reforming texas tax expenditure limit

8/10/2019 Reforming Texas Tax Expenditure Limit

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Center for Fiscal Policy

IntroductionFederalism in the U.S. allows states the oppor-tunity to be laboratories o competition. Giventhat every state is unique, not every idea ad-opted rom another state works as planned; butmany o them do. Trough this discovery pro-cess o which ideas work best, states help builda oundation or their citizens to prosper.

Te exas model o lower taxes with no per-sonal income tax, a reduced regulatory envi-ronment, and sensible lawsuit climate contrib-utes to a low cost-o-living bastion o economicopportunity that other states desire to emulate.

An example o this success is the cumulativetotal civilian employment gains since the last

national recession started in December 2007.Figure 1shows that, during this period, exashas carried the nations job creation and pros-perity load as the Lone Star State now employsroughly 1.4 million morepeople. I you com-pare this with the rest o the nation that em-ploys about 0.4 million fewer people, there isclear evidence that the exas model works.

Te entrepreneurial environment promotingmore economic opportunity and improvedindividual well-being contribute to the reasonwhy other states want to adopt similar policiesthat better the lives o their citizens. Toughexas has done better economically than moststates, one area needing improvement is con-trolling the growth o state spending.

Reforming Texas Tax and

Expenditure Limit

PP01-2015

PolicyPerspectiveTEXAS PUBLIC POLICY FOUNDATION

Key Points Texas total government

spending will likelyincrease by 64 percent to$204 billion from 2004 to2015, burdening Texanswith an ever-expandingfootprint of stategovernment.

Legislators should reformthe states TEL to includetotal spending and baseit on the lowest growth

rate of populationplus inflation, personalincome, or gross stateproduct for the previoustwo fiscal years.

If total spending hadincreased based onthis recommended TELreform, Texans wouldfund an $11.5 billionsmaller government in2014allowing $1,700more in the pockets of

Texas families of four. By reforming the states

TEL, legislators can betteralign state spendinggrowth with Texansability to support it.

by The HonorableTalmadge Heflin &Vance Ginn, Ph.D.

Figure 1: Not Counting Texas, Fewer People Are Employed Across

the U.S. Since the Last Recession Started in December 2007

Note: Data are cumulative monthly total civilian employment from theU.S. Bureau of Labor Statistics from 12/2007 to 10/2014.


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Reforming Texas Tax and Expenditure Limit

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2 Texas Public Policy Foundation

exas total government spending rom the 2004-05 to 2014-15 budgets will likely increase by $80 billion, or 64 percent, to$204 billion. o understand how this affects exas amilies, aexas Public Policy Foundation report shows that spendingaccounting or population growth plus inflation is up 13.4percent in the same period.1Tis additional spending contin-

ues to burden exans with having to und a greater ootprinto state government relative to their ability to support it.

Why does this matter? Every tax dollar used to und thestate is a dollar not available to exas amilies. Current ele-vated total spending that burdens exas amilies with payinghigher taxes and ees demand reorms now more than everto restrain spending growth; there is abundant evidence thatstates with higher taxes have worse economies than statesthat tax their citizens less.2

A driving orce behind the rapid increase in exas total

spending during the last decade is the states weak tax and ex-penditure limit, otherwise known as a EL. A EL is simplyan institutionalized restriction on the growth o tax revenueand/or government spending. Its goal is to restrain spendinggrowth to a level that can und core government programswithout over-burdening taxpayers with paying high taxes.Te weakness o exas EL can be traced back to several de-sign flaws that should be reormed or exans will continue tobe burdened with unding excessive government spending.

Tis paper examines the historical nature o ELs nation-wide and evaluates the EL and spending trends in exas.

Afer considering which ELs work best to effectively limitgovernment spending and leave more money in the handso hard working taxpayers, we conclude that exas EL isineffective and needs to be reormed. It is ineffective becauseit excludes a majority o the states total budget, uses personalincome growth rather than population growth plus inflation,is based on projected rather than actual economic data, andis relatively easy to ignore.

Given these weaknesses o the states current EL and con-sidering which limits have worked well in other states, werecommend that the exas Legislature make the ollowingreorms to effectively limit government spending:

Revise Government Code 316.002 as ollows:

Apply the EL to both the appropriation o all undsand the appropriation o state unds instead o onlyto non-dedicated general revenue spending as is cur-rently required by the exas Constitution; and

Base the limit on appropriations on the change in thelowest o either population growth plus inflation, per-sonal income, or gross state product in the two fiscalyears immediately preceding a regular legislative ses-sion instead o the current limit based on projected to-tal personal income growth during the next two-year

fiscal period.

