An Economic Plan for Texas in the 21st Century: The Need to Prioritize

Today, I want to talk about the Texas budget. I firmly believe that the proper way to govern is to combine three things into the decision making process: (1) Identify the true needs of the state (often the state’s Constitution identifies these needs); (2) Prioritize spending based on a “cost-benefit analysis; and (3) Legislators and voters must apply some good old common sense in making decisions that impact our great state of Texas.

Just like the hard working families all over Texas, state government must learn to live within its means. While Texas is a balanced budget state, it has a long history of not living within its means. State and local governments have a habit of splurge spending during times of economic plenty and finding many creative ways to continue its spending appetite such as the use of public debt during times of economic troubles.   Let’s take a look at spending in Texas during the past 20 years.

According to a Policy Brief released by the Texas Public Policy Foundation last year titled, Update: Trends in Texas Government State Government Spending, in 1990, the entire budget for the state of Texas was $23 billion. This level of spending supported all of the major operations of government: administration, health, education, judicial services, legislative activities, and capital projects. Today, the state’s core functions are largely the same, but the number of programs and activities carried within those functions has increased greatly, contributing to an increase in the cost to provide these goods and services as well. For the current fiscal year-FY 2012-Texas taxpayers approved $94.3 billion in total state spending, an increase of 310 percent since FY 1990. The bad news is that we continue to have in Texas is an obvious spending problem, not a revenue problem. Yet, the good news is that our spending is nowhere near as bad as what is taking place in Washington.

Some might argue that demographic changes or economic considerations justify this level of spending growth; however, when the growth of the state’s budget is compared with meaningful measures like population and inflation, we can see that spending growth has far out-paced what was needed to keep up with the growth in population. This is the result indication there is a spending problem in Austin.

Most people are unaware that there is a beginning structural deficit of approximately $6-8 billion at the beginning of each new budget cycle. This represents money which the State Comptroller certifies can be spent, yet, no actual funding is ever provided to pay the actual bills when they come in for payment. Approximately $1-2 billion of this deficit is due to the reduction in property taxes a number of years ago that has not been successfully offset by the Margins Tax and the other

 $5-6 billion are funds that are sitting in a large number of Higher Education dedicated accounts which are for the most part dormant and inaccessible to the Legislature. The money in these accounts is used to certify the budget, but the funds cannot be withdrawn to pay for operational budget expenses. Lawmakers have known about this for a very long time, yet it is not fixed. Call it what you will, voodoo economics , smoke and mirrors, tricky accounting, or just plain foolishness that is the way the budget process in Texas work and it is in itself part of the problem. So how do we begin to solve these kinds of problems? Here are my recommendations.

First and foremost state lawmakers should incorporate a true needs analysis as part of the budget process. We do in private business and in our family budgets why not in state government?   I believe that government entities of any kind have lost their way as to the role government should play in everyday lives of the citizens they serves. Government tries to please way too many people and in many cases spends money it either doesn’t have or shouldn’t spend. Take for

example a recent case that occurred where I live. The City Council was just about to approve to have a study done for $250,000 so it could better understand what the citizens thought of a proposed new tax, they call a “street fee.”  Imagine that! I don’t know about you, but for me this is a perfect example of what is fundamentally wrong with politics and government in our world today. I don’t need a study to tell you that raising taxes of any kind is not a popular option. As far as I am concerned this kind of spending is totally unnecessary and inappropriate especially when the city finds itself facing a budget shortfall.

Second, the best way to allocate the funds to the state budget is to prioritize what money is spent.  As governments at all levels struggle to meet basic needs with even more limited resources, policy makers seek new ways to balance budgets without raising taxes.  Economists agree that higher taxes do not spur economic growth and they understand that stalled economic growth limits revenue available to policy makers.  Deciding how to spend that revenue, or what the state wants to “buy,” has become more important than ever.

Taxpayers must demand that state lawmakers better explain how tax dollars are being spent, and why and how policy makers are making those decisions.  In recent years there has been call for greater transparency of government spending as well as a call for greater transparency of the decision making process that precedes spending decisions, yet the response has been lukewarm at best. Unfortunately, the state’s response was to spend millions of dollars to flood the public with data and information that is meaningless to the average taxpayer.

States use a variety of methods to create their budget such as zero based budgeting, program based budgeting, budget by strategy, and performance based budgeting just to name a few. Up until the mid 1970’s Texas budget was based on object of expense which told policy makers what the money was spent on but not where it was spent. In the mid 70’s the state moved to program budgeting which told policy makers where tax dollars were being spent but not how they were spent. Then in 1991 Texas moved to performance based budgeting which told policy makers how the money was being spent and tied agency performance to the budget. In that year agencies were required to develop strategic plans so policy makers could gauge the performance of state agencies. While the current system is not perfect, it does position Texas to move to the next stage of its budget evolution.

That next step is Priority Based Budgeting. Priority Based Budgeting allocates funds based on core functions of government, and whether or not a program provides a return in the investment the taxpayer makes in it. While the current process serves Texas well, it can be modified and improved upon to provide better and more meaningful information to policy makers. As Texas faces difficult economic times policy makers must make better decisions and have a process in place that provides timely and accurate information.

Finally, the last item of importance is the use of good old common sense.  I say this in applying this principle in two ways.  First, it should be applied to every Texas citizen.  We must learn to use our common sense as we consider the effort, work, and results of our elected officials.  Needless to say, too many voters unaware of the facts or fall for the 10 word statement that slick talking politicians use to convince the voter to re-elect them year after year, thereby perpetuating the environment we find ourselves in today.

Summary

Texas policy makers and budget writers should make use of cost benefit analysis, a tool that every business uses, when deciding on the effectiveness of programs.  Our state government must learn to do a much better job of identifying the state’s real needs and prioritizing its spending. This approach has been used for the past 15 years in states and local governments across the nation with great success. Even though Texas is enjoying a robust economy and is much better off financially than many other states, there is still much room for improvement in the areas I have identified in this report.

You can read more in my upcoming book, “Prioritize, Stabilize, and Incentivize: An Economic Plan for Texas in the 21st Century”. You can learn more on these issues by following us on Facebook or viewing our video commentaries on our YouTube Channel: Torres TV.

For Texas,

Note: Raul Torres is a CPA and former State Representative. For more information or to schedule a speaking engagement call his office at (361) 854-0822 or (361) 549-8957

Raul Torres, CPA
4118 Ayers St.
Corpus Christi, TX 78415