900 Lydia Street - Austin, Texas 78702 Phone (512) 320-0222 – fax (512) 320-0227 www.cppp.org

All About the Money: The State Budget

One Voice: A Collaborative for Health and Human Services September 30, 2004 Eva De Luna Castro, Budget Analyst ([email protected])

PRESENTATION OUTLINE:



What happened in 2003?



Why it matters



What lies ahead

The “Balancing” of the 2004-05 State Budget

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 State Revenue Measures: $1.8 billion Cuts to 2004-05 Budget: $7.5 billion

Where Budget Cuts Were Made

•Health Care (not just Medicaid and CHIP, but also teachers’ and state employees’ health coverage) •K-12 textbook funding; grant programs such as kindergarten and pre-K expansion grants; Telecommunications Infrastructure Fund (now used for Technology Allotment) •Layoffs of state employees •More details available in CPPP’s July 2004 report, at http://www.cppp.org/products/rep orts/budget-impact04/index.html

Billion $ $40

STATE GOVERNMENT ALL-FUNDS SPENDING 2004-2005 total: $118.2 billion

$30 $7.0

Federal State* $23.7

$20 $0.3

$10 $16.0

$27.3

$15.4

$7.0

$7.3

$0.3

$7.7

$1.0

$5.2

$ Health & Human Svcs K-12 Education Higher Education Business & Econ. Dev.

Public Safety & Crim. Justice All Other

*"State" is General Revenue, General Revenue-dedicated, and Other Funds.

Source: Texas Legislative Budget Board,

Fiscal Size Up

2004-05.

Where 80 Percent of General Revenue Goes

2004-2005 GR Budget Percent of All GR Texas Education Agency

Health and Human Services Commission

Department of Criminal Justice Teacher Retirement System

Department of Human Services

State worker retirement and health insurance

Mental Health and Mental Retardation

Higher Education Coordinating Board

Family & Protective Services

University of Texas at Austin $20.6 billion $7.4 billion $4.6 billion $3.8 billion $3.3 billion $2.6 billion $2.1 billion $667 million $478 million $483 million 35% 13% 8% 6% 6% 4% 4% 1.1% 0.8% 0.8% Source: Legislative Budget Board,

Fiscal Size Up

2004-05, and budget requests for 2006-07.

State Government Spending as a Percent of Gross State Product 8.0% 7.0% 6.0%

All-Funds Spending

5.0% 4.0% 3.0%

General Revenue Only

2.0% 1991 1993 1995 1997 1999 2001 2003 2005

Sources: Legislative Budget Board; Comptroller of Public Accounts; US Bureau of Economic Analysis

What Texas State Government Spending Pays For

Education - 37% Medicaid and public welfare - 22% Hospitals - 5% Highways - 7% Insurance Trust (Pensions, UI) - 12% Health 3% Police & Corrections 5% Other/ inallocable - 5% Natural Resources & Parks 1% Gov. Admin.

2% Debt Svc. - 1% Source: U.S. Bureau of the Census,

State Government Finances

series. Data for 2002 for Texas, total expenditures (including trust) of $70.3 billion.

What Texas Local Government Spending Pays For

Streets & Hwys. 3% Fire - 2% Sewerage & Solid Waste 3% Insurance Trust - 1% Education - 44% Natural Resources & Parks 3% Police & Corrections - 6% Other/ inallocable - 8% Housing & Comm. Dev. - 2% Hospitals - 5% Gov. Admin. - 4% Utilities - 12% Debt Svc. - 5% Health - 2% Source: U.S. Bureau of the Census,

Government Finances

series. Data for 2002 for Texas, total expenditures (including trust) of $77.1 billion.

K-12 Education Medicaid and Welfare Higher Education Highways & Streets Hospitals Prisons Police/State Troopers Public Health Parks/Recreation Judicial/Legal Housing & Comm Dev Natural Resources

Texas Per Capita State/Local Spending, Fiscal 2002

(Total: $5,975 per capita; 41 % is state, 59 % is local) $ $300 $202 $171 $124 $94 $75 $72 $46 $346 $341 $600 $574 $686 $900 $1,200 $1,500 $1,475 50-State Ranking: 13 th 46 th 26 th 39 th 15 th 13 th 35 th 41 st 23 rd 36 th 33 rd 43 rd Source: U.S. Bureau of the Census,

State & Local Government Finances

, Fiscal 2002.