Send a constitutional amendment to the voters that wouldchange Section 22, Article VIII: require a super majority(two-thirds) vote o each chamber to exceed the limit.

I these reorms had been adopted since 2004, exas taxpay-ers would support a substantially smaller state budget. Fig-ure 2(next page) notes that spending adjusted or the lowesto the three recommended economic metrics or the 2004 to2015 period would be only $181 billion, $23 billion less thanthe current two-year budget. Tis translates into exans be-

ing asked to und a roughly $11.5 billion smaller governmentin 2014allowing $1,700 more in the pockets o exas ami-lies o our.

Clearly, these reorms would help legislators limit the sizeand scope o the exas budget, allowing exans the oppor-tunity to improve their well-being and achieve their dreamswith their own resources. Tis will allow exas to remain theland o opportunity and success.

Brief History of State TELsWidespread concern about elevated state government spend-

ing levels during the 1970s led to discussions nationwide ohow to effectively limit spending. New Jersey took the firststep in 1976 by enacting in statute a EL that limited spendinggrowth to no more than the growth rate o personal income.Almost 40 years later and multiple iterations o experimenta-tion, thirty states now have some orm o a EL. Te relatedliterature shows that not all o these experiments were success-ul but some have become more effective in recent years.

Te 30 states currently with a EL use different metrics tobase the growth o their tax revenues or expenditures on eachperiod.3 wenty-three states base their EL in some capacityon personal income. Only seven statesArkansas, Calior-nia, Colorado, Nevada, Ohio, Utah, and Washingtonhave aEL based on population growth and inflation.

Some researchers find little evidence that ELs are able tosufficiently limit government spending because o the under-lying orces o public demand or public services and othercharacteristics that drive spending.4For instance, total gov-


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Reforming Texas Tax and Expenditure Limi

Texas Public Policy Foundation 3

ernment spending by all 50 states increased by $1.90 or ev-ery dollar increase in the private sector rom 2000 to 2009though a majority o states had some orm o a EL.5

However, the problem isnt necessarily that ELs dont work;it could be that ELs that are poorly designed dont work.

Recent research shows that states with a relatively strong ELrestrain state spending more than those that dont, indicatingsome metrics are preerred to others, particularly those basedon population growth plus inflation.6

Additionally, dynamic scoring analyses o states that effec-tively limit spending by population growth plus inflationshow that they achieve better economic outcomes7and gen-erate more tax revenue.8

With rising state government spending and national debt is-sues potentially threatening uture ederal unding or thestates, an effective method o controlling state governmentspending based on past evidence o experimentation in ourlaboratory o competition among states is needed now morethan ever.

Texas TEL and Its FlawsIn 1978, the exas Legislature passed legislation putting Proposition 1, otherwise known as the Tax Relief Amendment, onthe ballot that November, which voters overwhelmingly ap-proved by 84 percent.9 Te amendment added Article VIIISection 22 to the exas Constitution, which states, In no

biennium shall the rate o growth o appropriations romstate tax revenues not dedicated by this constitution exceedthe estimated rate o growth o the states economy.10Sincespending growth in every biennium, two-year fiscal periodis controlled by, and roughly equivalent to, appropriationsthis explicit growth cap on state appropriations is also a limiton state spending.

Subsequently, legislators added in statute government code316.002 that directed the Legislative Budget Board (LBB)to calculate the projected growth rate o the states economywith the growth rate o exas total personal income or theupcoming two-year fiscal period.11 Te next two sections examine the effectiveness o exas current EL.

* Adjusted spending estimates are calculated based on our recommended TEL reform that would base the spending limit on thelowest growth rate of population plus inflation, personal income, or gross state product in the two fiscal years immediately precedingthe regular legislative session when the budget is adopted.

Figure 2: Total Texas Government Spending Grows FasterThan Reformed TEL During the Last Decade*

Source: Legislative Budget Board, The Real Texas Budget

$124

$139

$167

$183$185

$204

$134

$150

$168 $166

$181

$120

$130

$140

$150

$160

$170

$180

$190

$200

$210

2004-05 2006-07 2008-09 2010-11 2012-13 2014-15

Billions

Actual All Funds Spending

Spending Adjusted for Lowest of Three Metrics


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Projected Personal Income vs. PopulationGrowth plus Inflation and Gross State ProductIn practice, the LBB determines the spending growth limitby first adopting a projected personal income growth rateor the upcoming two fiscal years. Afer selecting a growthrate, the LBB sets the appropriations limit by applying the

chosen growth rate to its estimate o spending or the cur-rent fiscal period.

