No relief expected from unfunded, underfunded state mandates

By Zelma Smith

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Knowledgeable observers are predicting that the state budget shortfall for fiscal 2022-23 will surpass the estimated $27 billion budget gap in 2011 due to the Great Recession. Counties can expect the state to shift more of the costs of underfunded and unfunded state requirements, such as indigent defense, indigent health care and holding inmates for the Texas Department of Criminal Justice at county jails, onto them. 

Current budget estimate revised to $4.6 billion deficit 

On July 20, Texas Comptroller Glenn Hegar revised the 2020-21 Certification Revenue Estimate (CRE) and now projects a $4.6 billion deficit for the current two-year budget that ends on Aug. 31, 2021. The shortfall, which Hegar attributes to the COVID-19 pandemic and recent volatility in oil prices, is a decrease from the $2.9 billion surplus he projected in October 2019, before the pandemic began. 

The revised estimate does not include the impact of instructions from state leaders directing most agencies to reduce their spending by 5% from 2020-21 general revenue-related appropriations. These savings will reduce the projected deficit for the 2020-21 budget and be captured in a supplemental appropriations bill for the current budget when lawmakers convene in January 2021.

Possible budget strategies for fiscal 2022-23

Two strategies deployed during previous budget shortfalls may further reduce the limited funding counties receive from the state. These include: 

Reductions to grants to local governments and nonprofit organizations.

Increased reliance on unexpended balances from dedicated revenue streams.

Reductions to grant programs – This strategy was used in the 5% reduction plans of the 2020-21 biennium. The instructions for the reduction include a category for grants and pass-through funds to counties, cities and nonprofit organizations. According to the letter from Gov. Greg Abbott, Lt. Gov. Dan Patrick and Speaker Dennis Bonnen, behavioral health programs are exempt from the 5% cutbacks. This exemption presumably extends to grants to county jails for inmate mental health and substance abuse services and local mental and behavioral health authorities. 

Items at risk, many of which are already underfunded, include:

  • Indigent defense grants.
  • Basic supervision and community corrections grants for community supervision and corrections departments.
  • Local law enforcement grants
  • The Indigent Health Care Reimbursement Program.
  • Trauma and emergency medical service (EMS) programs that support county and regional EMS providers and regional advisory councils and offset uncompensated trauma care at designated facilities.
  • Grants to councils of government for the 911 statewide emergency communications network.
  • Purchases of firefighting vehicles and equipment and firefighter training for volunteer fire departments.

Grant programs targeted for a 5% reduction are discussed below.

Local Law Enforcement Grants: The Department of Motor Vehicles proposes a $1.2 million reduction to grants for local law enforcement officers and their operating expenses in automobile burglary and theft task forces, and to rapid response strike force grants to local law enforcement for border and port security operations. 

911 Equipment Replacement: The Commission on State Emergency Communications' plan is proposing a $7.7 million cut by deferring 911 equipment replacement and by making other reductions. Delaying replacements and upgrades could affect service and safety, especially as new digital communication technologies that cannot access the current 911 network become more widely used by the public.

Reliance on unexpended balances in General Revenue-Dedicated accounts – The state has a long-standing practice of using balances in General Revenue-Dedicated accounts to cover spending in the biennial appropriations bill. Over time, reliance on General Revenue-Dedicated accounts to certify the budget has grown as accounts were added and their revenue exceeded appropriations. In 2019, Hegar used an estimated $5.8 billion in General Revenue-Dedicated account balances to certify the 2020-21 state budget — more than 10 times the amount used for the 1992-93 state budget.

There are over 200 General Revenue-Dedicated accounts appropriated throughout the state budget, and each is statutorily dedicated to a particular purpose, such as drug courts, uncompensated health care, economic development and measures to meet national air quality standards. Many of these accounts fund grants to counties. In fact, both grant programs targeted for 5% reductions are supported by General Revenue-Dedicated accounts.

The county grants administered by the Texas Indigent Defense Commission may be the most vulnerable. As with other grant programs, it is under scrutiny and could face additional cuts in the 2022-23 budget. A General Revenue-Dedicated account, the Fair Defense account, is the primary source of its funding. Roughly 90% of the account's revenue comes from court costs — a revenue source already on a downward trajectory, which the pandemic has accelerated. The unappropriated balance in the account used to certify the 2020-21 state budget was $24.8 million. Statewide, indigent defense costs totaled $300 million in 2019, and counties paid 90% of those costs and state grants paid the rest.  Appropriating the balance in the Fair Defense account for state grants would have reduced the county’s share of indigent defense costs from 90% to 82%.