An Assessment of the Texas Economy and State and Local Finances

Transcription

1 An Assessment of the Texas Economy and State and Local Finances March 7, West 15 th Street, Suite 400 Austin, Texas

2 Agenda 1. The Economic Outlook 2. The State Budget Outlook 3. Hot Topics of the Day (and 2019) a. Property Tax Revenue Limits i. House/Senate Failure to Compromise ii. Governor Abbott s Proposal b. Who s Responsible for Property Tax Increases? c. Sales Tax/Property Tax Swap d. Property Tax Campaign Promises

3 The Economic Outlook

4 Recent U.S. Economic Expansions Period of Expansion Months Job Growth Annualized Job Growth Feb 1961 Dec % 3.2% Nov 1970 Nov % 3.1% Mar 1975 Jan % 2.9% Dec 1982 Jul % 2.9% Mar 1991 Mar % 2.1% Nov 2001 Dec % 1.4% June 2009 Ongoing % 1.5%

5 US Economic Outlook: The Green Slow recovery suggests still more room to grow Federal tax reform should increase business investment Oil/gas outlook appears to be somewhat stable with WTI price hovering in upper $50s

6 Economic Outlook: The Yellow Federal tax reform may be perceived as unsustainable, limiting the beneficial impact of the tax cuts Rising interest rates could discourage some new investment Tightening labor markets could limit business expansion and/or fuel inflation pressures Rising federal deficits

7 Texas & US Job Growth Percent Change from Same Month in the Prior Year 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% Texas United States -6%

8 Texas & US Job Growth Percent Change from Same Month in the Prior Year 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% Texas United States -6%

9 3.5% Explaining the Texas Miracle Texas Job Growth in Excess of US Job Growth 3.0% 2.5% Diff of Texas Jobs Growth vs US 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0%

10 Explaining the Texas Miracle Texas Job Growth in Excess of US Job Growth 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% Diff of Texas Jobs Growth vs US Oil Price Per Barrel $160 $140 $120 $100 $80 $60 $40 $20 $0

11 18% 16% 14% 12% 10% 8% 6% 4% 2% Oil and Gas Extraction as Percent of Texas Economic Output, 1970 to present 0%

12 Oil and Gas Still Matter Texas produces 44 percent of all U.S. on-shore crude (2016) Texas produces 27 percent of all U.S. on-shore natural gas (2016) Texas s economy is 5 times more dependent on oil and gas than the U.S. as a whole

13 The State Budget Outlook

14 The Budget (General Revenue $ billions) Key Items $ Change % Change Public Education $41.6 $41.0 ($0.6) (1.5 %) Higher Education $14.7 $14.9 $ % Health/Human Svcs $33.6 $33.5 ($0.1) (0.3 %) Public Safety $11.6 $11.4 ($0.2) (1.6 %) Other $6.5 $6.0 ($0.6) (9.0 %) Total Spending $108.0 $106.7 ($1.3) (1.2 %)

15 The Budget Outlook: Going from Really Bad to Just Bad Comptroller Hegar certified the budget as balanced with $94 million unspent. Legislature used a variety of one-time measures to balance the Budget creating a structural gap initially estimated at $8 billion (including a $2 billion Medicaid shortfall) Thanks largely to better-than-expected revenue performance, that gap may be down to $5 to $6 billion but Hurricane Harvey storm damage could require $2 billion or more not currently in the budget

16 One-Time Budget Shifts Net Biennial Funding Mechanism Savings/Gain Cost Shift Hwy Sales Tax Shift $1.8 ($1.8) ($3.6) Funds Consolidation $0.7 $0.0 ($0.7) Tax Amnesty <$0.1 <$0.0 <($0.1) Accelerated sale of unclaimed property $0.5 $0.0 ($0.5) Hwy Dedication Increase N.A. ($0.3) (0.3) MV Sales Tax for Hwys N.A. ($0.8) ($0.8) Total $3.0 ($2.8) $(5.9) Medicaid Funding Shortfall $2.0 $0.0 ($2.0) Total Structural Gap ~($7.9)