Table 1displays the five external orecasts presented to theLBB in November 2012 to help it determine the 2014-15 ap-propriations limit or the exas Legislatures regular sessionin 2013.12

Te LBB selected the orecast by the exas Comptroller o10.71 percent. By adding this percentage increase to the 2012-

13 biennial spending level o general revenue unds not dedi-cated by the constitution, the 2014-15 spending limit was setat $85.2 billion. However, this limit applied to only about 42percent o the total $204 billion two-year budget.13

Te use o personal income growth in exas has not prov-en to effectively restrain the burden o excessive spendingon exans. Here is how it stacks up against other potentialspending limits:

1. Personal Income Growth: exas currently uses thismetric or the basis o its spending limit. It is also themost popular among states. However, this measure isdifficult to orecast over a two-year period because welive in a dynamic world with an ever-changing econo-my. In addition, the literature on this topic shows thatstates which base their EL on personal income growthail to effectively limit state spending.

2. Population Growth Plus Inflation:Tis appears to be areasonably good metric to account or the governmentscost o providing public goods and services, offeringlawmakers a demonstrable limit on the states budgetgrowth. Historically, this metric has been relatively sta-ble allowing orecasts to be closer to reality and tends to

best limit state spending compared with other metrics.

3. Gross State Product Growth:Tis metric measures thegrowth in the states total economic output. While it is notofen used, it has some o the same problems as those as-sociated with personal income. I the economy is grow-ing at a rapid rate, there is little reason or the governmentto grow at the same pace. It is also difficult to orecastover a two-year horizon given a dynamic economy.

Figure 3(next page) shows a comparison o the concurrentgrowth rates o these three metrics with the adopted two-year

spending limit growth rates since the 1994-95 fiscal period.

Tere are several key takeaways:

1. Actual personal income during each two-year periodhas been wildly off rom the adopted spending limitbased on the two-year projection beore the periodbegan. Tis shows how difficult it is to orecast per-sonal income in a dynamic economy. With such largediscrepancies that make appropriators jobs even moredifficult when budgeting rom one two-year period tothe next, there is ample reason a spending limit should

be based on actual past data in the two preceding fiscalyears instead o projections or uture periods.

2. Population growth plus inflation was lower than the ad-opted spending limit in every two-year budget period.Tis metric would have led to slower growth in govern-ment spending and provide a lower burden on exanso unding rapid increases in state spending, suggestingthe states EL should be reormed.

3. Population growth plus inflation was lower than theother metrics in every two-year period except or 2002-03 and 2008-09 during economic downturns in exas.Unortunately, the day might come when inflation ishigh, similar to the 1970s, which could make this mea-sure not the best EL metric, providing reason or se-lecting the lowest o these three metrics.

Sources Forecasts

IHS Global Insight 11.21%

Moodys Analytics 12.21%

Perryman Group 11.77%

Texas Comptroller of Public Accounts 10.71%

University of North Texas Center for

Economic Development & Research8.71%

Source: Legislative Budget Board

Table 1: Forecasts of Texas Personal IncomeGrowth Rate for the 2014-15 Fiscal Period


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The Effect of Texas TEL on Texas GovernmentSpending Trends During the Last DecadeIn fiscal 2004-05, exas two-year all unds (total) expendi-tures was $124 billion and supported the major unctionso government: health, education, administration, judicial

services, public saety and criminal justice, legislative ac-tivities, and capital projects. oday, state governments coreunctions remain largely the same, but unding or thoseprograms and services has increased substantially.

In assessing the 2014-15 total budget, we estimate totalspending will be about $204 billion, an increase o $80 bil-lion, or 64 percent, since fiscal 2004-05.14 Growth in spend-ing during the same period o state unds, which includesgeneral revenue, general revenue-dedicated, and otherunds, increased by 67 percentor $54 billionto $134 bil-lion, while spending o ederal unds increased by $26 bil-lion, or 58 percent, to $70 billion.

