State Budget Outlook for the 2022-23 Biennium

May 29, 2020

Legislative News

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Driven by the COVID-19 pandemic and a dramatic decline in oil prices, Texas Comptroller of Public Accounts Glenn Hegar warns of a revenue shortfall of billions of dollars for the 2022-23 state biennial budget. On May 20, state leaders directed state agencies, appellate courts and higher education institutions to submit plans to reduce their budgets for the current biennium by 5%. These plans are due by June 15 to the Legislative Budget Board and the Office of the Governor.

The Texas Division of Emergency Management, the Texas Department of State Health Services, the Texas Department of Public Safety and the Texas Workforce Commission are not required to prepare 5% reduction plans, due to their role in the state's response to the pandemic. Other programs exempted from reduction plans are the Foundation School Program, Child Protective Services, Texas Department of Criminal Justice appropriations for correctional security and the Correctional Managed Health Care program, Medicaid and debt service obligations.

State leadership also warned of additional reductions in agency budget requests for the 2022-23 biennium, indicating further guidance would be provided in the Legislative Appropriations Request (LAR) instructions, set to be released next month. Senate Finance Committee Chair Jane Nelson said that as she meets with state agencies to review appropriation requests, she will "begin at zero." While the impacts of these reductions on Texas counties cannot be determined yet, counties can expect reductions in the limited funding they do receive through the state budget.

County grant programs funded by the General Revenue Fund and General Revenue-Dedicated Accounts are the most vulnerable to cuts. The General Revenue Fund is the state’s primary operating fund, with the majority of its receipts (over 54%) coming from sales tax revenue. General Revenue-Dedicated accounts are statutorily dedicated funds whose balances can be used to certify General Revenue spending. Continued funding for the County Transportation Infrastructure grant program in the 2022-23 state budget may also be at risk, given the downward trend in sales, oil and gas and motor fuel tax receipts deposited to the State Highway Fund.

The upcoming state budget covers a two-year period, which begins on September 1, 2021, and ends on Aug. 31, 2023. The Comptroller is expected to issue a revised revenue forecast in July that takes into account declines in retail sales and oil and gas production.

In prior economic downturns, the Texas Legislature has combined across-the-board budget cuts, cost-shifting measures and the use of the Economic Stabilization Fund (ESF) to address anticipated budget deficits. Prior cost shifts enacted by the Legislature include tuition deregulation, first enacted in fiscal year 2003, and reductions in grant funding to counties, such as indigent defense formula grants, local mental health authority grants, state contributions for juror pay and community supervision programs for adult and juvenile offenders. Cuts in funding or underfunding state programs also contribute to cost shifting from the state to county government. For example, delays in increasing forensic bed capacity at state hospitals increase county jail operating costs and liability.

Typically, the first step in establishing across-the-board cuts is requiring agencies to submit their biennial budget requests, known as a LAR, at levels below their current funding levels. Restored funding for affected programs can be requested in a LAR through special requests, known as exceptional items. County officials and other stakeholders can also speak to the need for affected programs at public hearings on state budget requests held before and during the legislative session.

Past across-the-board reductions that the state’s leadership has required as a starting point for budget deliberations have been between 2.5% and 12.5%.

Action Legislative Session Biennial Budget Reduction Amounts
Zero-based budgeting 78th 2004-05 "Zero" funding in the appropriations bills introduced by the governor and the Legislative Budget Board.

Agencies submitted essential building blocks for their budgets, which when accumulated were equal to 87.5% of 2002-03 General Revenue and GR-Dedicated funding levels.

In addition, agencies submitted 7% cuts for their FY2003 budgets.
Across-the-board cuts – usually communicated via the policy letter that accompanies the LAR instructions. Programs exempted from reductions: the Foundation School Program, border security, Medicaid, Children’s Health Insurance Program, debt service requirements, etc. 80th 2008-09 10% reduction
80th interim 2008-09 2.5% reduction in FY2009
81st 2010-11 10% reduction options schedule
81st interim 2010-11 5% reduction in 2010-11
81st interim 2010-11 2.5% reduction in FY2011
82nd 2012-13 5% reduction and 10% reduction options schedule
83rd 2014-15 10% reduction options schedule
84th 2016-17 10% reduction options schedule
85th 2018-19 4% reduction and 10% reduction options schedules
86th 2020-21 10% reduction options schedule
86th interim 2020-21 5% reduction in 2020-21

The next major step in the state budget process is releasing LAR instructions, which should include guidance regarding additional reductions for 2022-23 budget requests. TAC staff will share analysis and information regarding state budget cuts and their impact on counties in preparation for and during the 87th Legislative Session. For information on the content of this article, contact Zelma Smith.