Last session, the Texas Legislature passed a generally conservative budget, defined as a budget that increases above previous appropriations by no more than the rate of state population growth plus inflation. This key spending metric accounts for changes in government spending from changes in the state’s population and the general cost of providing goods and services.
Past legislatures have also passed conservative budgets; however, favorable budgets have consistently been followed by unfavorable ones with massive spending hikes. To prevent such costly cycles, the Texas Public Policy Foundation has joined with the Conservative Texas Budget Coalition to propose the 2018-19 Conservative Texas Budget (see Figure 1) as a guideline for the 85th Texas Legislature and government agencies (watch the recent press conference here and read the paper here).
Figure 1: Spending Limits for a Conservative 2018-19 Texas Budget
The Conservative Texas Budget sets a spending growth limit of 4.5 percent for the upcoming 2018-19 budget, ensuring that total appropriations will not exceed the estimated increase in population growth plus inflation over the two previous fiscal years (FY 2015 and FY 2016).
Specifically, the Conservative Texas Budget sets spending limits that:
State government spending in Texas has increased 68.5 percent since 2004, or 11.8 percent faster than increases in compounded population growth plus inflation. Given this, the Legislature should control state spending by consistently passing a conservative budget. The Texas economy once benefited from high oil prices and a steady global economy; however, lower oil prices, a stronger U.S. dollar, and global economic weakness are detriments to economic growth. Therefore, it’s essential to pass a conservative budget that funds basic government-provided goods and services while reducing the tax burden on Texans.
The Conservative Texas Budget will best equip Texas as it moves into a future that is forcibly less dependent on oil and gas. By using the past two fiscal years as a base rather than arbitrary predictions of the future, this budget is superior in both predictability and stability. Ultimately, holding government spending growth below population growth plus inflation will get spending back on track to funding basic goods and services so the excessive tax burden can be cut.
By passing the second consecutive conservative budget, the 85th Texas Legislature will provide Texans the freedom needed to reach their full potential while upholding the Texas model of growth and prosperity as one for the nation to follow.
This commentary originally appeared on TribTalk on June 29, 2016
For Texas families to continue flourishing under a responsible model of no personal income tax and relatively low taxes overall, government spending must be restrained. The Texas Legislature can do this next session by passing a conservative spending limit.
Research shows that a job is the best path to prosperity, and the Texas economy is a testament to that fact. Texas has created 36 percent of all civilian jobs in America since the latest national recession began in December 2007 and has had an unemployment rate at or below the U.S. average for 112 straight months.
According to a recent report by the Texas Public Policy Foundation titled The Real Texas Budget, the current state budget of $209.1 billion is up 11.8 percent since 2004 after adjusting for the key metric of population growth plus inflation. This translates into $22 billion more spending (read higher taxes) in the current budget cycle, or roughly $1,600 for the average family of four this year.
This excessive spending growth shows that more needs to be done to limit the excessive burden of government. A major impediment to slowing government spending is the weak constitutional spending limit. The state's current spending limit has three major problems:
To correct these problems, the Foundation and the 12 other members of the Conservative Texas Budget Coalition advocate for a conservative spending limit. This proposal would cover the entire state budget; would base its increase on the lowest growth rate of population growth plus inflation, personal income, or gross state product; and would use the two fiscal years immediately preceding a regular legislative session to calculate the growth rate.
Reforming the spending limit in this way eliminates opportunities for legislators to use gimmicks to avoid the cap and abolishes projecting data that could be used for political purposes.
Since historically population growth plus inflation has often been the lowest increase of the three metrics, it’s the one that should get the most attention. It certainly did at a recent Texas Senate Finance Committee hearing, where critics argued that using the population growth plus inflation limit would be inflexible and unnecessary. As the argument went, personal income is a better metric because it adds productivity to the population growth plus inflation metric.
However, this assumes that the growth of productivity requires a corresponding increase in government spending, which is not necessarily the case. If the private sector is more productive, it makes more sense to leave tax dollars there so they’ll have greater economic benefit. Therefore, if there’s no reason to include productivity in the spending limit, then what’s left is population growth plus inflation. Research finds that simply moving to this metric could lead to tax relief and accelerated economic growth.
In 2015, the 84th Texas Legislature proved that this limit could work by holding the increase in appropriations over previous spending to 2.9 percent — well below the 6.5 percent mark for a conservative budget based on our proposed limit. Overall, legislators were good stewards of tax dollars by setting budget priorities to meet the needs of the state while providing $4 billion in tax and fee relief.
Although last session’s passage of a conservative budget is encouraging, there’s no constitutional guarantee that this fiscal responsibility will continue in future legislative sessions. Legislators should pass a conservative spending limit next session to keep more money in the pockets of hard-working Texans and promote prosperity for years to come.
The Conservative Texas Budget sets spending limits on the growth of state funds and all funds for Texas’ 2018-19 budget.
