The Texas 2036 guide to the base budget bills

Yesterday, the House and Senate filed their initial budget proposals, frequently referred to as the “base bill,” for fiscal years 2024 and 2025. With the Legislature going into session with a record projected fund balance and revenues forecasted to continue at higher levels — a reflection of both recent inflation and a strong economy — budget writers have a rare opportunity to make transformational investments while preserving long-term fiscal stability.

In a rare occurrence, the House and Senate base bills mirror each other to the point that each bill spends the exact same amount, down to the dollar, both in terms of general revenue and all sources of revenue. The bills aren’t exactly identical, but many major funding drivers and items were identical or very similar. We’ll focus on those overlaps here.

As expected, the tax spending limit is the controlling limit for the budgets as filed. Both spend $130.1 billion in general revenue, leaving $4 billion of remaining general revenue spending authority. The House and Senate proposals are $43.6 billion away from hitting the state’s “pay-as-you-go” limit, or deficit spending prohibition, and $17.1 billion from approaching the new statutory Consolidated General Revenue limit.

These bills also include a section with a listing of anticipated expenditures for a supplemental appropriations bill. While the methods of finance for the potential supplemental items are unclear, we know from House and Senate Legislative Budget Board summary documents that these proposals leave approximately $3.8 billion in general revenue spending authority for a supplemental bill.

The LBB’s summary documents note that the state has approximately $5.4 billion in unspent American Rescue Plan dollars. This is over $2 billion more than originally anticipated when Senate Bill 8 was passed in October 2021. The remaining $5.4 billion must be obligated by the end of 2024, and spent by the end of 2026.

Texas 2036 is watching a number of funding priorities and initiatives throughout the budget. While we are still poring over the two 1,033-page documents — yes, both are the same length to the page — here are highlights of what Texas 2036 is looking out for so far.

What is in both budgets?

Community College Finance Reform — $650 million over the biennium

  • This funding includes additional formula funding, grants for regional workforce needs and additional financial aid.
  • For more, check out Texas 2036’s Renzo Soto’s quick breakdown of this funding recommendation.

New Higher Education Endowment — $2.5 billion over the biennium

Foundation School Program — $57.6 billion in all funds over the biennium

  • This represents a $9.8 billion increase in state aid from the FY22-23 biennium.
  • Notably, this amount contemplates a total of $15 billion in property tax relief, composed of $5.3 billion in statutorily required property tax compression and $9.7 billion in a transfer from General Revenue to the Property Tax Relief Fund.
    • The $9.7 billion transfer for property tax relief is contingent on the passage of legislation to “increase state aid and reduce recapture payments through additional constitutionally dedicated property tax relief.”
    • The Senate version of the base bill includes language signaling an intent to allocate $3 billion of the $9.7 billion to increase the residential homestead exemption from $40,000 to $70,000.
  • Guaranteed yield for “golden pennies” increases from $98.56 to $126.21 in FY24 and $129.52 in FY25, while basic allotment remains static at $6,160.

Teacher Pay — No funding committed yet, though both chambers included language to signal an intent to “provide increased compensation and benefits for classroom teachers” at school districts and charter schools.

Increased State Employee Pay Scales — $1.8 billion in all funds over the biennium

  • This increase provides 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.
  • This $1.8 billion amount contemplates the increased funding for benefits that accompany an increase in salary.
    • The listing for the supplemental bill also reflects an intent to fund a 5% increase, or a minimum $250 per month increase, for classified state employees for the remainder of FY23.
  • These recommended increases are a great first step toward Texas’ increased ability to recruit and retain the talent to ensure Texans get the best return on their tax dollars.

Establishment of Texas Space Commission — $350 million over the biennium

State Parkland Acquisition — intent to allocate an additional $100 million in FY23

  • This item is part of the listing for the anticipated supplemental appropriations bill.
  • Our past work with Rice’s Baker Institute showed that “investing in existing and new state parks will generate more jobs and more economic growth while strengthening all areas of the state — especially rural communities.”

