Senator Robert "Bob" Deuell, M.D.
The Texas State Senate
District 2

For Immediate Release
January 14, 2005

***CAPITOL UPDATE***

Issues Facing the 79th Legislature

(AUSTIN) - On Tuesday, January 11th, the 79th Texas Legislature officially got under way at the State Capitol in Austin. This is my second session representing the citizens of Senate District Two, and I am eager to get started.

We will face and debate many issues in the next five months, including school finance reform, worker's compensation, transportation, water policy, and crafting the state's biennial budget. Recently, the Senate Research Center issued a publication entitled "Issues Facing the 79th Legislature." This article is taken from that publication, and more issues from the report will be highlighted in future Capitol Updates. To view the entire report, please go to www.senate.state.tx.us or call my office to receive a hard copy.

BUDGET
The 2006-2007 Biennial Revenue Outlook

In accordance with Article III, Section 29a, of the Texas Constitution, in January 2005, the Comptroller of Public Accounts (comptroller) will issue the Biennial Revenue Estimate (BRE) Report (79th Texas Legislature, 2006-2007) that presents the revenue estimate for the remainder of fiscal year (FY) 2005 and projects the anticipated revenue available for the 2006-2007 biennium. The BRE provides the framework for determining the amount of money the legislature will be able to appropriate for the biennium.

In a September 23, 2004, press release, Comptroller Carole Keeton Strayhorn announced that "due to a rebounding state economy, a successful comptroller tax amnesty program and strong tax collections from oil and gas companies, Texas' general revenues finished fiscal 2004 $1.8 billion higher than in 2003." The press release went on to state that FY 2004 general revenues increased by 6.4 percent over FY 2003 general revenues, the highest growth rate since FY 2001. While major indicators point to the possibility of even stronger growth in coming months, Strayhorn cautioned against any premature revision of the revenue estimate.

The vast majority of general revenue (GR) will come from sales taxes. Other major sources of GR and GR-dedicated revenues are: motor vehicle sales taxes, franchise taxes, natural gas taxes, insurance premium taxes, tobacco settlement proceeds, and lottery proceeds.

Synopsis of the Budgets: Fiscal Year 2003 and Fiscal Years 2004-2005
In January 2003, the comptroller announced that in the absence of action by the 78th Legislature, Regular Session, there would be $7.4 billion less in GR funds available for the 2004-2005 biennial budget than was available for the 2002-2003 biennial budget, including a $1.8 billion shortfall in GR funds for the second year of the 2002-2003 biennium. Based on certain assumptions regarding spending needs made by the comptroller, coupled with revised revenue projections between the biennia, the comptroller told the 78th Legislature, Regular Session, that legislators would be facing a total deficit of $9.9 billion.

In response to the estimated shortfall in GR funds for the 2004-2005 biennium, the 78th Legislature, Regular Session, took a three-pronged approach that entailed reducing the FY 2003 budget; reducing the 2004-2005 biennial budget and making concomitant policy changes; and taking actions to increase the amount of GR funds available for appropriation.

Fiscal Year 2003 Budget Reductions
In January 2003, the governor, lieutenant governor, and speaker of the house directed all state agencies and institutions of higher education to reduce FY 2003 GR and GR dedicated expenditures by seven percent. This budget reduction plan led to the enactment of H.B. 7, 78th Legislature, Regular Session, that provided for $1.4 billion in savings from GR and GR-dedicated funds. In addition, H.B. 7 appropriated $450 million from the Economic Stabilization Fund (ESF or "Rainy Day Fund") to alleviate the budget shortfall for FY 2003.

Fiscal Year 2004-2005 Budget Reductions and Policy Initiatives

In the effort to align the 2004-2005 budget with reduced available revenues, the 78th Legislature, Regular Session, instructed all agencies and institutions of higher education to prepare a modified legislative appropriation request (LAR). These modified LARs provided agencies and institutions of higher education with a baseline amount (known as the Initial Relevant General Revenue Amount (IRGRA)) that was 87.5 percent of their 2002-2003 appropriation levels. Beginning with the newly calculated IRGRA, agencies were directed to prioritize their budgetary needs into "building blocks," integrating program and service needs. Agencies were allowed to request additional funds above the IRGRA, if the agency determined that there was a need. The 2004-2005 General Appropriations Act passed by the legislature totaled $2.6 billion less in GR funds than the 2002-2003 biennial spending level. In addition to the reductions in expenditures, the 78th Legislature appropriated an additional $811 million from the ESF (H.B. 7, 78th Legislature, Regular Session), initiated program policy changes, and reorganized numerous state agencies. For example, H.B. 2292, 78th Legislature, Regular Session, consolidated 12 health and human services agencies into five agencies and was estimated at that time to produce a savings of $1 billion for the 2004-2005 biennium.

Revenue Changes and Other Actions
The 78th Legislature acted on a number of measures to increase available GR funds for the 2004-2005 biennium, including consolidating funds into the GR fund; extending an assessment on telecommunications; creating a tax amnesty program; closing certain tax loopholes; maximizing returns from the Permanent School Fund; and authorizing the state's participation in a multi-state lottery. These actions increased the amount of GR funds available for appropriation by $1.8 billion for the biennium.

To contact Sen. Deuell about the legislative process, contact the Capitol Office at (512) 463-0556 or mail to Sen. Bob Deuell, Texas Senate, P.O. Box 12068, Austin, TX 78711. The website for the Texas Senate is www.Senate.state.tx.us. The e-mail address for Sen. Deuell is: bob.deuell@senate.state.tx.us.

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