Senate Finance Interim Report to the 88th Legislature

The Senate Committee on Finance interim report to the 88th Legislature covers federal COVID-19 relief funds, property tax, inflation, state pension reforms, Operation Lone Star, long-term care funding, Medicaid, and mental health delivery, among other topics. Recommendations on each charge assigned to the committee are highlighted below, for more information see the full report here.

Spotlight on Recommendations

Charge 1. Federal Funds: Report on the state use of federal COVID-19 relief funds provided under the Coronavirus Aid, Relief, and Economic Security Act, Coronavirus Response and Relief Supplemental Appropriations Act, the American Rescue Plan Act, Infrastructure Investment and Jobs Acts, and similar federal legislation.

• Because the Final Rule for the CSFRF did not go into effect until April 1, 2022, the 88th Legislature may need to readdress some funding decisions made in SB 8 to ensure compliance with updated federal guidance. For any remaining CSFRF funds unappropriated, the 88th Legislature should use these federal funds to make strategic, one-time investments to address pressing state needs.
• Moving forward, state agencies should closely vet federal funding opportunities made available to ensure accepting funds does not involve conditions that would harm or hinder state interests or limit the state’s ability to respond to urgent state needs. Agencies should continue to proceed with caution when programming federal awards to not create fiscal cliffs and to avoid committing one-time funds for on-going needs.
• Finally, LBB should continue to closely monitor developments related to the IIJA so that agencies and the Legislature may remain apprised of funding opportunities available to the state, as well as any potential fiscal impact (such as matching funds requirements).

Charge 2. Property Tax Relief: Examine and recommend ways to reduce Texans’ property tax burden. Review and report on proposals to use or dedicate state revenues in excess of the state spending limit to eliminate the school district maintenance and operations property tax.

• The Legislature must continue to monitor property value growth and its relationship to the ongoing compression within the school finance system. Even as HB 3 continues to provide property tax compression to homeowners, the Legislature should consider additional measures to lower the burden on homeowners. As the state enters the next budget cycle with a sizeable surplus, the Legislature should utilize a portion to provide relief back to Texas taxpayers. To that end, the Legislature could consider further increasing the state’s homestead exemption and additional compression to provide continued relief to homeowners while maintaining the state’s ability to provide for the fiscal needs of a growing state in future years.

Charge 3. Inflation: Review and report on the effect inflation is having on the business community and state government, including state salaries, retiree benefits, the state economy, and cost of state services.

Charge 4. Inflation: Review and report on the impact of inflation on units of local governments’ revenue collections and property taxpayers’ tax bills, including the homestead exemption.

• While the Texas Legislature has provided significant property tax relief in recent years, additional action in the next legislative session is necessary to further reduce the tax burden on property owners. This may include, but is not limited to, additional tax rate compression and permanently increasing the homestead exemption yet again to help mitigate the impact of inflation. To keep the Texas economy thriving, families and businesses must be able to enjoy and afford everyday living expenses.
• As the state workforce continues to dwindle post-pandemic, the Legislature must evaluate the state’s workforce needs to ensure agencies have the resources necessary to provide essential state services.
• Although state revenues have increased due to higher state tax collections, even outpacing updated revenue projections, agencies are already facing significant additional expenses. Costs for construction and agency operational needs have risen due to the increased price of fuel, labor, and materials. Along with workforce shortages, these problems across all agencies continue to present budgeting challenges that the Legislature must tackle moving forward in order to provide the infrastructure and support a state of over 29 million people needs.
• Although the Legislature has provided supplemental payments to TRS retirees for the past couple of sessions, both ERS and TRS retirees need further financial assistance given the soaring prices of goods such as food and gas. Accordingly, the Legislature must evaluate the financial status of the ERS and TRS pension plans to determine if a potential benefit enhancement is allowable by law, and financially prudent.

Charge 5. Tax Exemptions: Examine Texans’ current tax exemptions and report on whether adjustments are merited because of inflation or any other factors.