Additional Flood Mitigation Funding — intent to allocate $400 million in FY23

  • This particular item is part of the listing for the anticipated supplemental appropriations bill.
  • Texas 2036 has testified to its support and voters’ support of efforts to improve disaster resilience, including floods.

New Funding for Gulf Coast Protection District — up to $500 million over the biennium

  • This item is for the purpose of funding “Ike Dike” related projects and meeting any attendant requirements and commitments from our federal partners in this $34 billion project.
    • The project seeks “to build a system of [sea gates], levees and dunes in [and] around Galveston Bay to block storm surge from rushing in from the Gulf of Mexico and into the bay and Houston Ship Channel.”
  • Again, this new funding is a critical part of investing in Texas’ disaster resilience to protect against much greater economic and social costs from storm surge.

Funding for Ship Channel Improvement Revolving Loan Program — $400 million over the biennium

  • To ensure Texas ports remain competitive domestically and internationally, Senate Bill 28 was passed in 2017 by Senator Brandon Creighton to finance loans for projects that deepen or widen a ship channel.
  • Texas ports are a major source of economic activity, including playing an integral role in the energy exports that have provided an additional boost to our near term revenue outlook.

Replacing Office of Court Administration Legacy Judicial Data System — $6 million over the biennium

  • This additional funding addresses the agency’s exceptional item request to replace their legacy 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 policymaking decisions around case-level data, instead of the aggregated data sets with which they currently work.

Legacy Payment for Employee Retirement System Unfunded Liabilities — $1 billion over the biennium

  • To maintain Texas’ strong fiscal position, Texas 2036 has advocated for the reduction of the state’s long-term liabilities — specifically with its issues related to pension funds like the ERS with large unfunded liabilities.
  • Going into the 87th Legislature, ERS’ $14.7 billion unfunded liability was on an infinite amortization period, with the fund scheduled to deplete in 2061.
  • Thanks to Chairwoman Joan Huffman and Chairman Greg Bonnen’s efforts with the passage of Senate Bill 321, the ERS fund will instead be actuarially sound in a few years and its unfunded actuarial liability will be fully paid by 2054.
    • SB 321 required the state to make annual amortization payments, or Legacy Payments, in an amount necessary to eliminate this actuarial liability by FY2054.
  • This $1.02 billion appropriation reflects the actuarially determined amount of $510 million in FY24 and $510 million in FY25.
    • The listing for the supplemental appropriations bill reflects an intent to allocate an additional $1 billion one-time legacy payment in FY23, which if passed, could make the ERS fund actuarially sound earlier, shorten its funding period and save the state billions in interest over the remaining period of paying down this liability.

Addressing Unfunded Liabilities and Normal Cost of Law Enforcement and Custodial Officer Supplemental Retirement Fund and Judicial Retirement System Plan 2 — $900 million over the biennium

  • This $900 million investment is another example of budget proposals using Texas’ current revenue position to reduce its long-term liabilities and strengthen its future fiscal position.
  • Under existing law and current funding levels, the LECOSRF and JRS 2 were projected to deplete in 2045 and 2069, respectively.
  • Of the additional $900 million, $45.3 million is to fully cover normal costs — the cost to provide employee retirement benefits — for LECOSRF and JRS 2 by increasing the state contribution by 1% and 3.587%, respectively.
  • The remaining $855 million — $750 million for LECOSRF and $105 million for JRS 2 — is to erase the unfunded actuarial liabilities of each of these funds in a single FY24 lump-sum payment.

Our initial review of the budget found a number of promising new funding items related to children’s mental health, including, but not limited to $30.5 million to increase multi-systemic therapy capacity, $8 million to create Youth Mobile Crisis Outreach Teams, and an additional $43.1 million for the Texas Child Mental Health Care Consortium. We have flagged for further analysis many more important large and small funding items but we have not detailed them here, like how the budget addressed state IT and cybersecurity needs.

The budget proposals as filed contain many promising recommendations, but a number of major opportunities remain, including broadband funding as well as significant investments in aging water infrastructure. Keep your eyes on our Twitter or Facebook feeds as we continue to follow how the 88th Legislature allocates funds for this record-breaking revenue cycle.