Texas House, Senate approve budget deal with agreements on school finance, property taxes, Hurricane Harvey recovery

The Texas Legislature advanced a $250.7 billion two-year budget Sunday, ending weeks of deliberation over how much money to spend on the 2019 legislative session’s two highest priorities: public school funding and property tax relief.

The spending plan, House Bill 1, now heads to Gov. Greg Abbott, who may veto individual line-items he objects to.

“HB 1 is a conservative budget that pays for the needs of this state,” said state Rep. John Zerwas, a Richmond Republican and the lower chamber’s chief budget writer.

“In the beginning of session, I polled every member of this body about your top priorities this session, and all 31 members [of the Senate] had the same answer: public education, teacher pay, property tax relief,” said state Sen. Jane Nelson, a Flower Mound Republican who oversaw the budget in the upper chamber. “That’s what we set out to do this session, and that’s exactly what we’re doing.”

The approved $250.7 billion, made up of state taxes and fees, local property tax dollars and federal funds, marks a 16% spending increase over the two-year budget approved by lawmakers in the tight-fisted 2017 legislative session. The House approved the spending plan with just one no vote, from state Rep. Jonathan Stickland, R-Bedford. The Senate unanimously approved the budget later Sunday evening.

Facing a cautiously optimistic fiscal forecast, lawmakers expect to have an additional $10 billion or so to spend over the next two years, compared with the previous budget cycle. They agreed to allocate $6.5 billion in new state funding for schools and $5.1 billion to buy down Texans’ local property taxes, which state dollars supplement to pay for public education.

In total, the section of the state budget that allocates funding for public schools and universities includes $94.5 billion, up 16% from two years ago, according to the Legislative Budget Board. Excluding money set aside to give property owners a tax break, the nonpartisan budget agency calculates the education portion of the budget to have grown 10%.

The budget also includes $84 billion for health and human services programs, up just 1% from the last two-year budget cycle. Lawmakers ordered a roughly $900 million cut to Medicaid, the federal-state health insurance program for the poor and disabled that makes up most of the state’s health care spending. The Texas Health and Human Services Commission will be responsible for identifying cost-cutting measures. Additionally, lawmakers underfunded Medicaid’s expected costs, which will almost certainly require lawmakers to pass a supplemental spending plan in 2021 to pay leftover bills.

Lawmakers didn't spend any money from the state’s savings account, known as the Economic Stabilization Fund or “rainy day” fund, on the 2020-21 budget. Instead, they authorized a record-breaking $6.1 billion withdrawal from the state savings account as part of a supplemental budget, which mostly covers unpaid bills that weren't accounted for in the 2018-19 state budget. Not counting the withdrawal, Texas Comptroller Glenn Hegar has predicted the savings account would reach an unprecedented $15 billion balance over the next two years.

Nelson said the supplemental budget will spend an additional $1.7 billion in state funds, mostly for leftover Medicaid and foster care expenses. The money from the Economic Stabilization Fund will mostly pay for large-scale infrastructure projects and Hurricane Harvey recovery.

Those projects include:

• $1.7 billion to create the Texas Infrastructure Resiliency Fund and the Flood Infrastructure Fund, which will help local governments draw down federal disaster recovery funds and pay for long-term infrastructure projects by the U.S. Army Corps of Engineers;
• $445 million to construct new state mental hospitals, including a 100-bed unit at Rusk State Hospital, a 240-bed replacement campus of the Austin State Hospital and a 300-bed replacement campus of the San Antonio State Hospital;
• $100 million for school districts to purchase school safety upgrades such as doors with push bars, metal detectors at school entrances and security systems, and $11 million for Santa Fe Independent School District, which experienced a mass shooting last year that left 10 dead and 13 wounded; and
• $80 million for repairs to Texas prisons and surveillance cameras at the Texas Department of Criminal Justice.

Lawmakers had also floated spending an additional $100 million from the state savings account to expand a “surge” operation along the Texas-Mexico border, but both chambers voted Sunday to strip the last-minute border funds. And the supplemental budget includes about $220 million in state funds to help Texas pay a financial penalty to the federal government for illegally decreasing funding for kids with disabilities and avoid a future penalty.

State Sen. Bob Hall, an Edgewood Republican who was the upper chamber’s lone no vote on the supplemental budget, said he’d heard concerns from constituents that the supplemental budget spent too liberally on items that could be considered recurring expenses.

Nelson downplayed the concerns. “We were very cognizant of making sure that the things we were funding were one time, not recurring,” she said.

School funding and property taxes proved to be the biggest sticking points between the two chambers, which began their discussions on school finance and tax reform in January using recommendations from a state-sponsored school finance panel.

Their paths immediately diverged when the Senate unanimously endorsed a proposal to give $5,000 pay raises for all full-time teachers, at a cost of $4 billion. That proposal was not included in the school finance panel’s recommendations. The Senate later released a plan to make changes to the state’s byzantine formulas for school funding, but the plan was full of blanks and placeholders.

House lawmakers, on the other hand, decided to spend a total of $9 billion on public education and school district tax cuts and workshopped a comprehensive bill on how to spend it. On the issue of teacher pay, House lawmakers initially said it should be left up to school districts to decide how to dole out raises.

In the end, lawmakers raised the price tag of their education and property tax proposals to about $11.6 billion, and they nixed the mandated across-the-board pay raise. Instead, the final proposal raises the amount of per-student funding each school district receives and mandates that a portion of that funding go toward salary increases and benefits. Districts are expected to prioritize raises and benefits for teachers with more than five years of experience but otherwise would have flexibility on how to offer salary increases.

“This has been a historic session for teachers, which makes me very happy,” Nelson said.

On property taxes, analysts estimate the bill would lower tax rates by an average of 8 cents per $100 valuation in 2020 and 13 cents in 2021. That would mean a tax cut of $200 for the owner of a $250,000 home in 2020 and $325 in 2021.