Chutes, ladders and budget battles in Texas

Photo by John Jordan

Sometime in your childhood, you may have played the board game Chutes and Ladders. It's a race to the top of the board, with a spin of a wheel or roll of the dice deciding how many squares you advance each turn. The luck of landing on a ladder helps you move up to the finish line rapidly, while the misfortune of landing on a chute can send you all the way back to the bottom, undoing your progress.

The Texas state budget — because it affects health care, education and other services for the state's 27 million residents — is certainly no game, and there is certainly more than just luck at play. But like Chutes and Ladders, there are many spots in the budget process where the state's advancement can be suddenly thwarted as well as opportunities for big leaps forward.

In mid-October, Texas landed on its first chute, setting the state back to the tune of $7 billion. The comptroller’s estimate of state taxes to be collected in 2016-2017 came in much lower than originally estimated — $102 billion rather than the $109 billion forecast in January 2015. Of that expected $7 billion drop, $3 billion is due to an expected decrease in revenue from oil and natural gas severance taxes, and another $1.6 billion adjustment is because of the ripple effect of the energy sector's slowdown on sales taxes.

The comptroller’s estimate included another chute as well: a $2.6 billion drop in business franchise tax revenues due to legislative cuts — not due to the revised economic outlook. This $2.6 billion would otherwise have gone to schools that help produce tomorrow's skilled workers.

But that hasn’t been the end of this tough streak. Now come Propositions 1 and 7, which voters approved this week. Proposition 1 requires the state to spend $1.2 billion in 2016-17 to replace school property tax revenue lost to a larger homestead exemption. Proposition 1 swaps $1.2 billion in school property tax revenue for the same amount of state spending, slightly changing who pays for public education without increasing the total resources available for increasingly crowded schools.

But Proposition 7 is the biggest chute of all. It reduces by $5 billion the amount of General Revenue available to invest in public schools, higher education, health care, public safety, and other non-highway parts of the 2018-19 budget. It does this by setting aside a portion of sales tax revenue and dedicating it to highways, taking this funding away from many other equally worthy services that people depend on every day. Over time, Proposition 7 becomes an even steeper chute as it also diverts solely to highways some motor vehicle sales taxes that currently support other state services, further limiting the Legislature's ability to make other investments.

The bottom line is that future revenue to support most state services has been reduced dramatically while the state is committed to spending more in several key areas, such as border security and other Department of Public Safety services. This means that Texas really needs a few "ladders" to regain lost ground, including at least $10 billion in new revenue to close the gap. Texas will need another ladder if the Supreme Court decides that Texas’ way of funding schools is unconstitutional, which may require a large infusion of funding into education. And a third ladder of $6 to $8 billion in General Revenue is needed every two years just to allow services to keep pace with rapid population growth and medical and other inflation-driven cost increases.

But instead of ladders, Lieutenant Governor Dan Patrick's directions for study by the Senate Finance Committee could create more chutes. His proposal for phasing out what remains of the franchise tax would mean cutting another $7 billion in state revenue currently supporting education, health care, and public safety. Eliminating taxes on big, profitable businesses would make it more difficult for Texas to invest in public services that build the foundation for real economic growth. And doing away with business taxes like the franchise tax wouldn’t create jobs or boost our economy. In fact, cutting taxes on business could actually lead to higher taxes for low-income and middle-class Texans.

It bears repeating: The Texas state budget is no game, and it's about more than luck — it's about the choices of our lawmakers. The recent battle over proposed cuts to therapy for children with disabilities is just one deadly serious example of how much legislative budget choices can affect children and health care providers. Lawmakers should concentrate on creating more ladders that will help our state take big leaps forward and eliminate chutes that will set us back; they can do this by avoiding big-business tax cuts and focusing on raising enough revenue to serve a growing Texas.

Disclosure: The Center for Public Policy Priorities has been a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.

Eva DeLuna Castro

Program director, Center for Public Policy Priorities


Dick Lavine

Senior fiscal analyst, Center for Public Policy Priorities