Texas is a large, rapidly growing state whose future prosperity depends upon today’s public investments.  We need to develop our human capital through education and strengthen critical infrastructure such as our water, transportation, and health care systems.

Our antiquated tax system, however, is not up to the task.  Most of our state tax dollars come from a sales tax on goods, but increasingly our economy is based on selling services, which for the most part we don’t tax.  Consequently the proportion of our economy that we invest in the public sector has been steadily shrinking, leaving us short the money we need for public goods.  We must modernize our tax system.

As the Texas Legislature begins a new session, though, instead of hearing about tax modernization, you will hear that Texas has as much as an $8 billion tax “surplus.”  Nothing could be further from the truth.  A “surplus” means that you have more of something than you need.  Texas doesn’t have more tax dollars than it needs.

Biennial Revenue Estimate 2014-2015, click image to download.

Let’s start with how much Texas has for our next two-year budget.  The Comptroller’s revenue estimate gives the Legislature $92.6 billion to spend in the next two years, plus another $8.8 billion unanticipated from the current two-year cycle, for a total of $101.4 billion.  Additionally we will have $11.8 billion available for appropriation out of the Rainy Day Fund.

So do we have a tax surplus?  No.  To begin with, Texas has never spent what it takes to meet our needs.  Texas state government consistently ranks at or near the bottom of the fifty states in spending per resident, and when you add local government spending, Texas still ranks as low spending.

Texas took a big step backwards in 2011.  When tax revenue fell due to the Great Recession, instead of using more of the Rainy Day Fund to protect education and other critical public goods, the Legislature deeply cut spending.  What some are now calling a tax “surplus” in the current two-year budget cycle is really nothing more than dollars that would have gone to meet the needs of Texas had the state comptroller more accurately forecast revenue or had the Legislature used more of the Rainy Day Fund instead of cutting spending.

Public education is still reeling from $5.3 billion in cuts in 2011.  In just the first school year under the current state budget, these cuts have forced districts throughout Texas to lay off more than 25,000 teachers and support staff and to obtain an unprecedented number of waivers to exceed classroom size limits. Lawsuits filed against the state by the vast majority of school districts are yet another sign that school funding cuts went too far.  And it wasn’t just pre-K through high school that was cut.  The Legislature also cut funding to our colleges and universities, as well as financial aid for students.

In 2011, the Legislature also slashed health care for low-income Texans provided by Medicaid.  Because of cuts to what we pay health care providers, fewer than one out of three Texas physicians are now willing to take on new Medicaid patients, compared to two out of three in 2000.

Medicaid was not only slashed but shorted with a $5 billion “I.O.U.”  Even though the Legislature knew its real Medicaid costs would be much higher, to make the budget balance, it simply left six months of Medicaid costs out of the budget.  Consequently the Legislature must start the 2013 session by making an emergency appropriation to cover these costs, largely wiping out any so-called tax “surplus.”

To balance the budget, the Legislature also took some accounting steps that ought to be undone eventually.  For example, the Legislature delayed payment of certain obligations such as state aid to school districts and required early payment of certain tax obligations to the state.

In another example, the Legislature counted $5 billion as available general revenue from dedicated funds that the Legislature isn’t spending for their dedicated purposes.  Everyone agrees that it is wrong to raise money for a dedicated purpose and then use it for another.  But because our tax system isn’t delivering the general revenue we need merely to maintain core state programs and services, the Legislature is forced into this sort of bookkeeping.

And everything we have discussed so far is before we even talk about writing a new budget that covers growth in public and higher education enrollment that results from a young, fast-growing population, and health care cost increases that affect not just Medicaid but state employee and retiree health benefits.

Texas also needs to make some new investments.  In an era of climate change, the state’s water plan is more important than ever.  With more people and commerce on our roads, improving our transportation system is a must.  And the federal government is offering Texas an opportunity to expand Medicaid, providing coverage for about 1.1 million uninsured adult citizens under age 65, boosting our economy, and reducing local property tax costs for indigent health care.

There might be more money than once anticipated as legislators convene in Austin to set the new budget and debate the state’s priorities, but that’s a far cry from there being enough money or enough commitment on the part of elected officials to fix a broken system that cannot meet the state’s needs.

Coming Thursday: Proposed Spending Restrictions are Anti-Democratic

F. Scott McCown retired as a state district judge in 2002 to become director of the Center for Public Policy Priorities. Called “the voice of the voiceless” and “the conscience” of Texas politics by Texas Monthly, he is responsible for the center’s direction and administration. He is also an expert on school finance and child welfare. Before coming to the center, he presided over all of Texas’ public school finance cases from 1990-2002 and thousands of child abuse cases. He is a member of the National Council of Juvenile and Family Court Judges, and an elected member of the American Law Institute and the Philosophical Society of Texas. 

Avatar photo

Iris Dimmick

Senior Reporter Iris Dimmick covers public policy pertaining to social issues, ranging from affordable housing and economic disparity to policing reform and workforce development. Contact her at iris@sareport.org