB limits are $142.3 billion in state funds and $215.2 billion in all funds. These limits keep biennial appropriations of state funds and all funds—including federal funds—from increasing by no more than population growth plus inflation. Accounting for appropriations from 2015, the 85th Texas Legislature can only appropriate $1.2 billion in state funds and $6.1 billion in all funds (see figure below) if it is to remain within the limits of the CTB. An examination of HB 2 shows that this is possible.
HB 2 includes $1.4 billion in state funds appropriated from the ESF, commonly called the “Rainy Day Fund.” Given that much of these appropriations are for Medicaid, they are matched with federal dollars of $1.7 billion, for an all funds increase of $3.1 billion.
Here are highlights from the supplemental bill:
Of these, the only essential appropriation in this list is that which is federally-mandated for Medicaid. Here, the House found savings in HHSC to reduce their supplemental request from $1.3 billion to $931 million in GR. This allows for room under the CTB state funds limit for about $269 million. The Legislature should allocate the $269 million to other programs and, if needed, provide additional funds for these programs in the 2018-19 appropriations bill.
The ESF was created by the Legislature and approved by voters in 1988 “to be used to offset unforeseen shortfalls in revenue.” Staying with the CTB limits confirms that there is no need to dip into the ESF because there is enough GR available to fund a conservative supplemental budget. Here’s a snapshot of what the Texas Comptroller noted in the Biennial Revenue Estimate:
You’ll notice that the 2018-19 beginning balance, i.e., the 2016-17 estimated ending balance, is $1.53 billion. This is sufficient revenue to cover appropriations under the CTB limit—or for the $1.4 billion in HB 2. In either case is it not necessary to use the ESF.
Moreover, there’s no reason to “loot” the ESF for the upcoming 2018-19 budget because there is no revenue shortfall, as noted in the Comptroller’s BRE:
"For 2018-19, the state can expect to have $104.9 billion in funds available for general-purpose spending, a 2.7 percent decrease from the corresponding amounts of funds available for the 2016-17 biennium. If not for the new constitutional provision dedicating up to $5 billion in biennial sales tax revenue to the State Highway Fund (SHF) starting in fiscal 2018-19, projected funds available for general-purpose spending for 2018-19 would be $109.6 billion, 1.7 percent greater than in 2016-17."
Of course, this is just for GR-related funds. If you consider state funds or all funds that include federal funds, there is the potential for increases in government appropriations of more than 6 percent, which well exceeds the 2018-19 CTB growth limit of no more than a 4.5 percent increase.
There simply is no need to use the ESF or to appropriate taxpayer money beyond the limits of the CTB in either the 2016-17 supplemental budget or in the 2018-19 budget. Limiting the increase in appropriations to less than population growth plus inflation would boost the economy, make it possible to cut taxes, and limit the ability of government to interfere in the daily lives of its citizens.
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.