Tese spending totals include the voter approved constitu-tional amendment in November 2013 or $2 billion in wa-ter projects and in November 2014 ballot or $1.7 billion intransportation projects.15 Tey also include exas Healthand Human Services Commission (HHSC) estimated sup-plemental bill o $2.6 billion to ully und Medicaid and

other health care expenditures because o the increase incase-loads and rising health care costs.

Since the 2004-05 fiscal period, these spending increasesare substantially higher than the 45 percent increase in the

compounded rate o concurrent population growth plus in-flation. With total spending growing more rapidly than thiskey metric, exans are burdened with having to pay moreto support their government. Tese valuable comparisonsprovide clear evidence that the current EL has ailed to e-ectively limit spending, providing reason to adopt an alter-native approach.

Alternatives to Texas Current TEL MetricGrowth in state spending expands the ootprint o exasgovernment. Every tax dollar legislators have available tospend is one less dollar consumers and firms have to spendand invest. Higher taxes reduce economic activity and lowerstandards o living in the process,16making state spendinggrowth a concern. O course, there are essential governmentpayments or services and inrastructure that tax dollarsshould und, but the growth o state spending must be com-pared with objective and reasonable measures to determinei this spending is appropriate.

Figure 3: Population Growth Plus Inflation Tends to Be the LowestConcurrent Biennial TEL Metric in Texas Since 1994-95

Source: Legislative Budget Board

14.1%

13.1%

19.6%

17.9% 18.1%

-2.4%

17.9%

13.6%13.8%14.5%

16.3%

5.4%

9.9%9.3%

8.1%

9.9%11.3%

9.1%8.3%

6.4%

-3%

2%

7%

12%

17%

22%

1994-95 1996-97 1998-99 2000-01 2002-03 2004-05 2006-07 2008-09 2010-11 2012-13

FiscalPeriodGrowthRates

Adopted Spending Limit Gross State Product

Personal Income Population Plus Inflation


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$227

$219

$124

$139

$167

$183$185

$204

$188

$134

$150

$168 $166

$181

$120

$140

$160

$180

$200

$220

$240

2004-05 2006-07 2008-09 2010-11 2012-13 2014-15

Billions

Spending Adjusted for Gross State Product Growth

Spending Adjusted for Personal Income Growth

Actual All Funds Spending

Spending Adjusted for Population Growth Plus Inflation

Spending Adjusted for Lowest of Three Metrics

Lets consider what exas all unds spending would be eachfiscal period i it had ollowed the three metrics discussedabove and the lowest o these three. Figure 4shows adjusted(i.e. deflated) actual all unds spending by these metricsusing growth rates calculated with data rom the two fiscalyears immediately preceding the regular legislative session

when the next two-year budget is adopted. Tis accuratecalculation would replace the costly exercise o incorrectlyorecasting personal income growth or the upcoming two-year budget period.

Comparing actual all unds spending with what it wouldhave been i it grew at the pace o these other economicmetrics shows that spending would have been lower i theEL was based on the lowest o the three metrics. As shownin Figure 4, population growth plus inflation is the lowestmetric or all periods except during the two fiscal years priorto the 2012-13 budget period when gross state product con-

tracted by 1 percent during the recession.

I the states EL had been reormed to encompass totalspending and limit its growth to the lowest o these metricsrom 2004 to 2015, exas taxpayers would support a budgeto only $181 billion, $23 billion less than the current two-year budget. Tis means that exans would be asked to undan $11.5 billion smaller government in 2014allowing

roughly $1,700 more in the pockets o exas amilies o our.With actual spending 12.8 percent higher than it would be ibased on this more effective EL, this additional cost hurtsexans and the states economy.

What about the expenditures o state unds? In fiscal 2004-05, exas two-year state unds spending totaled $80 billion.Te 2014-15 state unds spending amount is expected to to-tal $134 billion, an increase o $54 billionor 67 percentsince fiscal 2004-05.17 Figure 5compares actual state undsexpenditures with spending adjusted or the same metricsas those discussed above, providing a better understanding

o why the trajectory o state spending growth is a concern.

Figure 4: Texas Total Spending Would Be Substantially Lower If Subject to aReformed TEL Based on the Lowest of Three Economic Metrics*

Sources: Legislative Budget Board, The Real Texas Budget,Authors Calculations

* Adjusted spending estimates use actual data from the two fiscal years immediately preceding each regular legislative session tocalculate the compounded growth rates of each metric and the lowest of the three metrics.


