87th LegislatureState SenateTaxes & SpendingUnanswered Questions, Vague Use of Relief Funds Mark Introduction of Texas Budget

So spoke Sen. Jane Nelson (R-Flower Mound), chair of the Texas Senate Committee on Finance, as a prologue to reports from the state’s leading money gurus that left a few gaps unfilled. School funding, electric cars, and COVID-19 relief money headlined early and still vague budget discussion in the Texas Senate yesterday.

Though the members of the committee left with some questions concerning future markets and relief funds unanswered, the recommended budget — as it stands now before more stringent deliberation begins — aims at the fulfillment of its school funding commitment made last session and transportation as its clearest targets.

Nelson emphasized that the school funding increases of last session, meant to alleviate property taxes and boost teacher pay, would not fall to spending cuts.

“[Senate Bill] 1 includes $119.7 billion in general revenue and $251.2 billion in all funds. Specifically — and these are very high points — SB 1 provides $3.1 billion to fund enrollment growth for public education, and $1 billion in additional state aid related to property tax compression. It funds payroll growth and continues reforms to the Texas Teacher Retirement System passed last session through SB 12.”

The $119.7 billion in general revenue is about $7 billion higher than Texas Comptroller Glenn Hegar’s previous estimate. Nelson also cataloged a laundry list of other priorities, sticking the biggest price tag on transportation projects.

“It funds projected Medicaid caseloads. It funds over $160 million for priority victims’ assistance programs and efforts to timely process sexual assault kits. It includes nearly $60 million to continue fighting human trafficking… and over $30 billion for our state’s transportation needs,” Nelson continued.

Medicaid outlays often surpass projections, requiring budget reconciliation after the fact.

Hegar said he expects the state to collect more taxes relative to this year in the next biennium, which begins August 1. A freshly passed law empowering the state to tax online purchases somewhat brightened an otherwise grim vision of the Texas budget darkened by low collections from hotels and other industries, though federal money cushioned the state’s losses the most.

“While sales tax revenues are better than we anticipated… some taxes, such as hotel occupancy tax, severance tax collections, unfortunately continue to remain double-digit negative,” Hegar said.

The comptroller also said he would like to see new taxation on electric vehicles to offset potentially shrinking collections of taxes paid by drivers at the gas pump.

“Is that a fairness [issue] because electric vehicles don’t pay any road use?” Sen. Robert Nichols (R-Jacksonville) asked.

“If one taxpayer’s paying it, and another one is not, that’s a fairness issue… and it’s an erosion of the tax base,” Hegar said.

Information gaps continue to cloud Hegar’s crystal ball. The state cannot yet estimate the potential impact of another federal stimulus on the budget, and state agencies have said little on when or how they plan to cut 5 percent of their budgets in accordance with the governor’s directive. Though West Texas crude oil has seen recent recovery, Hegar even joked that “there’s a 95 percent certainty” of oil uncertainty, with price estimates falling somewhere between $20 and $80 for next year — a wide range.

“The forecast, however, remains clouded with uncertainty… I’ve been driving that word constantly,” Hegar said.

“It is also unclear how we will respond when the pandemic is fully under control.”

A few unfinished spots remain in the picture portrayed by the Legislative Budget Board as well, though Director Jerry McGinty assured the senators that his office will gladly provide the committee with more specifics on where COVID-19 relief funds have gone.

Sen. John Whitmire (D-Houston) pressed McGinty on the responsible spending of $3.5 billion in federal funds for “public safety and public health,” rankling at the governor wielding the power of the purse while the legislature was not convened.

“I’m just trying to figure out what was their big expense, you know? First of all, the person who made that decision is the governor, I assume. He had the budget authority to decide who got their funds replaced and who didn’t? That’s a lot of money for law enforcement… That’s a lot of money just to say that public safety had a drain on it that we’re going to replace,” Whitmire said.

“I don’t know that the DPS played a major role in [COVID-19]… I guess we’ll have an opportunity to ask, but 3.5 billion for replacing the public safety funds that were spent out of the general to address [COVID-19]… I sure would like to know more about it.”

“I think the agencies may be able to speak the best,” McGinty responded.

“I do know, looking at the guidance that was provided by the treasure, public safety, public health that had an impact directly or indirectly with [COVID-19] — so in the case of public safety, correctional officers who were maintaining the offender movement and minimizing that in such a way to try and reduce the spread was deemed an appropriate expense.”

Sen. Royce West (D-Dallas) also reached a dead end in his search for an explanation of how school districts could put the $1 billion “parked over at the TEA” into local classrooms.

“I have school districts just yelling at the top of their heads about being able to use that money for local school districts. Can you expound on that?” West asked.

McGinty said that the billion-dollar school relief injection stayed in state hands to replenish costs that schools otherwise would have incurred from a drop in student attendance in a less disastrous year.

“One of the funding sources was about $1.1, 1.2 billion that was available for education, targeted toward education. The conditions for that fund allowed for the replacement for general revenue, which was how that was applied. In a sense, it helped continue this hold harmless, but at its core, it was to replace the general revenue,” McGinty said.

“Instead of making the reduction in the general revenue consistent with the student reductions, you were able to put that 1.1 billion in there to replace the general revenue.”

Hegar and McGinty both agreed throughout the discussion to provide new data to the committee as research rolled on. Since passing a balanced budget is one of the few constitutional requirements of the legislature, it is normal for the Senate Finance Committee’s work on the mammoth project to take a slow, deliberative pace, lasting nearly the entire session.

In a brief tangent, Sens. Nelson, Nichols, and Charles Perry (R-Lubbock) informally agreed to pursue laws that would clamp down private citizens’ state-held information more tightly and alleviate the scourge of scam robocalls.