Texas needs a conservative spending limit

Photo by Todd Wiseman

For Texas families to continue flourishing under a responsible model of no personal income tax and relatively low taxes overall, government spending must be restrained. The Texas Legislature can do this next session by passing a conservative spending limit.

Research shows that a job is the best path to prosperity, and the Texas economy is a testament to that fact. Texas has created 36 percent of all civilian jobs in America since the latest national recession began in December 2007 and has had an unemployment rate at or below the U.S. average for 112 straight months.

According to a recent report by the Texas Public Policy Foundation titled The Real Texas Budget, the current state budget of $209.1 billion is up 11.8 percent since 2004 after adjusting for the key metric of population growth plus inflation. This translates into $22 billion more spending (read higher taxes) in the current budget cycle, or roughly $1,600 for the average family of four this year.

This excessive spending growth shows that more needs to be done to limit the excessive burden of government. A major impediment to slowing government spending is the weak constitutional spending limit. The state's current spending limit has three major problems:

  • First, it only caps non-constitutionally dedicated general revenue. This means that constitutional amendments that include funds dedicated for specific purposes, such as roads and water projects, aren’t counted under the limit. This has resulted in the limit covering only 45 percent of the total budget, allowing legislators to exploit loopholes and dedicate funds to move them outside the limit.
  • Second, it is measured as the estimated growth in the state’s economy. This is statutorily defined as the state’s personal income, which is “the sum of net earnings, property income, and personal current transfer receipts.” This metric is highly volatile and doesn’t actually measure the government’s overall costs of providing goods and services, making it an inadequate system of measurement.
  • Finally, it is based on projected personal income for the next two fiscal years, 33 months out from the time of adoption. These estimates are often imprecise, as it’s difficult to forecast gas prices two weeks from now — much less growth in the world’s 12th-largest economy for almost three years.

To correct these problems, the Foundation and the 12 other members of the Conservative Texas Budget Coalition advocate for a conservative spending limit. This proposal would cover the entire state budget; would base its increase on the lowest growth rate of population growth plus inflation, personal income, or gross state product; and would use the two fiscal years immediately preceding a regular legislative session to calculate the growth rate.

Reforming the spending limit in this way eliminates opportunities for legislators to use gimmicks to avoid the cap and abolishes projecting data that could be used for political purposes.

Since historically population growth plus inflation has often been the lowest increase of the three metrics, it’s the one that should get the most attention. It certainly did at a recent Texas Senate Finance Committee hearing, where critics argued that using the population growth plus inflation limit would be inflexible and unnecessary. As the argument went, personal income is a better metric because it adds productivity to the population growth plus inflation metric.

However, this assumes that the growth of productivity requires a corresponding increase in government spending, which is not necessarily the case. If the private sector is more productive, it makes more sense to leave tax dollars there so they’ll have greater economic benefit. Therefore, if there’s no reason to include productivity in the spending limit, then what’s left is population growth plus inflation. Research finds that simply moving to this metric could lead to tax relief and accelerated economic growth.

In 2015, the 84th Texas Legislature proved that this limit could work by holding the increase in appropriations over previous spending to 2.9 percent — well below the 6.5 percent mark for a conservative budget based on our proposed limit. Overall, legislators were good stewards of tax dollars by setting budget priorities to meet the needs of the state while providing $4 billion in tax and fee relief.

Although last session’s passage of a conservative budget is encouraging, there’s no constitutional guarantee that this fiscal responsibility will continue in future legislative sessions. Legislators should pass a conservative spending limit next session to keep more money in the pockets of hard-working Texans and promote prosperity for years to come.

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

Vance Ginn

Economist, Texas Public Policy Foundation

@VanceGinn

Owen Smitherman

Research associate, Texas Public Policy Foundation

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