Texas Needs an Ongoing Way to Invest in Basic Services

Last week, a House budget subcommittee addressed improving budget transparency by making the Texas budget less reliant on dedicated General Revenue balances. CPPP testified on the importance of finding ongoing ways to invest in public schools, higher education, health and human services, public safety, and other needs. Otherwise, reducing balances alone without finding alternative revenue streams that will grow with the economy and the state’s population will only lead to additional cuts to the basic services needed to make Texas competitive.
The state’s reliance on dedicated balances has grown significantly since 1991, when more than 200 accounts into which earmarked taxes and fees are deposited, such as the portion of sales taxes collected on sporting goods that is set aside for spending on state parks, were consolidated under the General Revenue “umbrella.” Leaving the dedicated revenue unspent is a bit of fiscal “smoke and mirrors” and allows the Comptroller to certify that more General Revenue is available for spending, because she can count the billions of dollars unallocated in earmarked accounts. This budget gimmick leaves hundreds of budget items unfunded, from used tire disposal, to volunteer fire services, to 911 emergency systems.
Subcommittee members were first updated on progress made in reducing GR-dedicated balances by $1.3 billion during the 2013 legislative sessions:

  • Balances in the Designated Trauma Facility and EMS account were reduced by $326 million when legislators agreed to use those funds for their intended purposes in both the supplemental appropriations act (HB 1025) and 2014-15 budget (HB 1).
  • The 2013 legislature enacted HB 7, which repealed the System Benefit Fund utility fee – foregoing $246 million in revenue that would otherwise have been collected this biennium – and used $500 million to help low-income Texans with utility bills. Only $60 million will remain in the System Benefit Fund by August 2015, down from $811 million at the end of fiscal 2013.
  • HB 7 also changed the way that about $108 million in interest earned by some GR-Dedicated funds is handled, depositing the interest to General Revenue (Fund 1) instead of to the dedicated accounts.
  • Other HB 7 provisions and HB 1025 spending reduced balances by $84 million combined.

House Bill 7 also requires the LBB to make recommendations on how to further reduce reliance on GR-Dedicated balances for the next six years. These recommendations would mostly focus on how to spend more money out of GR-Dedicated accounts; how to reduce GR-Dedicated revenue collected in the first place; or how to change the allowable use of the dedicated revenue. Most of the public testimony addressed these proposals, especially with regard to environmental-cleanup-related revenue such as the Texas Emissions Reduction Plan (TERP) fund, which will have a balance of $993 million by August 2015.
The Comptroller’s office reported that in four of the past five fiscal years (2009 to 2012), and also in 2003 and 2004, the state’s General Revenue fund ended the fiscal year in the red. It was only because of GR-Dedicated balances that the consolidated General Revenue accounts were not in a deficit situation. In other words, without the earmarked but unallocated dollars, the General Revenue part of state spending would not have balanced. In the 2014-15 budget, these balances, $4.17 billion total, account for more than 4 percent of authorized General Revenue spending. This is down from the 6 percent high reached in 2012-13, but still a sign of considerable reliance.


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