State Expenditures FY19 Through February Are NEGATIVE

by Stuart Greenfield, Ph.D.

 

Over the past forty-five years, All Funds (AF) Net Expenditures in a fiscal year have declined only three times.  Each of these times has been during this decade (Figure 1).  Year-to-Date (YTD) FY19 AF expenditures through February declined by $1,129.2 million (-1.7 percent) compared to FY18 expenditure.  This decline is primarily due to the $879.0 million (-5.8 percent) decrease in expenditures for Public Education.  Along with the decline in Public Expenditures, Public Assistance expenditures also decreased by $248.7 million (-1.0 percent).

Figure 1:  Annual Percent Change Public Education, Public Assistance, and

                          Total Expenditures, FY10-FY18, FY19 YTD

Source: Comptroller of Public Accounts,

One might note that the decline (879.0 million) in public education for the first six months of FY19 was almost 78.0 percent of the decline ($1.1 billion) in total All Funds expenditures.  The 5.8 percent decline is also substantially less than the minimal increase (0.145 percent) in FY19 appropriations for the Texas Education Agency, Goal A:  Provide Education System Leadership, Guidance, and Resources, page III-1-2, i.e., the Foundation School Program (FSP).

Should this rate of decline continue for the remainder of FY19, state expenditures for public education will decline by around $1.5 billion from FY18 expenditures.  This decline would be almost fifteen percent of the $10.0 billion All Funds increase for public education in the current House budget.

The 85th Legislature also reduced the appropriation for Medicaid Client Services by $482.8 million (-1.7 percent) between FY18 and FY19.  As shown in Figure 1 Public Assistance expenditures so far this fiscal year has decreased by 1.0 percent.  The majority (almost 75.0 percent) of this expenditure is for Medicaid.  Should this rate of decrease continue for the rest of FY19, we would expect that Public Assistance expenditures will decrease by almost ($455.8 million) from FY18 expenditures for Public Assistance.   

Table 1 shows the YTD expenditures by category for FY18 and FY19.  The only category to increase was Other Expenditures (6.1 percent).  All other categories had decreases in expenditure.  The largest decreases were in Intergovernmental Payments (-15.5 percent) and Public Education (-5.8 percent). 

 

Table 1:  Expenditure by Category, FY18 and FY19, in millions of dollars, through Feb.

    Source:  Comptroller of Public Accounts, Trust_draft expenditure monthly tabulation

 

While I understand that public sector procurement is not the easiest of tasks to accomplish, given the increased funding for TxDOT, one would have expected an increase in Highway Construction and not the decline experienced in FY18 and so far in FY19.  Given that the 85th Legislature increased FY18-19 appropriations for the Department of Transportation by 7.7 percent, one would have expected an increase in expenditures.

 

We should expect that the state’s long-term decline in the percentage of the Foundation School Program (FSP) funding will continue.  As shown in Figure 1 below, since FY00, the state has never contributed at least half of FSP expenditures.  Following the “substantial” property tax reform in 2006 the state contribution to funding public education did increase to 48.5 percent in FY08.  This reform intended that state dollars would replace local dollars and required school districts to lower local school property tax rates from a maximum of $1.50 to $1.00.  Unfortunately, the other half of the tax equation, the tax base (property values) was not modified. 

One would expect that when taking elementary math in public school that one would have learned that multiplying a constant ($1.00) by an increasing value (property value) results in a bigger number.  Should the legislature really, really want to reduce local property taxes, they should pass legislation that the increase in appraised value shall be multiplied by minus one. This value would then be applied to the current appraised value.  Applying a diminishing appraised value to a fixed tax rate would definitely reduce property taxes.

Figure 2: State-Local Shares of Foundation School Program (FSP), FY00-FY19e

Source:  Politifact data from LBB, https://drive.google.com/file/d/1zhd0l1g8b6cVBc8vBxov56xG7nepzmaI/view?usp=sharing  

 

Following the 2006  reform in FY08 the state contribution to fund the FSP initially increased by 8.8 percentage points to a high of 48.5 percent.  Since then the state’s contribution has declined and according to the LBB is expected to reach 38.0 percent in FY19.   Efforts are now underway in both the House and Senate to provide local property tax relief.  Who would believe that school finance reform would not require a Supreme Court ruling?

 

Before the property tax reform, FSP comprised about 16 percent of total state expenditures.  Following the reform, these expenditures increased to 22 percent in both FY08 and FY09, but since then the proportion of state expenditures for the FSP have declined and were 18.3 percent in FY18.  This fiscal year FSP expenditures account for 18.6 percent of All Funds expenditures.

 

Table 2 shows expenditures by function through February FY18 and FY19.  While some functions did increase, Education expenditures, which include expenditures for both public and higher education, declined by $1.0 billion (-4.9 percent).  The decline in Education was the main contributor to AF expenditures declining by $1.1 billion.

 

Table 2:  All Funds Expenditures by Function (in millions of dollars), 2nd Quarter FY18 and FY19

 

    Source:  Comptroller of Public Accounts, Trust_draft expenditure monthly tabulation

 

According to the LBB, All Funds appropriations for 2018-19 were $216.6 an increase of 0.3 percent from expenditures in FY16-17.  All Funds expenditures for FY18 increased by 3.5% from FY17 expenditures.  Should the trend in FY19 expenditures continue for the remainder of the fiscal year, FY19 expenditures will decrease by 1.5 percent and biennium expenditures will increase by a minimal 1.8 percent.  The biennium rate of increase is just about the increase in population and won’t account for the increase in prices associated with government services.

As the 86th Legislature considers actions to take to ensure that critical services, e.g., paying for public education, social services, infrastructure, are provided to the state’s citizens; there is neither a funding or spending limit constraint.  There is $12.5 billion in the RDF and $10.3 billion in spending authority from the General Revenue Fund.  There is also, according to Comptroller Hegar, an additional $8.9 billionin funds available for general-purpose spending.  According to another reliable analyst, there is already additional revenue for FY19, which will increase revenue for the upcoming biennium.  So members of the 86th Legislature; please do what is best for the state and its people.

If you want with all your heart and soul to reduce local school district property taxes might I suggest that with the $10.3 billion in spending authority for FY19, you increase the basic allotment by 40 percent?  This increase would result in a reduction in local property taxes and reduce recapture by a significant amount.  It is also a quite trivial undertaking.  Go to page III-6 of the current House appropriations act and change the $5,410’s to $7,200.  You will also need to change the $5,410 basic allotment in the introduced House General Appropriations Bill.  Increasing the basic allotment is a quite simple and easy solution to an ongoing issue. 

Dr. Greenfield holds a Ph.D. in economics from the University of Texas. He worked for three Comptrollers of Public Accounts and other Texas state agencies. Since retiring from the state in 2000, Greenfield has taught economics at ACC and UMUC.