IssuesTaxes & SpendingTexas Leaders Seek Savings as April Tax Revenue Drops by Nearly $1 Billion

State leaders called on some Texas agencies to trim budgets by 5 percent after numbers from the comptroller’s office showed tax revenue down $989 million this April compared to 2019.
May 28, 2020
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Last Wednesday, state leaders notified some Texas state agencies and institutions of higher education that they “must engage in prudent fiscal management efforts” as state revenue is declining because of the COVID-19 panic. The notification came in a letter from Governor Greg Abbott, Lieutenant Governor Dan Patrick, and House Speaker Dennis Bonnen. 

The effort to trim spending growth comes after numbers from the comptroller’s office show state tax revenue down $989 million this April versus last April.

In addition to employing cost-saving strategies, the agencies are required to “submit a plan identifying savings that will reduce your general and general revenue-related appropriations by five percent for the 2020-2021 biennium.” K-12 education and Medicaid spending, among other programs, are excluded from the plans. 

Then, at some point in the future, the trio can order reductions based on the agency plans. It is not known how much in savings this effort will actually achieve. However, a similar effort by state leaders in 2010 provides some helpful background. 

In January 2010, with Texas facing a revenue shortfall of $15 to $20 billion as the country was dealing with the aftermath of the Great Recession, Governor Rick Perry, Lieutenant Governor David Dewhurst, and House Speaker Joe Straus sent a letter to agencies requesting that they submit five percent savings plans.

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Four months later, the leaders announced that “savings to the current 2010-2011 biennial budget will total approximately $1.2 billion.” This amounted to savings of 1.36 percent, rather than 5 percent, of general and general revenue-related appropriations.

Governor Perry touted the effort as important for balancing the upcoming budget. 

“Every penny we save now in the 2010-11 biennium is one penny closer to balancing the budget in the next legislative session,” he said. “These reductions reflect our state’s ongoing commitment to keeping taxes low by limiting government spending, a key aspect of the continued strength of our state’s economy.”

One reason that the savings were only 1.36 percent of general revenue rather than 5 percent is that, like this year’s effort, several large spending programs were excluded from the requested savings plans. Another was that not all agency and higher ed spending included in the plans was reduced by 5 percent. 

One way of estimating what savings the current effort might yield is by applying the 1.5 percent savings to the current budget. Doing this would provide $1.7 billion in savings. 

Another way would be to apply the 5 percent savings goal to the total amount of general revenue not excluded from the requested plans. 

The exclusions make up a large amount of the $124.5 billion in general revenue and related spending in the Texas budget, including the state’s two largest spending items, K-12 foundation school program spending and Medicaid. In fact, the exclusion for the foundation school program exceeds $50 billion. A brief review of Texas’ 2020-21 budget yields an estimated $92 billion in exclusions. The Legislative Budget Board had not responded to a request for the exclusion amount by the time of publication. 

Applying the 5 percent savings to the remaining $31.6 billion in state spending yields a total savings of $1.6 billion. 

No one knows how much revenue the state will lose because of the COVID-19 panic, but with April tax revenue down almost $1 billion, it is likely that the state will need more than $1.6 billion in savings to make the numbers work when the Texas Legislature meets next year.

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Bill Peacock

Bill Peacock

Bill Peacock is a writer and public policy consultant in Austin, TX. He has extensive experience in Texas government and policy on a variety of issues, including economic regulation, energy, taxes and budgets, property rights, and corporate welfare. His work has focused on identifying and reducing the harmful effects of regulations on the economy, businesses, and consumers.