Hobby Policy Conference: Strong Public Structures October 13, 2006

F. Scott McCown, Executive Director Anne Dunkelberg, Associate Director Dick Lavine, Senior Fiscal Analyst Eva DeLuna Castro, Senior Budget Analyst Don Baylor, Senior Policy Analyst

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Texas is a Low-Tax State State and Local Own-Source Revenue as a Percent of Personal Income, 2004

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Local: 10 th State: 49 th (7.3%) (6.7%) 1% of PI = $7 B

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Houston Revenue Is Declining City of Houston – Per Capita Revenue

Taxes Nontax revenue $1,000

$934

$750

$314 $286 $848 $239

$500 $250

$620 $670 $609

$ 1996 1997 Center

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Public Policy Priorities 1998 1999 2000 2001 2002 2003 2004 2005 www.cppp.org

$1,000

Harris County Revenue Is Declining Harris County – Per Capita Revenue

Taxes Nontax revenue $750 $500

$394 $138

$250

$257

$-

$152 $257 $385 $150 $235

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Center

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The State has Not Recovered from “Balancing” the State Budget in 2003 for 2004-05 Estimated General Revenue shortfall of $15.6 billion for 2004-05 Cuts to 2003 Budget: $1.4 billion Cost shifting: $1.0 billion “Smoke and mirrors”: $1.2 billion Rainy Day Fund: $1.3 billion Federal Fiscal Relief: $1.4 billion Revenue Measures: $1.8 billion Cuts to 2004-05 Budget: $7.5 billion

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State Spending (Excluding Federal Aid) Still Lower Than in 2002

5.4% 5.0%

$2,063

$2,100

$1,975

$2,000 $1,900 4.6% 4.2% $1,800 $1,700 3.8% 2000 2001 2002 2003 2004 2005 2006 2007 $1,600 Center

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Special Session Created Serious Budget Hole In billion $ 2008-09 2010-11

HB 3 (business tax) HB 4 (used cars) HB 5 (cigarettes)

TOTAL REVENUE Cost of HB 1 Gap between HB 1 and HB 3, 4, 5

6.8

0.1

1.4

8.3

-18.8

-$10.5 B

7.7

0.1

1.3

9.1

-20.2

-$11.1 B

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Billions

$10 $8 $6 Cost of Reducing Property Taxes Compared to New Revenue Cost of property tax cut Revenue from special session tax changes $7.6

$7.3

$6.9

$6.6

$4.1

$4.2

$4.4

$4.7

$4 $2 $2.1

$0.5

$0 2007 2008 2009 2010 2011

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$120 $100 $80 $60 $40 $20 $-

2008-09 Budget Will Be Very Tight State Own-Source Spending and Revenue $94 billion Other: $7.0 Eco. Dev.: $9.2 Prisons: $8.3 HHS: $19.2 Higher Ed: $17.7

$2.1 (tax swap)

$116 billion Other: $8.1 Eco. Dev: $9.2 Prisons: $8.7 HHS: $22.8 Higher Ed: $19.4

$13.5 (tax swap)

$114 billion GR Dedicated: $1.3 b Rainy Day Fund: $3.3 b 2006-07 Spending 2008-09 Needs

$6.6 b ending balance $8 b rev growth

2008-09 Revenue

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Leaving Unfunded an Additional $3 Billion $1.4 billion $912 million

HHS: restore Medicaid/CHIP rates, replace non-recurring Intergovernmental Transfers, fund hospital financing for IGT, Graduate Medical Education; reduce HHS waiting lists; expand family violence programs; mental health community services; anti-smoking programs; abuse/neglect prevention programs K-12 Existing Debt Allotment and Instructional Facility Allotment for school buildings, Student Success Initiative, Educator Excellence Fund Higher education financial aid and other

$461 million $275 m Beyond Current Services

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Public Policy Priorities Prisons/corrections 1,000 new medium security beds, 150 halfway house beds, 250 probation beds, 250 SAFP treatment beds, contractual per diem adjustments, basic supervision www.cppp.org

Where Do We Go From Here?

• Can we afford to reduce school district property taxes for operations to $1.00 per $100 FMV?

• Are property tax appraisal caps good public policy? • Are revenue caps on cities and counties good public policy?

• Are we adequately funding our public structures? • If not, what sort of tax system do we need? Center

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. Center for Public Policy Priorities 900 Lydia Street Austin, TX 78702 Phone 512-320-0222 Fax 512-320-0227

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