Local property taxes and debt levels are reaching the breaking point in Texas, and both Gov. Greg Abbott and lawmakers are taking note.
Today, approximately 41 states impose some form of tax and expenditure limit on their political subdivisions. However, while state-level spending in Texas is constitutionally constrained, local governments such as cities, counties, and schools face little to no restraints.
Whether it be in aggregate, or on a per-capita basis, the Lone Star State now holds the distinction of having the 2nd largest local debt in the nation. Most local debt is repaid with higher property taxes.
Unlike the state government, Texas’ local governments do not have a uniform spending limit to encourage fiscally responsible budgeting.
Figures provided by the U.S. Census Bureau show that between 1992 and 2014, aggregate local spending increased 221 percent. In the same period, population and inflation increased by a combined 122 percent, indicating that local governments are growing well beyond the ideal. This increase in spending not only leads to higher local property tax rates (where Texas ranks sixth-highest in the nation), but also may lead to waste and inefficiency as well as having negative effects on the economy and jobs.
Solutions floated by policy experts have existed for years, including applying the state’s tax and expenditure limits (“TELs”) but tying it to the lesser of: population and inflation, total state personal income, or total state gross product. Using actual data instead of projections would also lead to more accurate budgeting.
Data compiled by the Texas Scorecard indicates that across the board, the trend is for most Texas municipalities’ expenditures to exceed population and inflation growth by some factor, with large cities representing the significant gaps. Inflation was selectively applied using averages of the consumer price index figures from the Bureau of Labor and Statistics for the Dallas and Houston metro areas and a state average. Population data was provided by the U.S. Census Bureau.
With this issue front-and-center as one of Gov. Greg Abbott’s priorities for the special session, Texas Municipal League, a tax-funded government association representing the interests of cities and public-sector unions, characterized Abbott’s special session charges a “recipe for disaster” and as “sweeping restrictions on local voters having a voice.” Ironically, many of the reforms supported by Abbott and conservatives would instead empower voters, protecting them from local government overreach. Given the proposed legislation is also said to include a provision that allows cities to spend outside this limitation with approval from voters through an election, TML’s assessment is simply untrue.
In his layout of SB 18 before the Senate Select Committee on Government Reform, Sen. Craig Estes (R-Wichita Falls) explained his bill. Estes’ opening remarks noted that the state currently operates (and has for decades) under four constitutional fiscal restraints: a debt limit, welfare spending limit, pay-as-you-go limit, and a limit on the growth of certain expenditures.
Under the proposed law, county and municipal expenditures would be limited by the product of inflation and the rate of growth in population.
If the result would be negative, those expenditures would be capped at the preceding years’ level. Should a political subdivision wish to exceed the new limit, an affirmative local vote would be required.
Estes also carved out an exemption for localities subject to a disaster designation issued by the governor. Further excluded from the law are certain sources of revenue, like voter-approved bond revenue and grants, gifts, and donations (using the example of a state grant from the 85th legislature to provide rifle-resistant body armor).
Moving forward, Estes plans to address concerns on the way to floor consideration. Among the issues he’ll be addressing are: an exemption for expenditure of cash reserves or from the sale of assets, using targeted local population growth figures, municipally owned utility expenditures based solely on fuel costs, and adjustments to the proposed election date.
The bill passed out of committee by a 5-2 party-line vote and now proceeds to the senate floor to be voted on and then sent to the house, where it’s fate is far less certain.