Texas House rules allow legislators to appropriate money cut from one program to another more preferred agency. This provides little opportunity for legislators to actually cut ineffective or excessive areas of the budget, leaving many legislators understandably frustrated with the budget process. For example, if legislators cut $1 million from the Arts Commission’s budget, it would be available to appropriate to any other agency.
Fortunately, there’s a budget-cutting mechanism called the Sales Tax Reduction (STaR) fund that would keep the $1 million in taxpayers’ pocket by lowering the state’s sales tax rate. The STaR fund, which was passed as ALEC model legislation in 2015, would operate by aggregating state surplus dollars from various sources (i.e., budget cuts, budget surpluses, and funds above the economic stabilization fund cap) to temporarily reduce the state sales tax rate for a specified period.
A first step in determining budget cuts is for the Legislature to switch from the current opaque strategic-based budgeting approach to the more transparent program-based budget format. This would allow legislators to more effectively conduct zero-based budgeting. This process would start each agency’s budget at zero dollars and ask agencies to explain why every program is necessary and effective while verifying with outcome-based measures. This oversight holds agencies accountable for their expenditures and allows opportunities to find excessive budget areas to cut.
After determining these budget cuts, legislators could appropriate those funds to the STaR fund instead of on another potentially ineffective program. Other ways to allocate money to the fund would be budget surpluses and severance taxes from oil and gas production that exceed the economic stabilization fund’s (ESF ) cap.
The STaR fund would continue to accumulate money from these sources until the end of the fiscal period when the Comptroller would use the fund’s amount to estimate how much to cut the state sales tax rate of 6.25 percent and for how long.
It makes economic and fiscal sense to cut the sales tax rate because it has the broadest base, is highly visible, and easy to change the way it’s levied. Another tax reduction item could be the business franchise tax, but this onerous tax should be eliminated as quickly as possible instead of just chipping away at it for a temporary period.
Texas taxpayers, businesses and individuals alike, will be able to enjoy less taxation and have more money to satisfy their needs if legislators employ zero-based budgeting to adequately allocate money to the STaR fund every session. While the STaR fund wouldn’t be available in the 2017 Legislative Session, as it would need to be put in place first, it would setup a terrific opportunity for needed budget reforms in the 2019 Legislative Session.
Overall, the STaR fund provides one of the simplest and most visible means for the government to prioritize expenditures and cut the budget to assure that the Texas model continues to support prosperity for all.
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.