Tax relief or infrastructure?
How the Legislature should spend the state’s $16 billion in federal aid.
For a state whose leaders seem to delight at constantly thumbing their noses at Washington bureaucrats, Texas certainly seems to be comfortable living off the federal dole.
The last time a recession hit in 2009, the state used billions of dollars in federal aid to maintain government services and pay down debts, allowing Texas to years later indulge its favorite pastime: cutting taxes.
With $16 billion in federal recovery funds sitting untouched in the state’s coffers — courtesy of the American Rescue Plan, which Congress passed in March — and a surplus in general revenue, the state has an opportunity to be far more ambitious in its recovery from the pandemic.
Gov. Greg Abbott has decided to use the third special legislative session to finally decide how that money will be allocated.
He hasn’t asked ordinary Texans what they’d like the money spent on, but Dallas nonprofit Texas 2036 did in a recent poll. It found a vast majority of voters surveyed support targeting long-term, long overdue infrastructure solutions — from delivering cleaner drinking water to expanding broadband internet access to upgrading state parks.
Advocacy groups are also putting together ambitious goals for the federal aid, including housing assistance, increasing public education funding and early childhood education. Unfortunately, anybody with lofty goals for the one-time bonanza of federal aid will likely be disappointed.
Judging by the bills that have already been filed this week, the Legislature appears to have far less ambitious plans, such as granting homeowners temporary property tax relief and using nearly half of the federal aid — $7.2 billion — to shore up the state’s depleted Unemployment Insurance Trust Fund.
Texans who blanche at any hint of federal overreach will be happy to know that this money comes with few strings attached. The American Rescue Plan specifically allows funds to be used for any expenditures incurred by the COVID-19 pandemic, including those involving medical treatment and public health, the economy and those “reasonably necessary to the function of government.”
Such broad leeway is the beauty of a federalist system where states’ rights are valued. Yet history can be instructive. We don’t have to look back too far to understand how irresponsible it would be to simply use a massive amount of free money to plug budget holes.
After the Great Recession hit in 2009, Texas received $17 billion in aid from the American Recovery and Reinvestment Act, a bill that was the pillar of President Barack Obama’s effort to stimulate a flagging economy. The Legislature used those funds to plug a $3.3 billion budget hole and spread out the rest to supplant state spending on struggling programs such as Medicaid. While that injection of money tided Texas over through that period, when the Legislature reconvened in 2011 lawmakers were facing a $4 billion budget deficit and a projected shortfall between $15 billion and $30 billion in 2012-13. Rather than — gasp! — bump up taxes to maintain state services in this growing state, the Legislature passed a budget that dramatically slashed spending, including $4 billion from public education. The Legislature cut the franchise tax several years later, assuaging businesses, but further whittling away at much-needed revenue.
Supplanting state spending is a nice accounting gimmick when the funds are available. But when the well of federal money dries up, if there’s no plan to add revenue — don’t count on a tax hike with Republicans controlling the Legislature — the state will once again be left with a yawning shortfall.
Alas, old habits die hard. The Legislature is eager to, in the words of state Sen. Paul Bettencourt, “give back to the taxpayers,” even though such a gift would ultimately be fleeting.
Bettencourt’s bill would use at least $2 billion of the state’s general revenue to buy down school districts’ “maintenance and operation” tax rates over the next two years — meaning the owner of a $300,000 home, roughly the median price in Texas, would pay, on average, $200 less in property taxes. While the bill doesn’t directly dip into the $16 billion, budget experts believe the Legislature wouldn’t be considering cutting taxes without the federal funds as a backstop. The bill passed unanimously out of the Senate Finance Committee on Tuesday, though even some of Bettencourt’s Republican colleagues questioned the urgency and wisdom of a temporary tax cut that would have to be accounted for during the next budget cycle.
“I’ve been here when we (cut property taxes) at least twice,” said state Sen. Larry Taylor, R-Friendswood, during the committee hearing. “They don’t appreciate when it goes back up.”
Another bill filed Thursday by state Sen. Jane Nelson, R-Flower Mound, would address the state’s Unemployment Insurance Trust Fund, depositing $7.2 billion of federal aid to replenish the fund after it was tapped dry when the pandemic hit. While it is critical that Texas keep the trust fund fully funded, a one-time injection of federal funds will simply enable the Legislature to continue underfunding it for years to come.
A 2020 analysis by the U.S. Department of Labor placed Texas 50th out of 53 states, districts and territories in terms of unemployment funding. The state intentionally keeps the fund at a bare minimum to avoid tough decisions on raising taxes. The Legislature even proceeded to — again — reduce the amount businesses would have had to pay in unemployment taxes this year. Using federal funds to cover for these missteps without a longterm plan to keep the fund solvent would be fiscal malpractice. Either way, the bill will come due eventually.
These misguided bills underscore how detached the conversations in the halls of the Capitol are from the needs of people whose tax dollars they are entrusted to spend. Huge majorities of voters, as detailed in the Texas 2036 poll, are far more eager to see the state use federal aid to finally invest in its crumbling infrastructure than to spend it on unemployment insurance.
If the Legislature insists on quickhits, let it go to those who need it most while looking for long-term fixes. New York has put $100 million of federal aid toward offering loans to small businesses. Louisiana has set up a $50 million program to give one-time hazard pay bonuses to essential and front-line workers.
Texas could use this money to fix its broken foster care system, where 23 children have died since 2019. The state could finally live up to its promise to repair and expand its state parks, a magnet for tourist activity. It could even bump up public education funding, as Texas is still well behind the national average for per-student funding and teacher pay.
Too often we are told by lawmakers that Texas doesn’t have the money to do these things, only to see Abbott on a whim conjure up $2 billion for border security by simply moving money around and borrowing from other state agencies.
Having this additional federal money is an opportunity to grow our economy beyond its pre-pandemic status, to allow more Texans to share in the prosperity, and to ensure that fewer families are living on the edge when the next recession hits. This kind of surplus is a precious opportunity to make a difference in Texas. We can’t let the partisans in Austin squander it.
Call or write the governor and your representatives and tell them how you want the money spent.