87th LegislatureState HouseState SenateTaxes & Spending$248.5 Billion Budget, Stronger Spending Increase Cap Move to Governor Abbott’s Desk

The budget’s general spending category increased 5.5 percent — below the population and inflation metric used to judge baseline fiscal responsibility. The legislature also approved legislation to tie future general spending to the population and inflation metric and requires a three-fifths vote of both chambers to override.

“Despite the challenges of the last year, we are passing a budget that maintains our commitment to education, keeps Texans healthy, strengthens public safety and invests in our future while adhering to the principles of fiscal restraint,” Sen. Jane Nelson (R-Flower Mound), who chairs the Senate’s budget committee, said upon release of the conference committee report this week.

“That’s a testament to the resilience of our people, our businesses and our economy.”

The vote in the Senate was unanimous and the House’s was nearly so, with a small contingent of bipartisan opposition in Reps. Alma Allen (D-Houston), Michelle Beckley (D-Carrollton), Jeff Cason (R-Bedford), Jasmine Crockett (D-Dallas), Ron Reynolds (D-Missouri City), and Bryan Slaton (R-Royse City).

Those Democratic members rejected the budget largely due to its lack of a provision to expand Medicaid in some capacity — an amendment to give the governor authority to design his own Medicaid expansion-type program failed on the House’s budget night.

The Republicans, by contrast, rejected the budget due to its failure to provide property tax relief. “The budget is balanced off of an assumption that your property taxes will go up. We are expecting your school property tax bill to increase every year and that is unsustainable,” Slaton said in a Facebook post.

He added, “We also know that we are coming back to spending another $16 billion on top of this budget, but your property taxes will still go up.”

Texas is constitutionally required to pass a balanced budget and because it governs spending for a two-year period, the tax revenue figures necessary to “balance” against the spending are estimates predicted out over the biennium.

Part of that estimate includes property tax growth projections — as the state’s public education funding is dependent upon the proportion of the total dollar amount the school districts themselves finance. Like a seesaw, the more one side goes up in a specific budget, the more the other drops.

In this budget, the Texas Comptroller of Public Accounts estimates 4.36 percent growth in 2022. Thus, to balance its budget, the state operates from a revenue-positive position rather than revenue-neutral.

Among the budget’s key provisions is $1.1 billion in continued property tax compression stemming from the 86th Legislature’s signature legislation. That legislation slowed the growth of property taxes in Texas and compressed rates to some degree, but the appraisal growth has canceled out much of the compression reduction — but that $1.1 billion appropriation prevents current rates associated with the 2019 tax bill from increasing to where they otherwise would be.

Other notable line items include $3.1 billion to fund growth in school enrollment, despite many districts facing declines due to the pandemic; a boost of $8.5 billion to higher education’s funding formulas; $8.4 billion to fund mental health programs throughout state agencies; $123.5 million for rural hospital reimbursements for uncompensated care; $39 million to strengthen security at the state capitol; and $4.2 million to the Public Utility Commission for its oversight of the Electric Reliability Council of Texas.

The final estimated tally for the 2020-2021 biennium budget floats around $262 billion, which compared to the 2022-2023 budget’s total shows a $13.5 billion decrease. The discrepancy comes from federal funds that ended up about $14 billion over the original estimate.

That influx of supplemental dollars stems from various packages of coronavirus aid provided by the federal government. And it’s not the last of that federal pandemic aid flowing into the state.

Texas stands to receive an additional $16 billion from the American Rescue Plan Act that comes with two stipulations: it can neither be used to cut taxes, directly or indirectly, nor to shore up underwater public pension systems.

But this budget does not take into account those extra dollars and Governor Greg Abbott announced it will be included in the fall special session list of tasks for the legislature.

The state’s supplemental spending bill, a list of expenditures designed to shore up budget areas through the end of the current biennium that were not anticipated when its budget was passed, contains a $5.1 billion fiscal note de-appropriation. Meaning, it’s a decrease from the previous biennium’s appropriation.

Within it includes a $1 billion injection into the Employee Retirement System (ERS) that is contingent on the passage of Senate Bill (SB) 321. That legislation is designed to restructure the retirement plans held by ERS beneficiaries, increasing the state’s finance burden in the short run but with the goal of reducing costs in the long term.

It does this by changing the default offer to cash balance plans as opposed to the current defined benefit plan driving the ERS’s $14.7 billion unfunded liability total — money promised but not accounted for in the state’s finances.

A defined benefit plan sets a specific monthly benefit upon retirement, and all current plans will continue to receive that if SB 321 passes. But newcomers will be provided the cash benefit plan which sets a total benefit amount and can either receive a lump sum upon retirement or a percentage of that total each month.

A chief reason that so many public pension systems have such high unfunded liability totals is that lifespans are lengthening beyond what was planned at the time the pension system was established. By transitioning to a set amount, the state will avoid building up the kind of unfunded liability totals roiling state and local governments across the country.

Initially, it appeared that the legislature would have to climb out of a fiscal hole for the current biennium caused by the pandemic and government-mandated closure’s hit to commerce in the state. But over time, that concern was assuaged and the state is estimated to end the 2020-2021 biennium with a $725 million surplus.

Now the budget moves to Abbott’s desk for signature, at which he possesses line-item veto power. Last session, he did not use that power and simply signed the budget in front of him. The 87th Legislative Session concludes on Monday, May 31.

Editor’s Note: This article has been updated to include additional context regarding the property tax compression and supplemental appropriations bill.