State Budget Overview for the 2005 Legislative Session

1. 900 Lydia Street - Austin, Texas 78702 Phone (512) 320-0222 – fax (512) 320-0227 - www.cppp.org State Budget Overview for the2005 Legislative Session January 5, 2005 Eva De Luna Castro, Budget Analyst (deluna.castro@cppp.org)

2. PRESENTATION OUTLINE: • What happened last time? • Current state budget picture • Budget needs for 2006-07 • Revenue system: current sources; options for 2006-07

3. The “Balancing” of the 2004-05 State Budget Cuts to 2003 Budget: $1.4 billion Cost shifting: $1.0 billion “Smoke and mirrors”: $1.2 billion Rainy Day Fund: $1.3 billion Federal Fiscal Relief: $1.4 billion Revenue Measures: $1.8 billion Cuts to 2004-05 Budget: $7.5 billion Estimated General Revenue shortfall of $15.6 billion for 2004-05

4. Where Budget Cuts Were Made • Health Care (not just Medicaid and CHIP, but also teachers’ and state employees’ health coverage) • K-12 textbook funding; grant programs such as kindergarten and pre-K expansion grants; Tele-communications Infrastr. Fund (now funds Technology Allotment) • Layoffs of state employees • More details available in CPPP’s July 2004 report, at http://www.cppp.org/products/reports/budget-impact04/index.html

5. State vs. Federal Funds, Current Budget Source: Texas Legislative Budget Board, Fiscal Size Up 2004-05.

6. State Budget Isn’t Alone on 2005 Agenda • General Appropriations Act has to be passed by legislators to keep state services going in 2006-2007 (budget starts September 1, 2005) • School Finance: equity and adequacy issues; legislators may wait for results of appeal (of State District Judge Dietz’s ruling) before acting. Or they may try to cut local property taxes by enacting or expanding state taxes (franchise tax, new business activity tax, tobacco tax, sales taxes) • Higher Ed: Texas Grants and other financial aid; Top 10% Law • Workers Comp reform: increasing return-to-work rates, creating physicial networks, controlling costs, limiting use of workers’ comp • Other: insurance (homeowners and health); utility regulation; Texas Enterprise Fund; asbestos lawsuits; capital punishment; incarceration policies; same-sex marriage and abortion issues; water policy; tollways • See House Research Organization Report, Topics for 79th Legislature, http://www.capitol.state.tx.us/hrofr/focus/topics79-1.pdf Source: Texas Legislative Budget Board, Fiscal Size Up 2004-05.

7. Where 80 Percent of General Revenue Goes Source: Legislative Budget Board, Fiscal Size Up 2004-05, and budget requests for 2006-07.

9. What Texas State Government Pays For Source: U.S. Bureau of the Census, StateGovernment Finances series. Data for 2002 for Texas, total expenditures (including trust) of $70.3 billion.

10. What Texas Local Government Pays For Source: U.S. Bureau of the Census, Government Finances series. Data for 2002 for Texas, total expenditures (including trust) of $77.1 billion.

11. 50-State Ranking: 13th 46th 26th 39th 15th 13th 35th 41st 23rd 36th 33rd 43rd Source: U.S. Bureau of the Census, State & Local Government Finances, Fiscal 2002.

12. Indicators of Texas’ Need for Public Social Services Source: U.S. Bureau of the Census, March CPS and American Community Survey

13. Need Indicators for Tarrant County Sources: U.S. Bureau of the Census, American Community Survey; Texas Dept. of Human Services, Annual Report for 2003.

