Officials Adopt Spending Cap for Next Budget

^{*Editor's note: This story has been updated throughout.}

The Legislative Budget Board voted unanimously Monday to set the state’s growth rate at 11.68 percent for its next two-year budget, about 1 percent higher than the spending cap for the current budget.

The decision comes as state officials expect to enter the next legislative session in January with a multibillion-dollar surplus and competing factions are pushing to ramp spending growth both down and up.

The budget board — made up of Lt. Gov. David Dewhurst, House Speaker Joe Straus, and four members each of the state House and Senate — selected the rate with little discussion, though the decision could have a big impact on next year’s legislative session.

The growth rate guides how far the next budget can exceed the current one in spending on “nondedicated revenue,” which are the parts of the budget that are funded by state taxes but not required to go to specific programs. In practice, the growth rate puts a spending cap on less than half of the state’s two-year budget. State leaders have indicated they have no plans to attempt to "bust the spending cap" next year, a move that would require the support of a majority of lawmakers.

In one of his last public acts before he steps down as lieutenant governor next month, Dewhurst expressed confidence that the next Legislature won't feel hamstrung by the spending limit selected Monday.

“I believe we are going to have enough funds with our surplus and our economy continuing to grow to meet all of our essential priorities,” Dewhurst said.

The Legislative Budget Board traditionally sets the growth rate based on the estimated rate of growth in Texans' personal income over the next two years. Two years ago, LBB staff provided five forecasts for personal income growth ranging from 8.71 percent to 12.21 percent. The LBB picked a mid-range figure of 10.71 percent. This year, LBB staff offered four options over a smaller range. The comptroller’s office had the most pessimistic take, predicting personal income will grow over 2016 and 2017 at 11.68 percent. Moody’s Analytics had the most optimistic forecast, at 15.71 percent.

Dick Lavine, a senior fiscal analyst for the liberal Center for Public Policy Priorities, estimated that picking the Moody’s figure would have given the next Legislature $3.4 billion more to work with under the spending cap. By going with the lowest rate offered to them, the LBB cut off lawmakers from having a more thorough discussion next year of how the state should be addressing its competing needs, he said.

“There’s no reason to prejudge that by picking the lowest possible number,” Lavine said. “They could have left themselves the room.”

In the past, legislatures have passed budgets within the spending cap with little trouble, prompting some critics to argue that the cap should be tightened. Since 2012, the conversation has shifted as Texas’ coffers have swelled by billions of dollars, in large part because of an oil drilling boom. Along with conservative groups calling for tightening the cap, others have advocated for busting the cap to address issues like crumbling infrastructure and public education needs. 

"It is important to remember that the limit is a cap, not an obligation," said Dale Craymer, president of the business-backed Texas Taxpayers and Research Association. "Legislators should continue to exercise restraint as they begin work on the 2016-17 state budget.”