AUSTIN – The Texas Public Policy Foundation along with the 12 additional member organizations of the Conservative Texas Budget Coalition today released The Conservative Texas Budget. The report’s authors, Talmadge Heflin, Director of the Center for Fiscal Policy at TPPF, and Economist Dr. Vance Ginn use a calculated state spending growth limit based on population growth plus inflation of 4.5 percent over the previous two fiscal years (FY 2015 & 2016) to set spending limits of $147.5 billion in state funds and $218.5 billion in all funds.
“The evidence is clear: low tax, low spend states perform better than high tax, high spend states. To cut the tax burden on Texans from previous spending excesses, the Texas Legislature should build on the momentum of last session by passing a historic second consecutive conservative budget,” said Heflin. “Doing so will provide the state with at most a spending increase of $9.4 billion to cover basic public necessities while prioritizing spending and cutting the tax burden on Texas taxpayers so that they can reach their full potential.”
Dr. Ginn added, “The 2016-17 appropriations total is up $22 billion, or 11.8 percent, compared with if the Legislature had followed population growth plus inflation since the 2003 Legislative Session. This excess in budget growth above funding the increased cost in basic public goods and services burdens average Texas families of four with $1,600 more to fund state government this year. To cut this excessive tax burden, the 85th Texas Legislature should pass a conservative budget that increases by no more than population growth plus inflation of 4.5 percent while returning additional taxpayer dollars to hard-working Texans.”
Americans for Tax Reform President Grover Norquist said, “By keeping growth in state spending below the rate of population and inflation when crafting a new budget in 2017, Texas lawmakers will ensure that state government lives within its means. Such spending restraint will also help legislators to get rid of the margin tax, which will ensure Texas remains the economic envy of the nation in the future.”
Americans for Prosperity Foundation Texas State Director Jerome Greener added, “Americans for Prosperity-TX stands firmly for responsible spending and economical budgeting practices in Texas. To compensate for any spending increase, Texan families will be asked to shoulder a significantly heavier tax burden than they otherwise would. It is our hope that the Legislature will recognize the importance of balancing our budget and capping any budget increase to population and inflation to keep our economy strong.”
Liberty Action Texas Executive Director Brendan Steinhauser said, "Texas needs a conservative budget in order to remain a beacon of liberty and opportunity for all Texans. Legislators should follow limited government principles and fight for a budget that limits spending to population growth plus inflation. Texas voters want to see conservative leadership in the capitol, and this is a chance for legislators to deliver just that."
“Texas has proven to be an economic powerhouse over the last decade,” said Clark Packard, National Taxpayers Union’s (NTU) Counsel and Government Affairs Manager. “However, it is vital that Texas adopts a fiscally responsible rate of growth for their budget, which does not exceed inflation and population growth. A budget that exceeds this growth rate will prove detrimental to private sector growth and expand the reach of the state government."
Texas Eagle Forum President Trayce Bradford said, “Today, the Texas Eagle Forum stands united with the Conservative Texas Budget Coalition to support the recommended spending limits for the 2018-19 budget outlined in The Conservative Texas Budget. While many factors contribute to Texas being an ideal state, Texas’ efforts to keep taxes low plays a key role. Unless intentional steps are taken to limit the growth of state spending next session, Texans will eventually find themselves burdened with higher taxes and a less conducive environment to pursue their dreams.”
Our America Initiative Texas Director Gil Robinson said, "Our America Initiative is a grass roots organization that promotes liberty and personal choice through local action. The Texas government has a better record than many states in keeping spending within sustainable limits, but the framework to continue this record can be improved. We encourage the upcoming legislature to adopt a spending limit based on population growth plus inflation to better support the Texas miracle of a growing economy and affordable quality of life for its residents."
"The key to developing good habits is consistency,” said R Street Texas Director Josiah Neeley. “The Texas legislature needs to continue the fiscal discipline it showed over the last two years during the upcoming session."
Pamela Villarreal, senior fellow and manager, Tax Analysis Center, National Center for Policy Analysis, added, “A TEL based on population growth and inflation will benefit the state of Texas in two ways: limiting spending could potentially lead to lowering taxes, which would result in increased investment and personal income in the state. Or, the excess revenue could be put in a rainy day fund, which would cushion Texas in times of economic downturns.”
“The Conservative Texas Budget provides prudent guidelines for how the Texas Legislature can control spending,” said Bob Williams, president of State Budget Solutions. “It demonstrates the clear need for holding down spending growth in the Texas budget so Texans have the best chance to prosper. Legislators can achieve this by passing a budget that holds the increase in appropriations of all funds and all state funds over the current budget to less than the increase in population growth plus inflation."
The Conservative Texas Budget report also highlights how the nine states without an income tax, including Texas, perform better economically than the nine states with the nation’s highest income tax rates. This comparison provides evidence that limiting total state spending is necessary to keep taxes low and to allow Texans the freedom to prosper.
To read the full report, please visit: http://txpo.li/2018-19-conservative-texas-budget
This presentation provides information about Texas’ economy, labor market, and fiscal situation and key public policies for the 2017 Legislative Session that would increase individual liberty and economic prosperity.
Vance Ginn, Ph.D.