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Friday, January 18, 2013

Serious Issues for the 83rd Texas Legislature

2013 is upon us, which means one thing:  the 83rd Texas Legislature has convened! 
There only bill the legislature must pass is a balanced budget for the 2014 - 2015 biennium.  Texas Constitution Article 3, Section 49a(b) states that "Except in the case of emergency . . . no appropriation in excess of the cash and anticipated revenue of the funds from which such appropriation is to be made shall be or is valid." 
Fortunately, Texas’ revenue forecast is robust.  Comptroller Susan Combs currently estimates that the state will have an $8.8 billion cash surplus at the end of the current biennium on August 31, 2013, and $101.4 billion in revenue will be available for the next biennium -- a 12.4% increase over the current biennium.  The Economic Stabilization Fund, commonly known as the Rainy Day Fund, is also projected to contain $11.8 billion at the end of FY 2015.
However, Texas’ spending demands are also robust.  Medicaid requires an additional $4.7 billion by the end of March or the program will run out of money.  Appropriators intend to reverse an accounting shift that originally delayed by one day a $2.3 billion payment owed to the public schools on August 31, 2013, so that the expenditure would not be made until FY2014.  Throw in costs for the recent wildfires and criminal justice healthcare cost increases, and the legislature will probably need to pass a $7 billion supplemental appropriations bill by the end of March.
After passing the supplemental appropriations bill, the legislature will still have approximately $5 billion more available this session than it did in 2011.  Some of the major issues competing for those dollars are education, transportation, water -- and tax relief.
Education
Approximately 600 hundred school districts are suing the state claiming the current method of financing the public schools is unconstitutional.  The lawsuit is likely to be ultimately decided by the Texas Supreme Court sometime next fall.  Most observers expect the school finance system to be held unconstitutional, requiring the legislature to meet in special session and appropriate billions more to the public schools.  Accordingly, expect the legislature to reserve some of the available dollars to meet an anticipated adverse court judgment on education funding.
The 2011 legislature did not fund approximately $5.4 billion that would have been due to the public schools under the then current school finance funding formulas.  There have been calls by Democrats, teacher groups and others to restore the $5.4 billion, but legislative leadership so far has thrown cold water on that proposal.  However, the legislature is expected to fund enrollment growth for the next biennium.
Transportation
The legislature must address a large and growing highway construction and maintenance funding shortfall.  Under current funding projections, by 2014 we will be barely able to maintain our current highway system and there will be no money for new construction.
The current gas tax of 20 cents per gallon has not been raised since 1991, and it is the primary source of state funding for State Highway Fund 6.  Revenues are shrinking even as the number of vehicles on Texas’ roads increases, because cars are much more fuel efficient and there are a growing number of alternative fueled vehicles.  Proposals to increase revenues for transportation infrastructure include eliminating diversions from the State Highway Fund to the Texas Department of Public Safety, the Texas Education Agency and others; dedicating some or all of the 6.25% motor vehicle sales tax to highway funding; and increasing motor vehicle registration fees by $50.
Water
Texas is one of the fastest-growing states in the nation, with 1,200 people a day moving to Texas.  By 2040, Texas is projected to have a population of 35.8 million -- up from 25.1 million recorded in the 2010 census.  As our population grows, there will be increasing demands on state water resources by residential consumers.  The demands of industry, agriculture and the environment for water also continue to increase.
The Texas Water Development Board has developed a state water plan to address Texas’ future water resource needs.  The plan has a $53 billion price tag, which has not been funded.  Yet the 2010 - 2011 drought, the worst 1-year drought in the state’s history, has provided legislators impetus to beginning funding the plan.
Multiple proposals have been made to withdraw up to $2 billion from the Economic Stabilization Fund to provide seed capital and begin a revolving loan program for water infrastructure investments.  With the backing of legislative leadership, look for Texas to initiate funding of its water plan this session.
Tax Relief
The rosy revenue picture has also led to calls for tax relief.  Proposals include phasing out the margins tax and raising the school property tax homestead exemption.  Eliminating the margins tax entirely would cost $5.6 billion.  Increasing the homestead exemption to $25,000 from its current $15,000 would cost $1.2 billion.
Conclusion
Speaker Joe Straus has said that “Texas needs to get serious about serious issues.”  With seasoned leadership from Lt. Gov. Dewhurst on the other side of the rotunda and a strong revenue forecast, look for the 83rd Texas Legislature to begin tackling some of the serious issues facing our state.