Responsible Budgeting in Texas’ Next Special Session

​At least in baseball, you’re out after the third strike. Baseball is merciful. The Texas Legislature, not so much. At least the fourth legislative session—the third special—gives lawmakers a chance to appropriate money sent to the state by Congress through the $1.9 trillion American Rescue Plan Act (ARPA) of 2021.

The Legislature has kept spending in check so far this year, but these funds present a new temptation. Lawmakers must resist—and spend the ARPA money wisely.

They’re off to a good start.

The Legislature passed the 2022-23 state budget well below TPPF’s Conservative Texas Budget (CTB), which sets a maximum threshold on the budget based on the average taxpayer’s ability to pay for it (as measured by population growth plus inflation). And lawmakers left $12 billion in the state’s rainy day fund.

Staying fiscally conservative while meeting the needs of taxpayers is nothing new for Texas. The last four budgets since 2015 passed by lawmakers have averaged growth under the CTB limit, helping keep more money in taxpayers’ pocket.

Let’s keep that going with the ARPA money. Here are some priorities Texas legislators should consider.

ARPA funds by Congress to state and local governments in Texas totaled $41 billion, with $25.2 billion either already released or allocated for specific purposes. Nearly $16 billion in more flexible funding will head to the state in one payment because Texas’s unemployment rate is more than 2 percentage points above the pre-pandemic rate. This part is 13% of the state’s annual budget for legislators to determine what’s best for Texans.

Remember, this is a one-time payment. It’s not an excuse to irresponsibly add nearly $16 billion in additional appropriations in the next biennium. Given that this is allocated wisely, we will exclude this amount from the CTB limit so that the budget is not inflated for excess spending later while catching ongoing spending in the next budget cycle if necessary.

We should use the majority of this to pay off our outstanding balance with the U.S. Treasury’s Unemployment Trust Fund. Texas holds the third largest balance, behind only New York and California. We’re $6 billion in the hole and we need to replenish $2 billion in credit the state had prior to the pandemic. The outstanding balance continues to accrue interest, costing Texans millions of dollars that could otherwise be used elsewhere.

Depending on the amount needed, we should use about $5 billion in ARPA funds directly or those swapped out with state general revenue to complete the border wall—providing relief to Texas taxpayers who have been paying for the rising cost of the crisis along the border for the rest of the nation.

And with burdensome local property taxes continuing to climb, we should be finding ways to eliminate them as quickly as possible. A good way would be to add what was done in 2019 and maintained in the 2021 regular session by using the remaining amount to compress school district M&O property taxes in the 2022-23 school year for additional tax relief.

Adding what could be billions more in surplus funds after appropriations in the second special session, including $100 million in property tax relief to some Texans,  there’s an opportunity to provide even more compression so that Texans receive a lower property tax bill.

Since property taxes are technically local taxes, this could be a way to navigate around the unwise restrictions imposed by Washington.

To ensure accountability and transparency within the Legislature, the flexible ARPA funds should be separated from the base budget to avoid it being buried within future appropriations.

This would limit any possibility of a repeat from Democrats who argued there were “cuts” to education following Obama’s one-time “stimulus” funds. Regardless of whether these measures are taken, all related ARPA spending should be posted on the Comptroller’s or Legislative Budget Board’s website.

There are other good ideas on how to use ARPA funds, but they may be restricted due to federal regulations—which is why there should be more clarity from the Treasury.

This fourth session gives lawmakers the opportunity to allocate the ARPA funds; they should be spent wisely.

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