Sifting through Legislative Assembly results reveals a few pieces of good budget news
With the 2021 legislative session coming to an end, we can review some of the biggest tax decisions made by Texas lawmakers this year. Financial highlights from the main session – not counting the series of special sessions – were covered in a report released by the Texas Comptroller’s Office at the end of September.
There are a number of expenses that strike me as the kind of fiscal governance that we all want to see from a functional technocratic point of view. Amid all the high-stakes political battles of 2021, these movements haven’t necessarily made the headlines, but they are contributing to better state.
I will note five salient points. If you want a preview of my notebook, I give three A’s, one A-plus, and one B-minus.
Guaranteed education plan
It’s the smallest on my list – almost a footnote – but it talked about bigger issues that I think are interesting.
The legislature allocated $ 271 million to shore up the Texas Guaranteed Tuition Plan. The plan, which allows families to prepay tuition, was opened in 1996 and closed to new participants in 2003. The Texas Tuition Promise Fund replaced the Guaranteed education plan In 2008.
So why, 18 years later, are we still investing money in this program?
There are a few moving parts to this story which makes it interesting.
First, the state clearly did the right thing by shutting down the program in 2003. Rising tuition fees in the early 2000s – and still rising today – resulted in public accountability for fee guarantees. of schooling which unexpectedly increased. When this happened, the safe thing to do was shut it down.
Second, there is a close analogy between a guaranteed tuition fee scheme and a public pension scheme, involving assumptions over several decades about inflows, future costs, inflation, and types of participation. As with pensions, this is the kind of thing that when you take the wrong model, taxpayers end up paying for many years and benefits to future members are reduced. that’s exactly what happened.
Third, the state still had an obligation to keep its promises to families.
Finally, the controller estimates that the catch-up payments will continue until 2039, when all the tuition contracts will have been fulfilled. This is a costly mistake in the long run, a bit like getting the public pensions wrong. But it had to be funded for the previous participants.
Class: A
Strengthening of the TRS
The Legislature gradually increased contribution rates for the state’s largest public pension, the Teacher Retirement System of Texas, over the next six years. The system is so big that if Texas miscalculates it could put a huge dent in the state’s finances. It’s the very definition of “too big to fail” and the only public pension in Texas we should and could lose sleep over.
In 2020, the system’s main financial statistics were barely sufficient, with an unfunded liability of $ 50 billion, a coverage ratio below target, and too many years (27) needed to close the deficits.
The good news is that as a result of this year’s legislation, all three contributors will inject more money in the years to come. Over the next six years, employee contributions will drop from 7.7% to 8.3%. Employer contributions will drop from 1.5% to 2%. And the state will increase contributions to 8.3 percent from 7.5 percent. All of these are expressed as a percentage of total employee payroll.
With all the oars pulling on the same boat, the calculations should work fine in the future – at least until the next big mistake.
Class: A
Repair the ERS
Texas’ Employee Retirement System, the state’s second-largest pension plan, was in poor shape at the start of the year.
An independent consultant in 2020 found that “the current financial outlook for ERS is very poor” and that the fund has generally failed all major standards for judging the solvency of a public pension plan.
With the passage of Senate Bill 3321, the state is now mandated to increase contributions to put the system’s main fund back into a sound financial position. So it’s good.
In addition, new employees eligible for the system will be enrolled in a hybrid plan that reduces the risk of incorrectly calculating retirement. This hybrid plan should help taxpayers sleep better at night.
Class: A
Eliminate Chapter 313
My favorite tax story from the 2021 session was the surprise non-renewal of Chapter 313. This was the section of the tax code allowing school districts to grant massive property tax breaks to private companies for new construction in district and then receive reimbursement from the state for the loss of income. It was a large and growing corporate giveaway that threatened to exceed $ 1 billion in state costs by 2023.
It was the ultimate insider game, with concentrated benefits for those who understood it and diffuse costs for outsiders. Given this setup, I am still stunned and happy that the legislature allowed the provisions of Chapter 313 to die a shameful and infamous death.
Class: A +
Unexploited expenses
Finally, the continuation of a note from last week. The Texas Comptroller’s Legislative Report mentioned, almost in passing, a surplus of $ 6.3 billion, or untapped spending, as part of the biennial budget process. Normally, we should brag about a surplus, especially in such a stark contrast to the federal government’s debt problems.
Still, I can’t help but think that the non-expansion of Medicaid during this session – something I can only attribute to cruelty to our most vulnerable neighbors – is part of that surplus.
Unlike a business or a household, a government is not expected to generate a surplus every year. The estimated $ 700 million per year it would have cost Texas to expand Medicaid would have protected the most vulnerable and vulnerable in the state. always left a multibillion dollar surplus.
Class: B-
Michael Taylor is a columnist for the San Antonio Express-News and author of “The Financial Rules for New College Graduates”.
michael @ michaelthesmart
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