• No recommendations made on this charge

Charge 6. Russia Divestiture: Examine and report on options for state asset owners to divest their positions in companies that invest in the Russian Federation.

• Given the financial complexities and changing economic landscape, the Texas Legislature and investment fund governing bodies should continue to take a measured approach in divesting their positions in companies that invest in the Russian Federation to ensure that financial exposure to Russia is eliminated, while also preserving the health and stability of these public investment funds. Accordingly, the Legislature must continue to monitor the state’s financial exposure to Russia and initiate protections to reduce financial exposure to Russia.

Charge 7. State Pension Reforms: Monitor the implementation of recent statewide pension reforms to the Employees Retirement System of Texas and the Teacher Retirement System of Texas.

• The Legislature should continue to monitor the financial conditions of the pension fund to ensure long-term sustainability. As public pension systems from around the country continue to face challenges that threaten solvency and long-term sustainability, Texas must continue to lead to ensure its public retirees’ benefits are safeguarded and future liabilities to taxpayers are reduced.

Charge 8. Bail Bond Reforms: Monitor the implementation of recent bail bond reform legislation along with its economic impact on the judicial and correctional system. Assess any barriers to implementation, the law’s effect on pretrial release and jail populations, and ways to further promote public safety and efficiency.

• The Legislature must review the list of “offense(s) involving violence” to further promote public safety decisions. For example, the unlawful possession of a weapon by a convicted felon is another offense that should be added to the list of violent offenses. Additionally, violation of family violence protective orders is another public safety risk for victims and should be added to the list of offenses involving violence as defined by Code of Criminal Procedure Article 17.03.
• Article 17.027, relating to release on bail of a defendant charged with a felony offense committed while on bail, presents some jurisdictional and logistical challenges. The notification of a new offense to magistrates is critical. Proper notification between jurisdictions is important to ensure that the initial magistrate can properly reevaluate bail, if warranted based on the new offense. Furthermore, the Legislature should consider expanding these provisions to include individuals out on parole or probation.
• The Legislature should evaluate methods to ensure that all bail hearings are available to the public. Furthermore, some hearing officers are appointed by hiring boards that operate with little transparency. Because these decisions involve the public’s safety, it is imperative that the public has full access to these forums and fully understand motives behind the decisions. These additional acts will further increase transparency to the process.
• Lastly, multiple efforts during the 87th Legislative Session and subsequent called sessions fell short of expanding preventative detention in Texas. Per the Texas Constitution, current options to deny bail pending trial effectively require a full trial on the merits at the time bail is denied, or shortly thereafter. This impracticability effectively leads to its rare utilization, even in the most appropriate situations. Because of this limitation, the Texas Senate passed a bipartisan constitutional amendment multiple times in 2021 requiring a judge or magistrate to impose the least restrictive conditions of bail that may be necessary and authorizing the denial of bail under some circumstances to a person accused of a violent or sexual offense. Unfortunately, this proposed constitutional amendment failed to pass the Texas House. Texas voters should have the opportunity to expand the Texas Constitution to ensure that magistrates have another tool to deny bail to the most violent offenders that pose a significant safety risk to the public. The 88th Legislature must pursue this constitutional amendment again as it is a vital measure to safeguard the public from the most vicious and violent offenders.

Charge 9. Operation Lone Star: Monitor appropriations and spending supporting Operation Lone Star. Evaluate and report on the effectiveness of spending to secure the southern border. Identify and report on resources needed to ensure support for the State National Guard, as well as overall resources necessary for border security for future legislative consideration.

• Moving forward, the state must continue to make every reasonable effort to secure the border through the presence of law enforcement, the targeted use of technology to enhance the efforts of state and local personnel, and the construction of a physical barrier where appropriate. State and local agencies must continue to work together to stop the smuggling of drugs, weapons, and people into Texas, and prevent, detect, and interdict transnational criminal behavior between ports of entry. Hopefully, the federal government will eventually adopt and fund the successful initiatives that Texas is implementing to ensure long-term sustainability of securing the border.

