Lots of Kids

Center for Public Policy Prioritieswww.cppp.org

The Big PictureThe Big Pictureabout Kidsabout Kids

Texas Center for the JudiciaryTexas Center for the JudiciaryF. Scott McCown, Executive Director

Dick Lavine, Senior Fiscal AnalystEva DeLuna Castro, Senior Budget Analyst


Lots of Kids • Second largest child population, totaling

over 6.1 million under the age of 18

• Largest growth in child population between 2000-2003– 350,000 additional children– 183,000 more than California

• By 2040, school enrollment projected to double


Our Changing Demographics

53.1

24.2

11.6 7.9

32.0

59.1

3.38.8

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2000 2040Using U.S. Census count for 2000 and State Data Center 1.0 projection scenario for 2010-2040

Percent of Texas Population

AngloBlackHispanicOther


Great Need for Public Services

TexasUS

AverageTexas rank

% of Population under 18, 2002 28.0 % 25.3 % 3rd

Child Poverty Rate, 2003 22.8 % 17.7 % 8th

Elderly Poverty Rate, 2003 13.0 % 9.8 % 7th % of Under-65 Population with No Health Insurance, 2003

26.9 % 17.6 % 1st

% of Residents Aged 25 or over with at least a High School Diploma, 2003

77.8 % 83.6 % 49th

% of Residents Aged 25 or over with at least a Bachelor’s Degree, 2003

24.5 % 26.5 % 27th

Source: U.S. Bureau of the Census, March CPS and American Community Survey


What State Government Pays For

Source: U.S. Bureau of the Census, State Government Finances series. Data for 2002 for Texas, total expenditures (including trust) of $70.3 billion.

Cash aid - 1.2%

Education - 37%

Medicaid and public welfare -

22% Police & Corrections

5% Other/ inallocable - 5%Gov.

Admin.2%

Debt Svc. - 1%

Health-3%

Highways - 7%

Insurance Trust (Pensions, UI) -

12%

Natural Resources & Parks 1%

Hospitals - 5%


What Local Government Pays For

Source: U.S. Bureau of the Census, Government Finances series. Data for 2002 for Texas, total expenditures (including trust) of $77.1 billion.

Education - 44%

Other/ inallocable - 8%

Debt Svc. - 5%

Gov. Admin. - 4%Utilities - 12%

Health - 2%

Hospitals - 5%

Streets & Hwys. 3%

Fire - 2%Insurance

Trust - 1%

Police & Corrections - 6%

Natural Resources & Parks 3%

Housing & Comm. Dev. - 2%

Sewerage & Solid Waste 3%


Comparing 2004-05 to 2006-07• Final 2006-07 budget: $138 billion in All Funds• This is 9% more than in 2004-05, less than

expected growth in population and inflation• Nationally, state spending per resident has

been about 50% higher than Texas state spending, and this budget will leave Texas near the bottom in spending per resident

• As a percentage of the economy, since 1991, state spending has been roughly 7%, and this budget will be about the same


Texas State Government SpendingPer Capita (Left Axis) and as a Share of State Economy (Right Axis)

1,938 1,940 1,963 1,911 1,828 1,864 1,856 1,769

796 822 901 950 9741,035999993

$-

$1,000

$2,000

$3,000

$4,000

$5,000

2000 2001 2002 2003 2004 2005 2006 20072%

4%

6%

8%

General Revenue and Other State Funds

Federal

As a % of GSP

2005 $ % of GSP

2006-07 based on SB 1, 2005 Regular Session (excludes vetoes and subsequent budget actions)


Public Education Spending• 2003-04 Texas spent $7,335 per student

• Texas ranked 34th among the states

• Average state spending was $8,208 about 12% higher than Texas

• Costs of living adjustments are faulty– