Budget conference report is out: Some initial takes

Rahul Sreenivasan, Director of Government Performance and Fiscal Policy

1 year ago

Today, the conference committee reports (CCRs) for House Bill 1 — the general appropriations bill — and Senate Bill 30 — the supplemental appropriations bill for the current fiscal biennium — were distributed to legislators. This marks the beginning of the end of a nearly two-year budget process that culminates with the legislative session where legislators and budget staff review hundreds of amendments and riders, spend hundreds of hours in committee rooms, meeting rooms, and in offices working to produce the final documents that will be submitted for final approval in each chamber sometime this weekend.

With the CCRs for each budget bill being distributed today, they cannot be taken up by either chamber sooner than 48 hours after they were officially distributed to members. That’s 24 hours longer than for most other conference committee reports, reflecting both the size and the importance of the budget bill. A legislator could accelerate the process by moving to suspend the applicable rules in order to take up either CCR earlier.

HB 1, the General Appropriations Act for Fiscal Years 2024-25, spends a total of $321.3 billion in all funds.

We’ll be going through the respective conference committee reports in granular detail in the coming days, but here are a few of our initial takeaways:

Massive Property Tax Relief

After much discussion about how to use Texas’ record $32.7 billion fund balance going into this session, the Legislature did much of what it promised voters it would do. Most notably, state leadership pledged to implement large property tax reforms, and the Legislature delivered in a record way. While we don’t yet know the final parameters of the property tax relief package, the budget commits $17.6 billion in property tax relief, well over half of the fund balance.

Infrastructure Session

Texas 2036 has consistently recommended using the fund balance for generational one-time investments, especially those around infrastructure. We were pleased to see legislators specifically do that between HB 1 and SB 30.

Lawmakers include a planned $1 billion investment in the newly created Texas Water Fund, pending legislative and voter approval, to address aging and deteriorating water infrastructure and to create new water supplies.
HB 1 includes $1.5 billion as well for the newly created Texas Broadband Infrastructure Fund, again pending legislative and voter approval. These dollars will be critical as part of the provider match drawdown for broadband dollars through a federal broadband expansion program established by the Infrastructure Investment and Jobs Act of 2021. Because the federal dollars are available on a 4:1 match and leveraging the maximum amount of federal dollars was identified as a priority in Texas 2036’s recent survey of Texas voters, it’s important for lawmakers to act on this opportunity.
HB 1 additionally allocates $1 billion to seed the newly created Centennial Parks Conservation Fund. If the governor and the voters approve this initiative, the money in the fund would be used for parkland acquisition and development, strengthening our state park infrastructure and benefiting Texans statewide.
- SB 30 adds another $125 million for parkland acquisition

Additionally, budget conferees agreed to allocate:

$550 million for the Gulf Coast Protection District to fund “Ike Dike”-related projects and meet requirements and commitments from our federal partners in this $34 billion project
$400 million for the Ship Channel Improvement Revolving Loan Program to finance loans for projects that deepen or widen a ship channel
$625 million to the Flood Infrastructure Fund
$125 million for Clean Water and Drinking Water State Revolving Fund match funds to leverage for drawdown of IIJA funds
$200 million for Port Capital Improvement Projects

Reducing Long-Term Liabilities (ERS, JRS2/LECOS)

In testimony to both budget committees, Texas 2036 suggested that one of the best ways to reduce future Legislatures’ costs when paying for today’s tax relief and other increased investments is by reducing our future liabilities. The CCR for HB 1 does precisely that with multiple legacy payments pursuant to the pension reform efforts of SB 321 (87-R) as well as multiple lump-sum payments to pension funds to reduce or even completely eliminate future unfunded liabilities.

HB 1 and SB 30 together allocate:

Two $510 million legacy payments to the Employees Retirement System of Texas pension fund’s path toward actuarial soundness and eliminating its unfunded liability by 2054;
A supplemental $900 million lump-sum payment in the current fiscal year that would reduce billions in future interest payments over the next 31 years; and
Another $900 million to cover normal costs and wipe out the entire future liabilities of the Law Enforcement and Custodial Officer Supplemental Retirement Fund and Judicial Retirement System of Texas Plan 2.
- Without these allocations, the LECOS fund was scheduled to deplete in 2045 and JRS2 in 2069.
- This front-loaded approach is also projected to save the state $1.4 billion — the additional cost in paid interest on the funds’ liabilities over the next 31 years.

Positioning Texas as a Technology Leader

From creating the new Texas Space Commission to studying advanced air mobility, from establishing the Texas Semiconductor Innovation Consortium to examining Artificial Intelligence’s role in state government, the Legislature passed a number of bills that reflect the state’s intent to not only participate, but be a leader in existing and emerging technologies.

HB 1 and SB 30 also reflect these priorities, with investments including:

$698.3 million for the newly created Texas Semiconductor Innovation Fund to provide matching funding to state entities for semiconductor manufacturing and design projects and to award grants to businesses with an established presence in Texas to encourage economic development related to semiconductor manufacturing and design.
$350 million for the newly created Texas Space Commission to provide the workforce, resources and government cooperation necessary to make Texas the center of the rapidly growing space industry.
$440 million for the newly created Texas Institute for Electronics at the University of Texas at Austin, which will research emerging technologies, establish an R&D fabrication facility and other cutting-edge fabrication facilities to support the defense sector and promote the United States’ technological and economic advantages.
$200 million to the Texas A&M System for quantum and artificial intelligence chip fabrication, plus an additional $26.4 million for the Center for Microdevices and Systems.

Recruiting and Retaining Talent in State Government

Texas 2036 has repeatedly raised how stagnant state employee compensation is falling behind rapidly rising costs of living, especially in the Austin metro area.

Early in session, the Legislature sent promising signs, bumping up House and Senate office operating budgets.

The trend continued as the initial versions of the House and Senate’s base budget each included $1.8 billion to pay for a 5% increase in annual state employee salaries, with a minimum $3,000 annual increase, in FY24, and an additional 5% increase, with a $3,000 minimum annual salary increase, in FY25.

The final versions of HB 1 and SB 30 keep this pay increase, and also made notable increases for other state employees, including:

$1.95 billion to raise the base wage for home health care workers from $8.11/hour to $10.60/hour.
Targeted pay raises in critical professional positions where employees routinely leave for private sector or for similar positions at other agencies that offer better pay and/or lifestyle, including:
- Public Utility Commission of Texas attorneys implementing grid reforms
- Texas Commission on Environmental Quality engineers implementing regulations protecting Texans’ health and safety
- Texas Water Development Board financial staff evaluating loan and grant applications, and
- Texas Department of Criminal Justice parole and correctional staff.

Investing in Higher Education

Filed versions of the base budget bills included a massive investment in a retooled and revamped community college finance system as well as in the contemplated creation of multiple new endowment funds to serve institutions of higher education.

HB 1 and SB 30 allocates:

$650 million for HB 8-connected community college finance reform, including additional formula funding, grants for regional workforce needs and additional financial aid.
- For more, check out Texas 2036’s Renzo Soto’s breakdown of this funding recommendation.
$3 billion for the proposed re-designated Texas University Fund that would serve as a permanent endowment for education, research base funding and research performance funding for select non-Permanent University Fund research institutions.
$1.05 billion to establish a new fund for the Texas State Technical College System and Lamar institutions.

Investing in Public Education

$5.35 billion in contingency funding for public education funding, contingent on the passage of multiple bills impacting public education.
- $500 million for curriculum
- $300 million for school safety
- $4 billion for formula funding increases and teacher pay raises
- $500 million for school choice
- $49.4 million for virtual education
$5 billion for a supplemental 13th check ($1.645B) and cost-of-living adjustment ($3.355B) for retired teachers.
SB 30 also includes $1.1 billion to award grants to assist school districts in implementing school safety initiatives.

Investments in Judicial Data Systems

$6 million to replace Office of Court Administration’s legacy judicial data system responsible for collecting and analyzing judicial data.
Texas 2036’s Luis Soberon has written about how the Texas Judicial Council and OCA can make better policy making decisions around case-level data, instead of the aggregated data sets with which they currently work.
$4.3 million to fund direct IT services for state courts to ensure the judiciary can operate efficiently and securely in their day-to-day IT functions.
$2.2 million to fully fund the court appearance text reminder program passed by the 87th Legislature

This is just the start. At 1,028 pages, plenty more items worthy of attention exist. Stay tuned for additional analysis.

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