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Ending budget diversions

Tuesday, February 10, 2009

This Bill:

  1. By September 2011, ends the “funds consolidation” process – which currently allows Dedicated Funds (the Parks fund, Texas Emissions Reduction Plan, Trauma Facility & EMS Fund, etc.) to be raised for specific purposes but then diverted to balance the budget.
  2. Gives the Comptroller and state agencies 18 months to plan for the resulting decrease in the certified budget.
  3. Provides a “release valve” by maintaining the 82nd Legislature’s ability to consolidate funds by majority vote.
  4. Extends funds consolidation for one more biennium (2010-11), so no immediate budget impact is expected.


Background:

  • “Funds consolidation” has been approved by the Legislature every session since 1991.
  • Funds consolidation allows the Comptroller to “sweep” unappropriated balances from dedicated funds into General Revenue during a shortfall to balance the budget.
  • With this ability, the Comptroller can increase the certified budget by the total amount of unappropriated balances in the dedicated fund accounts, counting these accounts essentially as reserves.
  • Despite occasional budget shortfalls (such as in 2002), cash in the dedicated fund accounts has never been “swept” by the Comptroller into General Revenue to any significant degree, even though such action would have helped in balancing the budget.
  • Fund balances have increased dramatically over the years.


How:

  • The bill instructs the Comptroller to write the Biennial Revenue Estimate for 2012-13 on the assumption that the Legislature will not allow funds to be diverted.
  • It acknowledges current budget difficulties by allowing funds consolidation through the 2010-11 biennium.
  • It creates a transition away from these diversions before the 2011 session, allowing the Comptroller and state agencies to develop a more transparent budget process and address the reduction in the certified budget.


Why:

  • This bill would allow Dedicated Fund balances to be spent on their intended purposes, freeing them from this “captive” role in the budget process.
  • It would end these types of budget diversions or, at least, require an explicit legislative vote to continue them.
  • It would require more transparent revenue forecasts and a budget-writing process that reflects how the state really raises and spends money.
  • It would end a means by which state government can justify high spending without declaring where money actually will come from.


Relevant Statistics:

  • While funds consolidation has been in place for nearly 20 years, money has never been swept from established dedicated fund accounts to cover budget shortfalls.
  • Instead, the state has turned to budget cuts during budget downturns.
  • Unappropriated balances available for diversion from these funds had grown to $3.1 billion for the 2008-09 budget.
  • In every year at least since 1997, actual revenues have exceeded revenues projected in the Biennial Revenue Estimates, and the state has almost never even needed to sweep Dedicated Funds.