Vance Ginn, Ph.D, testimony before the Senate Finance Committee for SB 9 on Strengthening Texas’ Appropriations Limit. The following are excerpts from the testimony:
"Texas has done better economically and fiscally than most states during much of the last two decades. However, the state’s weak appropriations limit is a problem that needs improvement to consistently control excessive government appropriations. Since government spending must ultimately be paid for by taxation, limiting excessive spending increases is essential for a competitive economy that supports prosperity. The 84th Texas Legislature appropriated a 2016-17 budget that increased by 4.3 percent above the previous period’s appropriations. Although this budget increased by less than population growth and inflation, it should be the first of many given past excessive budget trends. Specifically, the total budget is up an estimated 11.8 percent above the pace of compounded population growth plus inflation since the 2004-05 budget.
"Population growth and inflation are two economic measures that account for most of the cost of funding public provisions to a changing population. Research finds that simply changing the appropriations limit to population growth and inflation will lead to tax relief and accelerated economic growth. The key is that a limit with the combination of these measures holds budget growth to no more than the means of taxpayers as more people pay taxes and wages are often tied to price inflation. Our recommendation is to add these measures to account for economies of scale whereby the average cost of providing many government provisions declines over time. Moreover, the appropriations limit growth rate’s current measure of personal income can be represented as population growth plus inflation plus productivity. However, a more productive private sector signals that the marginal return per dollar would be greater in the private sector, meaning that more dollars should remain there instead of being taxed to pay for higher government spending. If government productivity is considered in this calculation, it would be practically impossible to measure and would likely be zero over time, thereby leaving population growth plus inflation.
"The current appropriations limit has contributed to excessive government spending. Texas needs to adopt a more responsible appropriations limit to better control the budget so it can be a model for other states to follow. Although SB 9 could use some changes to strengthen it, we believe that it will help limit the size and scope of government in Texas, allowing Texans many more opportunities to improve their well-being. Thank you for your time and I look forward to answering your questions."
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.