Indicators of Texas’ Need for Public Social Services

% of Population under 18, 2002 Child Poverty Rate, 2003 Elderly Poverty Rate, 2003 % of Under-65 Population with No Health Insurance, 2003 % of Residents Aged 25 or over with at least a High School Diploma, 2003 % of Residents Aged 25 or over with at least a Bachelor’s Degree, 2003

Texas

28.0% 22.8% 13.0% 26.9% 77.8% 24.5%

US Average

25.3% 17.7% 9.8% 17.6% 83.6% 26.5%

Texas rank

3 rd 8 th 7 th 1 st 49 th 27 th Source: U.S. Bureau of the Census, March CPS and American Community Survey

How Houston Compares to Other Large Cities

Houston (City) US Average Rank out of 68 Cities

Child Poverty Rate, 2003

(3 rd highest in TX, after El Paso, 34%; Dallas, 30%)

Overall Poverty Rate, 2003 29.6% 20.3% 17.7% 21 st 12.7% 20 th % of Residents Aged 25 or over with at least a High School Diploma, 2003 72.9% 83.6% % of Residents Aged 25 or over with at least a Bachelor’s Degree, 2003 26.6% 26.5% Source: U.S. Bureau of the Census, American Community Survey 59 th 38 th

State Spending Per Harris County Resident, 2003

$560 for Aid to Local K-12 School Districts $398 for Medicaid Acute Care and CHIP

$204 for Workforce Commission Programs (Unemployment Insurance, Employment Services and Job Training, Subsidized Child Care, etc.) $162 for Highway Construction and Maintenance and other TXDoT spending; $141 for State Prisons, Probation, Parole; $103 for Teacher Retirement System

Mental Health & Mental Retardation programs ($64); Department of Health programs ($59); University of Houston [main campus only] ($53) Employees Retirement System ($40); Public Community and Junior Colleges ($39); Payments to Nursing Homes ($37); M.D. Anderson Cancer Center ($34); Protective & Regulatory Services ($32); University of Texas Health Science Center at Houston ($32) DHS Community Care programs ($18); Cash Assistance [TANF] ($10); Alcohol and Drug Abuse Commission ($7): Department on Aging ($3)

2006-07: Another Tough Budget to

%

State Budget, 2004-05 Across the board 5% cut to baseline

(if no exceptions were made)

Requests to Date for Additional GR:

Education Agency: Baseline Increase Education Agency: Exceptional Items Department of Criminal Justice Teacher Retirement System Employees Retirement System Higher Education Coordinating Board Family & Protective Services $58.9 billion ($2.9 billion) $1 billion $1.3 billion $303 million $1.4 billion $500 million $597 million $200 million -5% 1.8% 2.2% 0.5% 2.3% 0.8% 1.0% 0.3%

Other Potential Budget Items

Biennial GR

State Budget, 2004-05

$58.9 billion %  Replacing “Robin Hood”  “Buying down” local school property taxes by 10 cents per $100 taxable value  Eliminate waiting list (30,000) for working-poor child care  Reaching the national average in state/local spending from taxes At least $2.3 billion $2 billion $73 million $16 billion 4 % 3.4% 0.1% 27%

Outcome Depends on Available Revenue

•Comptroller will give legislators the official revenue estimate no later than January 2005 •Good news: revenues for 2004 show higher-than expected annual growth, at 6.4%, much better than fiscal 2003 •Bad news: health care costs—one-third of state budget —expected to continue rising at double-digit rates •Long-term structural inadequacies of state/local tax system are putting too much pressure on property taxes •Heavy reliance on sales taxes also makes Texas tax system very regressive (taking more from families with the lowest incomes)

10.0%

State & Local Taxes Are Declining as a Percentage of Personal Income

9.5% 9.0% 8.5% 8.0% 7.5% 1991 1993 1995 1997 1999 2001 2003 2005

Sources: Tax data from Comptroller's Office; Personal income data from Bureau of Economic Analysis

Major State and Local Taxes in Texas, 2002

School Property 28%

Other State Taxes 21% Property Tax 46%

City Property 7%

Sales Tax

State Sales 26%

33%

Local Sales 7% County Property 6% Special District Property 5% Source: Comptroller of Public Accounts, Annual Property Tax Report; Cash Report.

State Revenue Sources, 2004-05: $118.1 billion

Taxes 45% Federal Funds 35% Other 5% Interest/ Investment Income 3% Lottery 2.6% Licenses, Fees, Fines, Penalties 9%

SOURCE: Certification Revenue Estimate, December 2003

State Tax Collections, 2003 (Total: $26.1 billion)

Motor Vehicle Sales and Rental 10% Motor Fuels 11% Franchise 7% Insurance 4% Sales 55% Sin (Cigarette, Tobacco, Alcohol) 4% Other 3% Gas/Oil Production 6%

Source: 2003 Annual Cash Report, State of Texas

Texas State and Local Taxes as a Percent of Household Income, by Quintile* 15.0% 12.0% 11.9% 9.0% 6.0% 5.8% 4.6% 4.1% 3.3% 3.0% 0.0%

Under $26,816 $26,816 to $52,844 $52,844 to $81,990

Household Income

$81,990 to $126,345 Over $126,345

* Each bar represents approximately 1.6 million households.

Source: Comptroller of Public Accounts, Tax Exemptions and Tax Incidence