Texas lawmakers have a $27 billion surplus, but a spending cap complicates their goal of lowering property taxes

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If Gov. Greg Abbott’s dream of a historic property-tax break for Texans is to grow to be a actuality within the 2023 legislative session, the Republican-controlled Legislature might need to interrupt the state’s constitutional spending restrict for the subsequent two years.

The query is: Would they dare?

The Texas Structure limits the quantity of extra cash the state can spend each two-year finances cycle to the speed of the state’s financial development. Within the first public indication of how a lot tax cash lawmakers can add to the 2024-25 finances, the Texas Legislative Price range Board — a panel of legislators led by Lt. Gov. Dan Patrick and Home Speaker Dade Phelan — used inhabitants development and inflation forecasts Wednesday to undertake a 12.3% estimated financial development price within the subsequent finances cycle.

Which means lawmakers can spend about $12.5 billion extra state tax {dollars} within the subsequent finances than they did within the present biennium earlier than the cap is busted, in accordance with present finances numbers. That restrict might go up if lawmakers cross a supplemental finances invoice early subsequent 12 months that will increase spending within the present biennium.

However that $12.5 billion determine is rather less than what it might price for lawmakers to maneuver ahead with Abbott’s purpose to make use of half the state’s estimated $27 billion money surplus, pushed largely by elevated gross sales tax brought on by inflation, on property-tax aid.

It’s anybody’s guess whether or not lawmakers would again that promise in its entirety, made by Abbott in August throughout a heated race for reelection. Whether or not doing so would set off the restrict will depend on a bunch of things, together with how effectively lawmakers are in a position to make use of finances methods to keep away from it.

If they will’t, then lawmakers might merely skirt the problem by spurning Abbott’s large plans, passing a a lot smaller property-tax aid plan that doesn’t attain the spending restrict, and even none in any respect — although by most accounts, the final possibility appears unlikely. Or they might vote by a easy majority to interrupt the cap.

It’s a call that’s by no means easy for lawmakers.

“Traditionally, spending limits exist for a motive,” mentioned John Hryhorchuk, senior vp of coverage and advocacy for the analysis group Texas 2036. “They’re the guardrails that present for fiscal sustainability for our state, so choices to bust the spending restrict have gravity to them.”

Nevertheless it’s a vote that even essentially the most ardent opponents of unrestricted authorities spending say is value making if it returns cash to Texans.

“Texans are being crushed by property taxes,” mentioned Matt Rinaldi, a former legislator and chair of the Republican Occasion of Texas. “The one acceptable use of funds over the spending cap is to supply property-tax aid to householders.”

Texas householders have a few of the highest property-tax payments within the nation, a byproduct of the state’s reliance on property taxes to pay for public faculties and the state’s lack of an revenue tax. To decrease property taxes on Texans, lawmakers would want to fund faculties at a better price in order that these districts might scale back the native tax burden on residents.

However Patrick mentioned after the Legislative Price range Board assembly that he wouldn’t assist busting the spending cap, which he mentioned Abbott’s plan would seemingly do. As an alternative, he mentioned, there are different methods to cross substantial aid, together with homestead exemptions and a deliberate proposal to make it simpler to spend extra {dollars} within the state’s wet day fund, with out busting the cap.

“For me, personally, busting the spending cap I believe units a really harmful precedent,” Patrick mentioned. “When you’ve achieved it, it’s straightforward to do it once more. … So I might not be in favor of busting the spending cap and I don’t suppose the members are.”

The constitutional spending restrict, which will be damaged by a easy majority, has been in place for greater than 50 years. A separate spending cap created within the 2021 legislative session applies to extra funding streams, equivalent to charges, however doesn’t depend property-tax aid towards the spending restrict. That cap wants a three-fifths vote in each chambers to interrupt and is among the many strongest legislative spending caps within the nation, analysts say. It was additionally set at 12.3% on Wednesday and would enable a barely bigger finances improve, in {dollars}, underneath these guidelines.

Subsequent session’s restrict, which is among the many highest that the LBB was contemplating on Wednesday, “leaves loads of room” for property-tax aid if lawmakers are conservative with the general finances, mentioned Vance Ginn, president of Ginn Financial Consulting and former chief economist for the Texas Public Coverage Basis, a conservative suppose tank.

“Whereas there will likely be loads of room underneath the determined spending restrict in Texas, the Legislature must be particularly prudent with taxpayer cash by freezing the finances in order that extra surplus {dollars} can be found to supply substantial property-tax aid to fight the affordability disaster pushed by D.C. and native governments,” he mentioned. “The main target must be on much less spending so there will be extra tax aid.”

State companies and universities throughout Texas are eyeing the excess and making their pitches for tens of billions in new cash for varied packages and unfulfilled wants — starting from bolstering psychological well being funding to constructing a brand new coaching facility for legislation enforcement. Collectively, these requests for brand new cash add as much as almost $20 billion.

That doesn’t embody proposed will increase of their base budgets for issues like public security. It additionally doesn’t embody continued funding for the governor’s Operation Lone Star border initiative, almost half of which has been paid for outdoor of the appropriations course of with {dollars} swept out of different companies’ budgets to get replaced with federal funds. Abbott has not mentioned how a lot he’ll request for that program but.

However the single greatest wishlist merchandise described by the state’s GOP management to date has been tax aid.

“Property tax must be on the prime of the record. You begin there, and you’re employed down,” Patrick mentioned Wednesday.

Price range writers have many years of expertise writing budgets in such a approach that they will often keep away from busting spending limits — however the greater the quantity, the tougher it’s to sofa it in finances strikes like cuts to different companies, new devoted funding streams, constitutional amendments and federal funding conversions.

So might conservative voters — a bunch that doesn’t sometimes approve of limitless authorities spending — be satisfied that breaking the spending restrict is a good suggestion?

Whereas Patrick asserts that it might be a tough promote, the conservative grassroots say it may be achieved.

“Completely for tax aid functions,” mentioned James Quintero, coverage director for the conservative Texas Public Coverage Basis. “On each side of the aisle, you may have large, daring concepts being pitched, which indicators to me that we’re in for a transformational tax reform session the place all sides agree that significant motion is required proper now, they usually’re on the point of take it.”

However lawmakers might danger the ire of voters who assist utilizing the excess to boost instructor pay and retirement advantages, higher funding for faculties and social packages, or addressing different underfunded wants, mentioned Eva DeLuna, finances analyst on the progressive suppose tank Each Texan.

“Legislators at all times have a more durable time after they have unallocated income as a result of then they should provide you with a motive why it’s not OK to … cope with an present duty,” she mentioned.

Disclosure: Each Texan, Texas 2036 and Texas Public Coverage Basis have been monetary supporters of The Texas Tribune, a nonprofit, nonpartisan information group that’s funded partly by donations from members, foundations and company sponsors. Monetary supporters play no function within the Tribune’s journalism. Discover a full record of them right here.