Texas Senate approves its budget, shifting school costs to local taxpayers

^{Editor's note: This story has been updated throughout}

The Texas Senate unanimously approved a two-year budget on Tuesday that would shift nearly $2 billion in public education costs from the state to local taxpayers.

The Senate's $218 billion document now goes to budget writers in the House for debate.

“This is a lean budget, but it’s also a smart budget,” said state Sen. Jane Nelson, R-Flower Mound, the 2018-19 Senate budget’s lead author. “It responsibly meets the needs of our state.”

The Senate’s proposal would spend $106.3 billion in state revenue, which is a significant bump from the $103.6 billion budget Nelson originally rolled out in January. That puts the Senate’s total spending level much closer to the House’s than they were when the proposals were originally published.

Still, there are major differences in funding priorities and methods of finance that the two chambers will need to reconcile before the Legislature adjourns in May, setting the stage for some of the biggest points of contention this year.

Nelson touted her budget’s focus on education. The Senate proposal actually strips about $1.8 billion in state funds for education but uses local property taxes and other revenue to make up the difference. In total, Nelson said, her proposal would boost public school funding by $4.6 billion compared to the prior budget, including a $2.6 billion provision to cover student enrollment growth.

"Under our formula, the local share of education funding fills up the bucket first, as local property tax collections go up, the state share goes down," Nelson said. "But in the aggregate, funding for education is going up every year."

At the same time, the Senate is advancing controversial tax cut proposals that critics say would make it more difficult for the state and local governments to pay for schools. Last week, the upper chamber passed Senate Bill 2, which seeks to curb the growth in property taxes, and Senate Bill 17, which would cut the franchise tax paid by businesses in future years.

Nelson also praised the Senate’s funding for the Child Protective Services and foster care systems, which would receive an additional $450 million compared to the previous budget. That’s just less than half of what child welfare officials have said they need to make serious reforms in the face of crisis.

What generated virtually no discussion during Tuesday’s vote was the Senate’s accounting trick used to bolster state spending. Nelson announced last week she had found $2.5 billion in the budget by delaying a diversion of sales tax money for highway funding from the 2019 fiscal year’s budget to the first year of fiscal year 2020. She said the trick would not affect the Texas Department of Transportation’s ability to spend the money on highway projects in 2019. 

Lawmakers on the other side of the Capitol are sure to take issue with that proposal. House Speaker Joe Straus has called it “gimmickry” and a form of “cooking the books.” Some Capitol insiders have wondered if the accounting trick is even acceptable under the Texas Constitution.

Straus, meanwhile, praised a House committee's passage of a major school finance reform bill earlier Tuesday, which would put about $1.6 billion in state funding toward schools. Straus said the measure "begins to reduce the pressure on local property taxes, which have been funding a greater and greater share of education."

Straus and other House leaders have endorsed a different means of finding cash for a stressed state budget. They prefer to take about $2.5 billion from the state’s $10.2 billion savings account, known as the Rainy Day Fund.

But senators say such a proposal is a no-go in the upper chamber.

“I appreciate the strong attempt to do a reasonable budget with the money that we have, without getting into the Rainy Day Fund or going into extreme accounting practices to make it work,” said state Sen. Bob Hall, R-Edgewood, of Nelson's bill.

The Senate proposal also includes some significant cuts, including about $400 million in “cost-containment” measures that would come from the state’s health and human services programs — but would also cost the state roughly $600 million in federal matching money. And public universities in Texas can expect some heartburn as their budgets are projected to face cuts of 6 to 10 percent, according to the Senate Finance Committee.

Nelson said her budget prioritized higher education programs that directly benefited students, and she specifically touted a “significant increase” to financial aid. The budget offers an additional $45 million for students receiving aid from the TEXAS grant program. In total, funding for higher education fell by 0.1 percent, Nelson said.

The budget proposal would not harm poor Texans’ ability to access health care, said state Sen. Charles Schwertner, R-Georgetown, who led a work group in charge of the health and human services budget. Addressing the cuts, he said, “We must live within our means.”

State lawmakers have less money at their discretion this year when crafting the next two-year budget. By cutting taxes in 2015, the Legislature reduced state revenue available to them by about $4 billion. Lawmakers also backed dedicating nearly $5 billion that year to highways — a move that voters later approved in a statewide election — which left fewer dollars for priorities like health care and education.

In addition, a moderately sluggish economy slowed revenue growth, leaving the state's coffers emptier than state officials had projected.

Liberal policy advocates were quick to denounce the Senate's budget. The Center for Public Policy Priorities noted that the $218 billion budget fell fall short of the $232 billion that state agencies collectively told the Legislature they needed to provide public services to Texans.

“The Senate budget proposal passed today is not good enough for Texas,” Eva DeLuna Castro, the center’s Invest in Texas Program Director, said in a statement. “With substantial cuts to Medicaid, steep cuts to higher education, and overall underfunding of critical state needs, this proposal doesn’t do enough to invest in our great state."

Senate leaders nonetheless said they were optimistic about their ability to pay for a growing state’s needs.

“We’ve climbed steeper hills before,” Nelson said.

Read more of the Tribune's budget coverage:

• By delaying a diversion of sales tax money for transportation projects, Texas Senate leaders last week said they had an additional $2.5 billion to spend on needs such as health care and schools.
  
• A proposal from the Texas House would withdraw almost $2.5 billion from the Rainy Day Fund.

Disclosure: The Center for Public Policy Priorities has been a financial supporter of The Texas Tribune. A complete list of Tribune donors and sponsors is available here.