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$146

$140

$80

$92

$112$110

$120

$134

$121

$86

$96

$108 $107

$115

$75

$85

$95

$105

$115

$125

$135

$145

2004-05 2006-07 2008-09 2010-11 2012-13 2014-15

Billions

Spending Adjusted for Gross State Product Growth

Spending Adjusted for Personal Income Growth

Actual State Funds Spending

Spending Adjusted for Population Growth Plus InflationSpending Adjusted for Lowest of Three Metrics

As with all unds spending, the data clearly show that spend-ing o state unds is bloated relative to the lowest o the threemetrics, putting more pressure on exans to und a largerstate government.

I the states EL was reormed to include the lowest metric

to base state unds spending growth during the last decade,exans would have unded a $115 billion budget that is $19billion less than the current two-year budget. With stateunds expenditures 16.2 percent higher than what this re-ormed metric would suggest, there is little doubt that exasamilies are sending more o their hard-earned dollars toAustin than necessary.

I these spending trends are not checked, the private sec-tor will be asked to continue paying higher taxes and ees tosustain elevated spending levels, slowing economic growthin the process.

RecommendationsTe Legislature cannot undo past spending excesses; how-ever, it can better restrain the growth o government spend-

ing moving orward by enacting meaningul reorms to thestates constitutional tax and expenditure limit.

o slow the growth o total spending and thereore the bur-den o the state on exans, the exas Legislature should con-sider what works best in other states and the evidence we

provide regarding which metric(s) would most effectivelylimit spending. Based on these guidelines, we recommendthe ollowing reorms to exas EL:

Revise Government Code 316.002 as ollows:

Apply the EL to both the appropriation o all undsand the appropriation o state unds instead o onlyto non-dedicated general revenue spending as is cur-rently required by the exas Constitution; and

Base the limit on appropriations on the change in thelowest o either population growth plus inflation, per-sonal income, or gross state product in the two fiscalyears immediately preceding a regular legislative ses-sion instead o the current limit based on projected

Figure 5: The Reformed Texas TEL Would More EffectivelyRestrain State Funds Spending*

Sources: Legislative Budget Board, The Real Texas Budget, Authors Calculations

* Adjusted spending estimates use actual data from the two fiscal years immediately preceding each regular legislative session tocalculate the compounded growth rates of each metric and the lowest of the three metrics.


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total personal income growth during the next two-year fiscal period.

Send a constitutional amendment to the voters that wouldchange Section 22, Article VIII: require a super majority(two-thirds) vote o each chamber to exceed the limit.

ConclusionsWhen examining the growth o government, its importantto consider state spending restraints and whether those lim-its are effective. Tis is important because the larger role thegovernment plays in the economy, the less economic ree-dom, liberty, and prosperity people will enjoy.18

I the Foundations recommendations had been in placerom 2004 to 2015, the size and burden o governmentwould be much smaller today. Tis would allow exansgreater opportunity to ulfill their dreams without govern-ment intruding in their lives.

For the exas model to be sustained over the long term, leg-islators should reorm the states EL in statute and througha constitutional amendment, while making a concerted effortto restrain spending or the upcoming biennium. By reorm-ing the states EL and keeping spending within these reason-able metrics, legislators will help reduce state governmentsootprint and improve the well-being o all exans.

1 Talmadge Heflin, Bill Peacock, and Vance Ginn, The Real Texas Budget(updated Dec. 2014).

2

Arthur B. Laffer, Chuck DeVore, Stephen Moore, and Nicholas Drinkwater,How Big Government Hurts the Economy

, Texas Public PolicyFoundation (Nov. 2013).

3 Bart Waisanen, State Tax and Expenditure Limits-2010, National Conference of State Legislatures (2010).

4Benjamin Zycher, State and Local Spending: Do Tax and Expenditure Limits Work?American Enterprise Institute (May 2013).

5Matthew Mitchell, TEL It Like It Is: Do State Tax and Expenditure Limits Actually Limit Spending?Mercatus Center (Dec. 2010).

6 John Merrifield and Barry W. Paulson, State Fiscal Policies for Budget Stabilization and Economic Growth: A Dynamic Scoring Analysis,Cato Journal, Vol. 34, No. 1 (Winter 2014).

7 Ibid.

8 John Merrifield and Barry W. Poulson, The New Economics of Tax and Expenditure Limits, paper presented to the Western Economic As-sociation meetings (June 2014).

