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Texas STATE BUDGET POLICY

Texas STATE BUDGET POLICY. Revenues. For the fiscal year of 2002, the state generated $55.2 billion in revenue from all sources, including taxes and nontax sources. Revenues. Taxes General sales tax Levy on the retail sale of taxable items, Most important state source tax

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Texas STATE BUDGET POLICY

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  1. Texas STATE BUDGET POLICY Chap 13

  2. Revenues • For the fiscal year of 2002, the state generated $55.2 billion in revenue from all sources, including taxes and nontax sources. Chap 13

  3. Revenues • Taxes • General sales tax • Levy on the retail sale of taxable items, • Most important state source tax • Texas has a relatively high sales tax rate. • Growth of Internet sales is undermining the state sales tax base. Chap 13

  4. Revenues • Taxes • Excise taxes • Tax levied on the manufacture, transportation, sale, or consumption of a particular item or set of related items • Taxes on motor vehicles sales and rentals, motor fuels, alcohol, and tobacco • Corporation franchise tax • State levy on corporations. Chap 13

  5. Revenues • Taxes • Severance taxes on oil and natural gas production • Tax levied on natural resources at the time they are taken from the land or water. The importance of severance taxes has diminished considerably over the last twenty years with the decline in oil and gas production. • Other taxes • Insurance company tax, utility taxes, an inheritance tax, and taxes on pari-mutuel wagering, a system of gambling on horses and dog racing Chap 13

  6. Revenues • Nontax Sources of Revenue • Federal funds • Federal government is a major funding source for state government, accounting for nearly a third of state revenues. • Medicaid is the largest single source of federal financial aid to state government. • License and fees • Paid or obtained in order to drive a motor vehicle, operate businesses, go hunting and fishing, sell alcoholic beverages, or attend a state university • Land income • Revenue from leases for agricultural use and for oil and gas production Chap 13

  7. Revenues • Nontax Sources of Revenue • Interest and investment income • Sources • Texas Teacher Retirement System (TRS) • Trust Fund Employees Retirement System (ERS) • Trust Fund Permanent School Fund (PSF) • Permanent University Fund (PUF) • The amount of interest and investment income varies, depending on the investment climate. Chap 13

  8. Revenues • Nontax Sources of Revenue • Lottery revenue • generated more than $10 billion state in revenue. • 2002 --2.5% of state revenues. • dedicated to public education, but the dedication had no impact on the total amount spent for education • In 2003, multistate lottery • Other nontax revenue • Miscellaneous revenue sources (e.g. tobacco lawsuit settlement, employee benefit contributions) Chap 13

  9. Figure 13.1 Distribution of Lottery ProceedsSource: Texas Lottery Commission

  10. Revenues • Issues in State Finance • Debate over whether the state should adopt a personal income tax • The tax burden • In 2002, ranked 40th among the 50 states in per capita tax burden. • ranked 46th in total state/ local taxes as a percentage of personal income collected • Texas passes on many of the costs of services to local government. • 9th highest sales tax burden in the nation; 15th highest property tax burden. Chap 13

  11. Revenues • Issues in State Finance • Tax incidence • Tax incidence • Progressive tax • Proportional tax • Regressive tax • Texas tax structure is _________ because it relies heavily on property, sales, and excise taxes. Chap 13

  12. Revenues • Issues in State Finance • Tax fairness • Observers define fairness in different ways. • Ability-to-pay theory of taxation • Tax elasticity • Refers to the extent to which tax revenues increase as personal income rises • The Texas tax system is relatively inelastic. Chap 13

  13. Revenues • Policy Options • A personal income tax • Proponents argue that a state income tax could raise a significant amount of revenue that could be used to fund state services and/or reduce sales and property tax rates while opponents argue that it would simply be an additional tax burden which would reduce economic growth. • Broadening the sales tax base • Include more services than are currently taxed Chap 13

  14. Expenditures • State budget for the 2004-2005 biennium was $117.4 billion. • Largest expenditure categories for state government were: • Education • Health and human resources • Transportation • Public safety and corrections Chap 13

  15. Table 13.3 State Expenditures for Selected Government Functions, 1983, 1993, and 2002

  16. Expenditures • State has a reputation as a low-tax, low-spend state. • In 2002… • ranked 43rd in total government spending per capita • ranked 38th in total government spending as a percentage of personal income Chap 13

  17. Table 13.4 State and Local Government Spending, Texas and the United States, FY 2002

  18. Expenditures • Elementary and Secondary Education • The funding of public education through the use of local property taxes. Chap 13

  19. Expenditures • Health Care • Medicaid • The Texas Medicaid program provides medical services to nearly 2.5 million poor or disabled residents of the state. • A federal-grant-in-aid program • In 2003, Medicaid expenditures totaled 13.5 billion, nearly 24% of state spending. Chap 13

  20. Expenditures • Higher Education • Funding for community and junior colleges • State provides 44%. • Local property taxes provide 30%. • Fees provide 26%. • Funding for University of Texas (UT) and Texas A&M • State provides 22% of University of Texas system budget. • State provides 32% of Texas A&M University system budget. Chap 13

  21. Expenditures • Higher Education • Permanent University Fund (PUF) • Higher Education Assistance Fund (HEAF) Chap 13

  22. Expenditures • Welfare • Temporary Assistance for Needy Families (TANF) • Texas is among the least generous states in welfare spending. • In 2002, Texas ranked 47th in welfare spending per capita. • Between 1997 and 2002, the number of TANF recipients declined by 48 percent. Chap 13

  23. Expenditures • Transportation • Dedicated Highway Fund • It is a constitutionally earmarked account containing money set aside for building, maintaining, and policing state highways. • In 2002… • 60% of the state’s $5.8 billion transportation spending with the rest coming from federal matching funds. Chap 13

  24. The Budget Process • The state budgetary process is based on performance-based budgeting. • A system of budget preparation and evaluation • The state budgetary process entails several steps: • Governor define the mission of state government, setting goals, and identifying priorities. • Each state agency develops a strategic plan for accomplishing one or more goals, creates a budget to support its plan, and submits the plan and budget to the governor and the Legislative Budget Board (LBB). • The LBB and the governor’s staff hold hearings at which agency administrators explain and defend their requests. Chap 13

  25. The Budget Process • The LBB drafts an appropriations bill, which is introduced in the house and senate, and serves as the starting point for the legislature in the deliberations on the budget for the upcoming biennium. • The appropriations bill must pass in both the house and senate. • The Finance Committee in the senate makes recommendations to the senate floor and the Appropriations Committee in the house also makes recommendations on the appropriations bill to the house floor. Chap 13

  26. The Budget Process • The Texas Constitution prohibits the adoption of a budget that is in deficit. • Budget deficit • The state comptroller estimates state revenues for the upcoming biennium and any appropriations bill must fall within the comptroller’s revenue projections unless the legislature votes by a four-fifths majority to run a deficit. • The Texas Constitution also caps spending to the rate of economic growth. Chap 13

  27. The Budget Process • In most instances differences in the appropriations bill between the house and senate versions are ironed out in a house-senate conference committee. • Once a similar piece of legislation is passed by the house and senate, it goes to the governor for approval. • On appropriations bills, the governor has line-item veto, which is the power to veto sections or items of an appropriations bill while signing the remainder of the bill into law. • The governor and the LBB share budget execution authority which is the power to cut agency spending or transfer money between agencies during the period when the legislature is not in session. • The process is initiated in the next legislative session. Chap 13

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