Interview w/Comptroller Hegar
The Texas Legislature is in full swing and deciding the best ways to utilize your tax dollars. Last week the Governor gave the State of the State and at the top of the list are increasing funding for public schools and lowering property taxes. Many Texans don't realize that the two issues are correlated to one another.
Thankfully, Comptroller Hegar gives us an overview of the Texas budget for this biennium and explains how public school finance and property taxes work hand in hand.
Below is a truncated transcript of the interview.
Do you mind telling us what exactly does the comptroller do?
We make sure we make all the payments for every single sector of state government, whether it's public education, universities, medical health and human services, or criminal justice. We've got to make sure all the payments are going where they're supposed to. And then the other side of the, of the agency is the revenue side. We handle both sides of the ledger, tax revenues coming in as well, expenditures going out.
There are three core constitutional duties of this office. Two of those are that [listed above], the third one is really just monitoring the economy and estimating for the legislature: How much money will come into the state treasury.
What are the numbers for what we have for this legislative session? How would you compare those numbers to what we've had in previous session?
When we talk about how much money they have coming into the state treasury, you can look at the entire portions of dollars.
A third of that is going to be federal dollars that we pay in taxes to the federal government and it comes back to the state of Texas. A portion of those that may flow through the state budget, whether that's for transportation, education, healthcare, but the portion that they have actually discretion over which is the state collected portion, so we kind of talk about the total [of state and federal].
Overall they have for this coming cycle about $266 billion total, including state and federal.
However, the state portion of it for this cycle is about $119 billion for the two-year budget. We talk about that more because of the limitations of the federal portion.
The economy in the last year and a half is almost as though it's been through an economic boom.
We have 360,000+ job gains in the last 12 months, which two years ago there was a 100,000 to 73,000 rise. Unemployment is at a historical low and Texas businesses are doing well overall.
This revenue estimate, estimating how much would come in, is about 8% higher on the state side than it was two years ago. 8% is a lot compared to normal budget cycles. That's very healthy.
I've continued to caution the legislature that just because the past 18 months has been very healthy, that doesn't necessarily mean the next two years is going to be as healthy. We think the economy is going to continue to grow, but it's not as though the economy is going to continue to be in a boom.
All right, so there's also a rainy day fund, would you mind explaining what is the rainy day fund and when can it be used?
So the State Rainy Day Fund is essentially the states savings account. If you look at our state savings account today, it has $12 billion in it. On an annual basis, there's hundreds of millions of dollars going into it. The legislature, if you look at the history of that fund, it's had about $23 billion put in it and it’s had about $11 billion taken out. Therefore, there are $12 billion.
If two thirds in both the state House and Senate vote to take money out, they can take money out for any purpose. However, they have historically taken it out for either a one-time expense. For example, they used it last last session to improve our hospitals for those that have mental challenges.
This cycle, they will take some out for Hurricane Harvey and the devastation that the state had a year ago to make up for what the state needs to pay for Hurricane Harvey destruction.
They'll take some out, more than likely, but it’s still $12 billion. Put it in perspective of the 50 states, that's about 20% of the state savings account balances of all 50 states. So it's very, very healthy.
You see that the House and the Senate have two different budgets about how they really want to fund public schools. You also came out with a study that stated that we currently fund public schools at 36% and you think we need to get up to 40% plus inflation. Do you mind kind of giving my listeners a run down of how the two budgets are and why you think we really need to increase that funding?
Let’s explain how we pay for public schools in Texas. It's a combination between us, as tax payers, and the revenues that we collect here. The comptroller's office and the legislature decide how they want to call back sales tax. That's the main source of revenue for state government. If you look at all sources, it's going to be roughly 60% of the sources. I mean that that is what principle is the health of the state budget is depending on how much sales tax. Whereas if you look at cities, counties, school districts, it's determined by a property tax.
Let's talk about school finance portion there. It's really a unique marriage between the state and about 1,040 school districts. So in other words, the state pays part of it. The local school district paid in part of based on the property taxes that are collected. Historically in Texas, every morning when we wake up, there's another thousand people that call Texas home every day. A lot of growth in the state of Texas. When the school finance system was put into play, no one envisioned the state would grow a thousand people a day. My point being is we see property values rising, which means in a school finance system, as the local money increases, the state money decreases. So it's almost like a see-saw one goes up, one goes down. That is historically driven now because of people moving to the state.
The legislature is trying to put more money into it because that balancing has gotten shifted more and more to local and less state. Both the House and the Senate have put money into the budget for public education. They're both going at a little bit different, but that's the normal process.
To try to get back to a 50-50 would be so much money that I don't think that that's practical to put $15 billion more into public education or more money than that .If the legislature is able to put more money into the public school system going forward on a yearly basis, then local property taxes wouldn't be going up every year in part for the school funding system. They're very linked together in part because 54% on average of all the property taxes are going to ISDs. When the ISD school funding is state and local, anything you can do to balance that out better where the state puts in more in the local government puts in less. That means that's ultimately going to hold down your property on a local level, since that's over half of your property tax bill.
All right, so let’s talk about SB2, regarding capping property tax rates, that has been filed.
There are several different pieces of legislation moving, that one just happens to be kind of moving and talking about it.
In Texas today, if on a local government level, cities and counties if your taxes increase by more than 8%, then it triggers what's called a rollback rate. In other words, it has to go to the voters to approve. Most times it's always going to be below that. On average is, it's nowhere near that number on most cities, most counties, school districts. But the proposal is to, if it, if it is above 2.5% now it goes to a vote.
If you look across the state, you know, historically you don't have values rising that much. The affordability of Texas for homes used to be so much cheaper. Relative to other major cities in the nation right now, it's still is cheaper relative to other cities on the east and west coast. However, that, that affordability is slowly eroding because of the growth. That's one the issues that the legislature and the Governor I think wants to address is to make sure people still have that affordability. Therefore, they're proposing to lower those property taxes and keep them at a 2.5% increase a year.