Keeping the Texas budget lean
Mark Twain famously observed that the two things you don’t want to see being made are laws and sausages. But when it comes to the state budget, an occasional tour through the sausage factory is necessary to make sure taxpayers don’t end up being served something highly unappetizing.
This morning, the Texas Legislative Budget Board (LBB) met to set the official spending cap for Texas. Under the Texas Constitution, the growth in spending from non-dedicated state funds cannot exceed the rate of growth in the Texas economy. The way this works in practice is that the LBB meets once every two years, and adopts an estimate of personal income growth, which becomes the official limit.
Texas’ economy has been booming in recent years, and the spending limit has grown right along with it. For the upcoming 2016-2017 biennium, the LBB picked 11.68 percent as the limit for spending growth.
While the existence of a spending limit is a good thing, there is something a bit off about tying the limit to economic growth. A more prosperous society should need less government, not more. The current formula can also create wild swings in the limit, as personal income rises during good times and then falls during a recession.
The Texas Public Policy Foundation (which, along with R Street, is a part of the Conservative Texas Budget Coalition) has proposed tightening the spending cap so that in most cases spending growth would be limited to growth in population and inflation, rather than the whole economy. If applied to the upcoming biennium, this formula would limit spending growth to 6.5 percent, and would mean a total budget of no more than $217 billion for the coming two years.
Tightening the state’s constitutional spending cap makes sense, but there are a couple of things worth noting here. The first is that the spending cap is just that. It says that the state cannot spend more than a certain amount. There is no requirement that the spending grow up to the official limit established by the LBB, or even that it grow at the lower proposed limit of 6.5 percent. That’s important, because it means that restraining spending growth ultimately remains the responsibility of Texas’ elected officials.
Secondly, to be effective spending control needs to be paired with sensible tax cuts and tax reform. The temptation to spend increases along with the amount of revenue flowing into state coffers, and reducing this temptation should be the goal of all advocates of limited government.
On that note, it is encouraging that no less than seven bills have already been filed to eliminate Texas’ margins tax. R Street has written in the past about how the margins tax is overly complicated, economically burdensome, and ought to be put out of its misery. So it’s good to see that the legislature is thinking along similar lines.