17 One-Time Budget Shifts Net Biennial Funding Mechanism Savings/Gain Cost Shift Hwy Sales Tax Shift $1.1 ($1.1) ($2.2) Funds Consolidation $0.7 $0.0 ($0.7) Tax Amnesty <$0.1 <$0.0 <($0.1) Accelerated sale of unclaimed property $0.5 $0.0 ($0.5) Hwy Dedication Increase N.A. $0.0 $0.0 MV Sales Tax for Hwys N.A. ($0.2) ($0.2) Total $2.3 ($1.3) $(3.7) Medicaid Funding Shortfall $2.0 $0.0 ($2.0) Total Structural Gap ~($5.7)

18 The Budget Outlook Legislature in 2019 will have to deal with emergency items that may draw from the ESF (Rainy Day Fund): o o $1 to $2 billion for Medicaid $1 to $4 billion for Hurricane Harvey impacts Budget for will be tight, similar to last session. There will be no tax cuts or relief that cost the state money: o o Property tax cuts will have to be offset by other taxes, and Property tax limitations do not impact state finances.

19 Hot Topics of the Day (and 2019)

20 Property Tax Revenue Limits

21 Senate/House Rollback Limits Provision Senate House Applies to Cities, Counties, and Special Districts levying more than $20 million in total property tax Rollback Limit 4% 6% Petition/Electi on Rqmts Other Provisions Automatic election; no petition required Jurisdictions levying less than $20 million in tax must have opt-in election Cities, Counties, and Special Districts levying more than $25 million in property tax for M&O Automatic election; no petition required All Junior College districts remain under current law rollback provisions

22 Governor Abbott s Proposal Provision Applies to Property Tax Revenue Limit Petition Reqts Other Provisions Elements ALL Cities, Counties, Special Districts AND School Districts that levy a property tax with NO minimum threshold 2.5% (but can add population plus inflation with voter approval) Automatic election (2/3 vote needed); no petition required; Local debt restrictions Real time tax notice Appraisal Review Board reforms CAD boards of elected officials

23 Jurisdictions Affected under the Revenue Limitation Proposals Senate House Governor (i.e. all districts) School Districts 0 0 1,018 Cities ,207 Counties Special Districts ,039

24 Who s Responsible for Property Tax Increases?

25 Growth in Texas Property Taxes $60 $50 $ Billions Growth Relief Recession Recovery $40 $30 School Districts $20 $10 Cities Counties $0 Special Districts

26 Average Annual Property Tax Increase, by Period Special Districts Counties Cities School Districts : Growth 8.6% 8.3% 6.8% 8.6% : Relief 11.8% 10.6% 9.6% (3.3%) : Recession (0.2%) 2.1% 1.8% 1.2% : Recovery 10.3% 6.0% 6.1% 6.3% : Overall 7.9% 6.7% 6.1% 5.1%

27 $9,000 Property Values in School Finance $8,000 $7,000 $6,000 $5,000 State guarantees $5,140 in revenue per student at a $1.00 tax rate Recaptured Property Tax $4,000 $3,000 $2,000 $1,000 $0 State Aid Unrecaptured Property Tax Property Value Per Student (WADA)

28 Property Values in School Finance $9,000 $8,000 $7,000 $6,000 $5,000 District A $3,000 Property Tax $2,140 State Aid $5,140 Guaranteed District B $3,500 Property Tax $1,640 State Aid $5,140 Guaranteed Recaptured Property Tax $4,000 $3,000 $2,000 $1,000 State Aid Unrecaptured Property Tax $0 Property Value Per Student (WADA)

29 Property Values in School Finance $9,000 $8,000 $7,000 $6,000 $5,000 District A, Year 1 $3,000 Property Tax $2,140 State Aid $5,140 Guaranteed District A, Year 2 $3,500 Property Tax $1,640 State Aid $5,140 Guaranteed Recaptured Property Tax $4,000 $3,000 $2,000 $1,000 State Aid Unrecaptured Property Tax $0 Property Value Per Student (WADA)

30 School Truth in Taxation A school district s effective tax rate is the rate that allows the school district to raise the same amount of total revenue (state + local property tax) per student as the previous year (Education Code ). Unlike a city/county/special district, rising values do not force down a school district s effective tax rate because rising values cause a loss of state aid Essentially district s must hold tax rates steady in the face of rising values to compensate for a loss in state aid

31 Sales Tax/Property Tax Swap

32 Sales Tax/Property Tax Swap Supporters Say: Property tax is the most economically damaging tax Property tax punishes accumulation of wealth Sales tax most acceptable tax to public Swap will be good for economic growth Opponents Say: Are crazy???

