The Senate Committee on Finance has published their interim report to the 85th Legislature. The report addresses discussions on five charges. Provided below is a spotlight on the recommendations and/or conclusions; however, for complete details please refer to the full report.
Interim Charge #1 – Franchise Tax
Conclusion
Texas has been consistently recognized for maintaining a friendly business climate and for keeping taxes low. Our studies confirm that reductions to the franchise tax yield significant benefits to the Texas economy, including job creation, personal income growth, an increased gross domestic product and other positive results. However, phasing out the franchise tax would create a significant impact on the state budget, both in the short term and longer term. Decisions about additional tax relief must be weighed against the budget decisions that are always necessary if there is a loss of state revenue. The Legislature should continue to look for ways to provide additional tax relief, while also making sure the growing needs of this state are met.
Interim Charge #2 – Spending Limit
Conclusion and Recommendations
A strong spending limit is an essential tool to limit the growth in government. The Legislature
should consider ways to strengthen the spending limit in a manner that truly reflects the growth
of our economy while allowing Texas to meet the needs of its growing population.
Interim Charge #3 – Fiscal Responsibility/Budget Transparency
Conclusion
Texas' strategy-based budget has most of the benefits of both program-based and strategy-based budgets, since 90% of Texas' strategies contain only one program. In addition, Texas provides detailed program-based information through the supplemental document, State Budget by Program. Furthermore, Texas provides method of finance and object-of-expense detail, along with performance measures within the GAA.
Texas' current budget format, when combined with supplemental documents, provides one of the highest levels of transparency in state budgeting. The Legislature must continue to look for ways to ensure Texas' budget is as transparent as possible so the public is able to understand how their tax dollars are being spent. The Legislature should consider practices in other states that could be incorporated to improve the transparency of Texas' budget.
Recommendations
The LBB should produce a supplemental document at the beginning of the Legislative process
that provides programmatic information by strategy of the base budget bill as filed.
Interim Charge #3 – Fiscal Responsibility/Debt
Conclusion
Although the actions of the Legislature have kept the state debt relatively low compared to similarly populated states and the constitutional debt limit, Texas must continue to be vigilant to ensure current obligations do not put undue burden on our children and grandchildren. When additional resources are available to pay down state debt, the Legislature should consider applying those resources to paying off unfunded liabilities, particularly when that payment would maximize savings to taxpayers. Additionally, the Legislature should consider using the framework provided in Appendix B of the report when making those decisions.
In considering paying down state obligations, all liabilities, not just state bond debt, may be regarded as long-term liabilities of the state. The goal behind funding an outstanding liability will impact the prioritization analysis of which liability should be addressed. Beyond additional funding, some liabilities could be addressed through structural changes or other legislative decisions. These options provide broad flexibility to the Legislature in choosing how to address the outstanding obligations of the state.
Interim Charge #3 – Fiscal Responsibility/Incentivize Tax Savings
Conclusion
The Legislature has various tools to identify and realize savings to taxpayers. The Legislature
should examine which tools achieve the intended goal of incentivizing savings, look for new
ways to incentivize savings, and continue to use the tools which are effective at incentivizing
savings.
Interim Charge #4 – Coordinating Behavioral Health Services and Expenditures
Conclusion
The creation of the Statewide Behavioral Health Council was intended to facilitate better coordination and collaboration among our state agencies in order to create a more efficient and effective behavioral health system. Although the services an individual receives will vary by state agency, the ultimate goal is to create a comprehensive statewide behavioral health system so that regardless of which agency a person goes to for help, they are getting the critical care they need. The Legislature's creation of the Statewide Mental Health Coordinator and the Statewide Behavioral Health Coordinating Council were significant steps toward that goal. However, the most important work lies ahead – as the focus of the Council should now turn to putting its Strategic Plan into action.
Recommendations
- Continue the work of the Statewide Behavioral Health Coordinating Council.
- The Council should develop an implementation plan for the Strategic Plan.
- The Council should enlist assistance from various agencies and stakeholders to help develop the implementation plan. The implementation plan should include:
- A detailed roadmap to execute the Council's goals, objectives, and strategies identified in the Strategic Plan.
A timeline for implementation.
A clear delegation of tasks and responsibilities across Council agencies.
Metrics to determine whether the implementation of various goals, objectives, and strategies is achieving its intended purposes.
A process to monitor implementation.
- The Council may recommend modifying its membership in order to better meet the needs of Texans with behavioral health needs.
- The Council should work collectively to develop common statewide outcome measures.
- Council agencies should work to better identify behavioral health spending within their budgets, and develop better methodologies to track this spending when necessary.
- The Council should provide LBB with updated expenditure documents and inventory documents regarding behavioral health programs on a regular basis.
- The Council should evaluate every behavioral health-related Exceptional Item in agencies' FY 2018-2019 Legislative Appropriations Requests to ensure each request is aligned with the goals, objectives and strategies outlined in the Strategic Plan.
Interim Charge #5 – Sales Tax Holiday
Conclusion
Testimony and documents submitted show sales tax holidays provide economic benefits in varying measures. Sales tax holidays are estimated to have provided over $90 million in tax savings in 2015 and are projected to provide almost $130 million by 2020. The vast majority of these tax savings are associated with the sales tax holidays for clothing, shoes and school supplies, which are projected to be $91.9 million in 2016 alone.
The sales tax incidence analyses included in this report show that individuals in the quintile with the lowest level of household income save the most in taxes, when comparing tax savings as a percent of total household income. However, households in the highest quintile of household income have the greatest amount of dollars saved. This knowledge of how sales tax holidays affect different household incomes will be helpful in examining how any adjustments to sales tax holidays could be beneficial.
Although this committee has discussed the economic benefit sales tax holidays provide, it is also important to note that economic benefit is not always the sole purpose behind sales tax holidays. For example, there are sales tax holidays designed to promote the purchase of items or encourage certain behaviors. The sales tax holiday enacted last session for emergency supplies and hurricane-proofing materials is designed to encourage Texans to be better prepared for weather related emergencies. Other sales tax holidays are designed to provide a competitive advantage for a state's businesses and citizens, such as Senate Bill 228 (Creighton), which attempted to preempt neighboring states' sales tax holidays. To fully understand a sales tax holiday's benefit, it must also be examined within the context of its purpose.
Sales tax holiday legislation will likely be filed next session, and when evaluating these bills, it is important to consider both the economic benefit and the purpose of the bill, and whether it will achieve the intended goals.