9 HJR1, 65th Second Called Session, Proposition 1, Legislative Reference Library of Texas (accessed Oct. 2014).

10The Texas Constitution, Article 8. Taxation and Revenue, Section 22 (accessed Oct. 2014).

11Texas Government Code, Title 3, Subtitle B, Section 316.002(accessed Oct. 2014).

12 Limit on Growth of Certain State Appropriations, Legislative Budget Board (Nov. 2012).

13 Talmadge Heflin and Vance Ginn, Busting Texas 2014-15 Spending Limit, Texas Public Policy Foundation (Nov. 2014).

14 The Real Texas Budget(updated Dec. 2014).

15An Overview of Selected Cost Drivers in the State Budget,Legislative Budget Board (Sept. 2014).

16 How Big Government Hurts the Economy(Nov. 2013).

17 The Real Texas Budget(updated Dec. 2014).

18 How Big Government Hurts the Economy(Nov. 2013).
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Appendix: Potential TEL Reform Language

GOVERNMENT CODE

TITLE 3. LEGISLATIVE BRANCH

SUBTITLE B. LEGISLATION

CHAPTER 316. APPROPRIATIONSSUBCHAPTER A. LIMIT ON GROWTH OF APPROPRIATIONS

Sec. 316.001. LIMIT. (a) The rate of growth of

appropriations in a biennium from both all state [tax] revenues

and all revenues, including federal revenues, [not dedicated by

the constitution] may not exceed the estimated rate of growth of

the state's economy, as determined by the lesser of population

growth plus inflation, growth of personal income, or growth of

gross state product from the two fiscal years immediately

preceding the regular legislative session in which the regular

appropriations bill for a biennium is adopted.

(b) The limits in subsection (a) are binding on the

legislature with respect to all appropriations for a biennium,

including appropriations made in the regular session prior to a

biennium and appropriations for that biennium made in an

appropriations bill in a subsequent called or regular

legislative session.

(c) If the legislature by adoption of a resolution approved

by a record vote of a majority of the members of each house

finds that an emergency exists and identifies the nature of the

emergency, the legislature may provide for appropriations in

excess of the amount authorized by Subsection (a) of this

section. The excess authorized under this subsection may not

exceed the amount specified in the resolution.

Sec. 316.002. DUTIES OF LEGISLATIVE BUDGET

BOARD. (a) Before the Legislative Budget Board submits the

budget as prescribed by Section 322.008(c), the board shall

establish:

(1) the estimated rate of growth of the state's

economy from the current biennium to the next biennium;

(2) the level of appropriations for the current

biennium from both all state [tax] revenues and all revenues,

including federal revenues, [not dedicated by the constitution];

and

(3) the amount of both all state [tax] revenues and

all revenues, including federal revenues, [not dedicated by the

constitution] that could be appropriated for the next biennium

within the limit established by the estimated rate of growth of

the state's economy.

(b) [Except as provided by Subsection (c), t]The board

shall determine the estimated rate of growth of the state's


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economy [by dividing the estimated Texas total personal income

for the next biennium by the estimated Texas total personal

income for the current biennium. U]using [standard statistical

methods, the board shall make the estimate by projecting through

the biennium the estimated Texas total personal income] data

reported by the United States Department of Commerce, [or] itssuccessor in function, or other reliable state, federal, or

private sources.

(c) [If a more comprehensive definition of the rate of

growth of the state's economy is developed and is approved by

the committee established by Section 316.005, the board may use

that definition in calculating the limit on appropriations.

(d)] To ensure compliance with this subchapter [Article

VIII, Section 22, of the Texas Constitution], the Legislative

Budget Board may not transmit in any form to the governor or the

legislature the budget as prescribed by Section 322.008(c) or

the general appropriations bill as prescribed by Section322.008(d) until the limit on the rate of growth of

appropriations has been adopted as required by this subchapter.

(e) In the absence of an action by the Legislative Budget

Board to adopt a spending limit as provided in Subsections (a)

and (b), the estimated rate of growth in the state's economy

from the current biennium to the next biennium shall be treated

as if it were zero, and the amount of both all state [tax]

revenues and all revenues, including federal revenues, [not

dedicated by the constitution] that could be appropriated within

the limit established by the estimated rate of growth in the

state's economy shall be the same as the level of appropriations

for the current biennium.

Sec. 316.003. PUBLICATION. Before the Legislative Budget

Board approves the items of information required by Section

316.002, the board shall publish in the Texas Register the

proposed items of information and a description of the

methodology and sources used in the calculations.