14. 2006-07: Another Tough Budget to Write

15. 2006-07: Another Tough Budget to Write

16. K-12 (TEA) Major Exceptional Items • Textbooks: $387 million • Guaranteed Yield Increase: $301 million; Existing Debt Allotment: $180 million; Instructional Facilities Allotment: $150 million • Student Success Initiative (to prevent “social promotion”): $251 million • Restorations of programs cut in 2003, such as Pre-K/ Kindergarten Grants ($7 million), High School Completion ($3.5 million), Texas Advanced Placement ($1.4 million), Technology Allotment ($12 million) • GR match needed for Adult Ed/Literacy: $13.6 million

17. HHSC Major Exceptional Items • Maintaining Medicaid Caseload Growth: $1.3 billion in GR • Maintaining Medicaid Cost Trends: $1.2 billion • Decline in match rates for Medicaid and CHIP: $111 million • Restoring Medicaid rates: $177 million • Restoring 5% cuts to GR: $26 million • Maintaining CHIP caseload growth: $65 million; Cost trends and rate restorations: $20 million; benefit restorations $53 million • Restoring Medicaid services for adults, Graduate Medical Ed: $102 million • Partially restoring services for Medically Needy: $35 million • Keeping HHS waiting lists from growing: $47 million; reducing waiting lists over next decade: $255 million • Rate increases for Medicaid and CHIP providers: $264 million

18. DADS Major Exceptional Items • Restoring entitlement growth in long-term care programs: $154 million in GR • Restore 5% GR cuts: $20 million • Decline in Medicaid match rate: $17 million • Guardianship program (being transferred from Family & Protective Services): $12 million • Restore long-term care rates to fiscal 2003 levels: $54 million • Long-Term Care Provider Rate increases: $531 million • Rate increase for direct care staff (nurses in State Schools, community care attendants & direct care aides): $240 million • Entitlement caseload growth staffing: $24 million

19. Family & Protective Services: Major Exceptional Items • $12 million in GR to restore foster care/adoption rates to fiscal 2005 levels; $39 million for foster care/adoption caseload growth • Restoring 5% cuts to GR: $9 million (prevention programs) • $28 million to restore lost Medicaid funding (Targeted Case Management) • Adult Protective Services reform: $9 million • Keeping CPS caseloads from worsening: $26 million • Restore prevention program cuts: $19 million • Further restoration/adjustments to foster care rates: $28 million • Enhanced permanency for children: $28 million • HHSC report on CPS reform, including recommended funding changes, was due by December 31, 2004; revised budget likely to be submitted based on these recommendations

20. State Health Services: Major Exceptional Items • $107 million in GR to restore 5% cuts to GR: major programs include child immunizations; HIV/Sexually Transmitted Disease & Hepatitis C Prevention; TB, Hansen’s, & Refugee Health; Kidney Health; Children with Special Health Care Needs; Mental Health Services for Adults & Children; Northstar Behavioral Health; Women & Children’s Health Programs; Family Planning; Substance Abuse Prevention, Intervention, & Treatment; County Indigent Health Care; State Hospitals; Radiation Control; Food (Meat) & Drug Safety • Medicaid match rates and loss of one-time funding: $8 million • Texas HIV Medication program: $5.7 million • General Revenue restoration for Substance Abuse programs: $10 million • State facilities/infrastructure: $29 million • Salary upgrades for nurses/LVNs: $10.5 million

21. Other Pricetags

22. Outcome Depends on Available Revenue • Comptroller will give legislators the official revenue estimate no later than January 2005 • Good news: revenues for 2004 show higher-than-expected annual growth, at 6.4%, much better than fiscal 2003. Rainy Day Fund balance is back up to $878 million (Sept. 2004). • Bad news: health care costs—one-third of state budget—expected to continue rising at double-digit rates • Long-term structural inadequacies of state/local tax system are putting too much pressure on property taxes • Heavy reliance on sales taxes also makes Texas tax system very regressive (taking more from families with the lowest incomes)

23. State/Local Taxes: Lower than a Decade Ago

24. Tax Effort Would be Even Lower if Not For Local Decisions to Fund Basic Services

25. From a Taxpayer’s Point of View Source: Comptroller of Public Accounts, Annual Property Tax Report; Cash Report.

26. From the State’s Point of View: All Revenue

27. From the State’s Point of View: Taxes Only

28. Revenue Options Likely to be Considered • Cigarette tax: $1/pack increase raises $1.7 billion biennially • Video Lottery Terminals: $1.1 billion biennially. “Crack cocaine” of gambling. • Business activity tax: broader base than franchise tax (only applies to corporations) • Sales tax rate increase — but this is extremely regressive, and TX already has one of the highest rates • Sales tax base expansion (to services not covered now)