State Tax and Spending Limit

Strengthen Texas’ state spending limit

The Issue

Texas has done better economically and fiscally than most states for decades. However, an area needing improvement is consistently controlling the state’s budget growth. Because government spending ultimately drives taxation, especially when Texas must balance its budget, limiting budget increases is essential for a competitive economy that supports prosperity.

The 2018-19 initially appropriated amount of about $217 billion is up 74% since the 2004-05 budget. Comparatively, the key metric of population growth plus inflation compounded over time is up an estimated 62% during this period. Adjusting the total budget for this key metric shows that total budget growth is up 7.9% above the pace of compounded population growth plus inflation since the 2004-05 budget, costing Texans $1,100 more in taxes, on average, for a family of four this year and contributing to slower economic growth.

Fortunately, the 2018-19 budget meets the needs of Texans while potentially achieving the historic milestone of two consecutive state budgets held below population growth plus inflation. Given this evidence it can happen and the fact that the stakes could not be higher for the state to keep its competitive advantage, now is the time to strengthen the state’s weak spending limit.

The current spending limit is weak because it excludes a majority of the budget, is based on the estimated growth of future personal income, and can be avoided rather easily by lawmakers. In the 85th Legislature, the Texas Senate passed SB 9 that covered more than half of the budget, based the growth rate on population and inflation, and computed the growth rate with past and projected data.

While historically the Legislature has occasionally passed conservative budgets that increase by no more than this key metric, Texas needs to keep past costly budget cycles from repeating. This can be accomplished by adopting a stronger state spending limit in the Texas Constitution and statute.

Recommendations

  • Pass a conservative state spending limit that makes the following changes to Section 316 of the Government Code, as in SB 943 (85-R), and, if possible, to Article VIII Section 22(a) of the Texas Constitution and:
    • Apply the limit to Texas’ total government budget;
    • Base the limit on the lowest growth rate of the Census Bureau’s measure of state population plus the Bureau of Labor Statistics’ measure of inflation for the consumer price index for all items, the Bureau of Economic Analysis’ measure of total state personal income, or the Bureau of Economic Analysis’ measure of total gross state product for the two fiscal years immediately preceding a regular legislative session when the budget is adopted; and
  • Change Article VIII, Section 22(a), such that a supermajority vote of two-thirds of the membership in each chamber instead of a simple majority is required to exceed the spending limit.

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