Sec. 316.004. PUBLIC HEARING. Not later than December 1

of each even-numbered year, the Legislative Budget Board shall

hold a public hearing to solicit testimony regarding the

proposed items of information and the methodology used in makingthe calculations required by Section 316.002.

Sec. 316.005. ADOPTION BY COMMITTEE. (a) After the

Legislative Budget Board approves the items of information

required by Section 316.002, the board shall submit the

information to a committee composed of the governor, lieutenant

governor, speaker of the house of representatives, and

comptroller of public accounts.


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January 2015



(b) Not later than the 10th day after the date on which

the board submits the items, the committee shall meet and

finally adopt the items, either as submitted by the board or as

amended by the committee.

(c) If the committee fails to act within the 10-day period

prescribed by Subsection (b), the items of information submittedby the board are treated as if the committee had adopted them as

submitted.

Sec. 316.006. LIMIT ON BUDGET RECOMMENDATIONS. Unless

authorized by majority vote of the members of the board from

each house, the Legislative Budget Board budget recommendations

relating to the proposed appropriations of both all state [tax]

revenues and all revenues, including federal revenues, [not

dedicated by the constitution] may not exceed the limit adopted

by the committee under Section 316.005.

Sec. 316.007. TRANSMISSION OF RECOMMENDATIONS. (a) The

Legislative Budget Board shall include in its budget

recommendations the proposed limit of appropriations from both

all state [tax] revenues and all revenues, including federal

revenues [not dedicated by the constitution].

(b) The board shall transmit the recommendations to the

governor and to each member of the legislature.

Sec. 316.008. EFFECT OF LIMIT; ENFORCEMENT. (a) Unless

the legislature adopts a resolution under Section 316.001 (b)

[Article VIII, Section 22(b), of the Texas Constitution] raising

the proposed limit on appropriations, the proposed limit isbinding on the legislature with respect to all appropriations

for the next biennium [made from state tax revenues not

dedicated by the constitution].

(b) The rules of the house of representatives and senate

shall provide for enforcement of Subsection (a).

Sec. 316.009. SUBMISSION OF BILL BY GOVERNOR. The

governor may prepare a general appropriation bill and submit

printed copies of it to the lieutenant governor, speaker of the

house of representatives, and each member of the

legislature. The bill must be submitted not later than the 30th

day of the legislature's regular session, except that if a

person is inaugurated as governor who was not governor preceding

the inauguration, the bill must be submitted not later than the

20th day after the date of that inauguration.


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About the AuthorsThe Honorable Talmadge Heflinis the Director of the Foundations Center for FiscalPolicy. Prior to joining the Foundation, Heflin served the people of Harris County asa state representative for 11 terms. Well regarded as a legislative leader on budgetand tax issues by Democratic and Republican speakers alike, he for several terms wasthe only House member to serve on both the Ways and Means and Appropriationscommittees. In the 78th Session, Heflin served as chairman of the House Committeeon Appropriations. He navigated a $10 billion state budget shortfall through targeted

spending cuts that allowed Texans to avoid a tax increase.

Vance Ginn, Ph.D.is an economist in the Center for Fiscal Policy at the Texas PublicPolicy Foundation. In 2006, he graduated with honors from Texas Tech University with

a B.B.A in economics and accounting and minors in political science and mathematics.After interning for a U.S. Texas Congressman in Washington, D.C., he started his doctoraldegree in economics at Texas Tech University and graduated in 2013. Before joining theFoundation in September 2013, Ginn interned at the Foundation as a Charles G. KochSummer Fellow in 2011 and taught at three universities and one community college

across Texas. He has successfully published peer-reviewed articles in academic journals, commentaries inmultiple outlets, and posts in free market blogs. His research interests include free markets, fiscal policy,

energy topics, monetary issues, and economic modeling.

About the Texas Public Policy Foundation

The Texas Public Policy Foundation is a 501(c)3 non-profit, non-partisan research institute. The Foundationsmission is to promote and defend liberty, personal responsibility, and free enterprise in Texas and the nationby educating and affecting policymakers and the Texas public policy debate with academically soundresearch and outreach.

Funded by thousands of individuals, foundations, and corporations, the Foundation does not acceptgovernment funds or contributions to influence the outcomes of its research.

The public is demanding a different direction for their government, and the Texas Public Policy Foundation isproviding the ideas that enable policymakers to chart that new course.