33 Sales Tax/Property Tax Swap $100 $90 $93.3 bl. $80 $70 $60 $56.1 bl. $50 $40 $37.2 bl. $30 $20 $10 $0 Current Sales Tax Current Property Tax New Sales Tax

34 Range of Sales Tax Options to Replace All Property Taxes Total Tax Rate ~ 25% Expand Tax Base Raw Materials Gas & Electricity (Industrial & Home) Manufacturing Equipment & Machinery Groceries and all other consumer items Services (Lawyers, Doctors, Construction, etc.) Agricultural equipment & supplies Advertising Motor Fuels Real Estate Sales Insurance Premiums Another $12 billion to be named later

35 Sales vs Property Tax: Refinery Assessed Value: $5 bl. 600,000 bpd processed $2.30 Property Tax Rate Assessed Value: $5 bl. 600,000 bpd processed 6.25% Sales Tax Rate Property Tax Bill: $110 million Sales Tax Bill: $687 million

36 Swap Opponents Say A massive sales tax would create HUGE economic distortions Massive tax avoidance (especially consumers buying items on the Internet, though Quill in question) Increase net taxes on lower income families Increase net taxes on renters Create an incredible shock to (some) local governments Make it impossible to issue local debt

37 Property Taxes by Jurisdiction Type Total 2016 Property Taxes: $56.1 billion School Debt, $6.2 City, $9.2 School M&O, $23.7 County, $9.0 Special District, $8.0

38 Range of Sales Tax Options to Replace Just School M&O Total Tax Rate ~ 14.5% Expand Tax Base Gas & Electricity (Industrial & Home) Manufacturing Equipment & Machinery Groceries & Water Medicine Services (Lawyers, Doctors, Construction, etc.) Agricultural equipment & supplies Motor Fuels Insurance Premiums

39 School Tax Substitution Questions How will you rewrite school formulas to distribute money? Do you allow a property tax for school enrichment? (if so, schools are still a line on your tax bill) If you expand the sales tax base, do you enrich cities and counties that levy a sales tax? What is the shift in incidence: o Across businesses? o Between businesses and individuals? How do you administer a sales tax on services?

40 Is Sales Tax Due?

41 Schlueter s Axiom on Tax Reform No one thanks you for the taxes you cut, but they will remember you for the taxes you raised.

42 Property Tax Campaign Statements

43 Taxes and the Campaigns: Governor Gregg Abbott (R) Limit property tax growth (details covered earlier) Andrew White (D) Close the $5 billion loophole in an appraisal system that favors commercial and industrial property ( equal and Uniform?) Lupe Valdez (D) No initiatives stated

44 Taxes and the Campaigns: Lt. Governor Dan Patrick (R) Allow voters to vote on property tax increases (i.e., automatic elections) Extend 0ver 65 tax freeze to city/county/special district property taxes (current law applies only to schools) Mike Collier (D) Eliminate the use of equal and uniform appeals Require disclosure of property sales price Eliminate attorneys fees for taxpayers prevailing in litigation over appraisal

45 The Monster No One s Talking About, yet Split Roll: Categories of property are taxed differently, either by: Properties may be split between local and state taxation, or Property may be appraised or taxed at a different nominal rate than other properties.

46 Thanks for Joining Us! If you have any questions or comments, please feel free to contact TTARA staff. State Budget & Fiscal Issues: Dale Craymer Sales & Property Tax: John Kennedy School Finance: Sheryl Pace Property Tax: Debbie Cartwright Franchise Tax & Tax Adminin: Matt Migliore Communications: Ryan Ash Office Manager: Betty Wranischar Membership: Cindy Ferguson (512)