13.5: Conclusion

Texas has always kept tight control of its finances. This remains the case even as the state has loosened some of the strict rules regarding debt that were inserted in the original version of the 1876 constitution. Equally strict rules regarding budgeting were put in place to keep spending in line, or at least manageable. The purpose of this chapter has been to familiarize you with the process and the outcome.

The Texas Constitution originally set in motion the basics of government finance. The development of a budgeting process put in place a flow of revenue in order to ensure that the state’s agencies are properly, and appropriately, funded. The essential purpose of the budget is to manage the flow of funds into and out of the state treasury. This involved a look at the actual numbers produced by the Legislative Budget Board and presented in the Fiscal Size-Up. Ideally, now that you have read this chapter you have a solid understanding of the nature of revenue collection—both tax and non-tax—in the state, as well as of the various funds these revenues are deposited in. These funds then become the basis for the expenditures across each area of public policy in Texas. Along the way, there are disputes and controversies, but hopefully you can now make sense of whatever information regarding finance comes your way.

Key Terms and Concepts

Appropriations - A legislative act which authorizes agencies to drawn a specified amount of money from the state treasury for specific purposes.

Balanced Budget – An occurrence when the revenues collected by the states during a fiscal period are equal to expenses.

Constitutional Limits on Spending - Specific limits placed in the Texas Constitution on the amount of spending that can be approved by the state legislature.

Dedicated Funds – Areas of spending in Texas that are designated for specific purposes, for example spending on highways or education.

Economic Stabilization Fund - Also known as the “rainy day fund,” this was a reserve fund established by the Texas Legislature in the late 1980s to provide for additional revenue to compensate for unanticipated shortfalls in revenue.

Excise Taxes – A tax that is placed on the sale of a specific good, and is imposed upon the supplier of the good, rather than the purchaser if it.

Federal Funds – Revenue that is sent to the state of Texas, generally in the form of matching grants, to fund projects that are mandated or encouraged by the federal government. Examples include Medicaid and spending on highways.

Fiscal Notes – An estimate of the anticipated costs of a proposed bill being considered by the Texas Legislature. They are prepared by the Legislative Budget Board and are intended to assist the maintenance of a balanced budget.

Fiscal Size-Up – A document prepared by the Legislative Budget Board after each regular session of the Texas Legislature which documents all revenue collection and expenditures authorized during that session.

Fixed Funds – Funds which are collected in a manner that does not allow it to be modified readily by the Legislature. For example, the amount of money spent on Medicaid in Texas each year is “fixed” based on the number of people who qualify and apply for it.

General Revenue Estimate – A constitutionally required estimate of the likely amount of taxes and other revenue that will be collected by the state during a biennial fiscal period. The Texas Legislature cannot authorize more general revenue spending than this amount.

General Revenue Funds – Revenue collected by the state sales tax, among other sources, are placed in the General Revenue Fund, which can then be shifted as the legislature and governor think necessary. It is often referred to as the state’s operating budget.

Hidden Taxes – Taxes, such as excise taxes, which are paid by the provider of a good rather than the consumer. They are “hidden” because the tax is indirectly imposed on the consumer. The gasoline tax is an example. The general sales tax is not hidden because the amount paid is made clear to the consumer.

Income Tax – A tax imposed on the income earned by a person. This is the most common form of taxation on the national level. Its imposition by the state of Texas has recently been ruled unconstitutional.

Legislative Budget Board (LBB) – A permanent joint committee of the Texas House and Senate which provides the staff which helps prepare the Texas budget.

Lottery – An additional source of revenue made legal in Texas by a constitutional amendment in the early 1980s. It is overseen by the Texas Lottery Commission and is self-financing. Excess revenues are spent on education.

Margins Tax – The principle way that Texas taxes businesses in the state. It replaced the franchise tax. The amount taxed is based on a “margin” calculated based on the amount of federal taxes paid by the business.

Matching Grants – The primary vehicle through which states receive federal funds. The federal government pays a specific amount to be “matched” by the state.

Pay-As-You-Go – The process by which Texas attempts to maintain balanced budgets. In principle, expenditures are limited to the amount of funding collected at any moment in time. Progressive Tax – A tax where the burden falls on the wealthy. An example is the marginal income tax, where the rate increases as income passes specific thresholds.

Performance Based Budgeting – A recent modification to the Texas budget process where state agencies have to submit goals and objectives along when they request money from the legislature.

Regressive Tax – A tax where the burden falls mostly on people with lower incomes. The sales tax is commonly used as an example. Consumer spending is a higher percentage of their incomes than with upper income people, meaning that sales taxes impact them more than the wealthy.

Severance Tax – A one-time tax on an item that is extracted – or severed – from a source. Examples include oil and gas taxes which are collected as they are drawn from the ground.

Sin Taxes – An excise tax focused on items that some deem harmful, such as alcohol, cigarettes, and gambling. Part of the purpose of the tax is to make the behavior more expensive, which might deter people from it.