Charge 10. Long-term Care Funding: Examine state investments in the long-term care system. Study nursing facility funding issues and the impact of the pandemic on capacity and delivery of care. Explore nursing facility quality metrics and recommend strategies to improve the sustainability of the long-term care workforce.

• The Legislature should continue monitoring the ongoing costs of COVID-19 on long-term care providers while also tracking additional funding that providers have received at the local, state, and federal level since the beginning of the pandemic. Long-term care providers have received enormous infusions of COVID-related funding in a short amount of time. The 87th Legislature required additional transparency pertaining to the amount of COVID-related federal funding providers have received, but self-reported data has proved insufficient, as many providers choose to not report.
• Furthermore, the Legislature should monitor the ongoing impact of COVID-19 on providers and acquire analysis from HHSC on the impact on quality of care during, and in the aftermath of, the pandemic. If the Legislature determines that additional financial support is needed, provider funding should be directly tied to enhanced quality of care and improving the direct-care workforce at those facilities and organizations.
• Finally, the Legislature should evaluate the current investments in nursing facility quality programs and determine how future investments can result in better outcomes for both residents and long-term care staff. Based on expert reports, nursing facility quality of care is lacking in many Texas facilities. Although the Legislature has dedicated a significant amount of funding the past several sessions, it must determine additional methods to improve the quality of care for this vulnerable population. These Texans deserve nothing less.

Charge 11. Medicaid: Monitor the financial impact of federal decision-making affecting supplemental Medicaid funding for Texas hospitals and health care systems, including negotiations between the Centers for Medicare and Medicaid Services and the Texas Medicaid agency regarding the state’s 1115 Medicaid waiver and other federal proposals reducing supplemental funding streams for Texas.

• The 88th Legislature should monitor the budget neutrality rebasing exercise and determine its potential impact on budget neutrality “room” Texas may have moving into fiscal year 2024. Due to this uncertainty, the Legislature must closely evaluate potential Medicaid rate increases and benefit changes during the next legislative session. Changes to Texas’ Medicaid Program may result in exceeding budget neutrality, which can then present challenges for Texas maintaining it’s 1115 Waiver.
• Furthermore, the Legislature should continue to ensure appropriate oversight and reporting of funds provided under the 1115 Waiver. Although most of these funds arise from outside sources, legislative oversight of these funds is still necessary to ensure accountability of the billions of dollars that the Texas healthcare system receives on an annual basis. Transparency and accountability of these funds must continue to be prioritized to ensure that patient care remains the focus.

Charge 12. Mental Health Delivery: Examine the state mental health service delivery system.

• The Texas Legislature must continue to address these needs during the 88th Legislature through targeted funding and policy strategies. HHSC is currently developing an updated strategic plan to improve access and quality of mental health care statewide. The Legislature should collaborate with HHSC on this critical strategic plan and work towards its implementation in the coming years.
• The 88th Texas Legislature must pay particular attention to the ongoing need for additional inpatient capacity. Not only is there a need for additional state hospital beds to meet the state’s increasing demand, but for sufficient staff to ensure that all beds are being utilized. Bringing back online the hundreds of beds currently unoccupied due to staffing shortages is a critical step toward meeting the state’s inpatient needs. The current wait time to access a forensic state hospital bed is far too long, resulting in individuals taking up limited jail space. The Panhandle and Rio Grande Valley areas seem to be vast geographic areas that are currently underserved and the Legislature must evaluate the mental health service capacity needs in these specific areas to determine the most efficient and effective way to increase available services.
• The Legislature must continue to develop and build upon behavioral health-related workforce initiatives and determine whether additional funding is appropriate. Additionally, the Legislature should continue to evaluate initiatives to divert individuals away from state hospital beds, and instead, receive services offered in their local community.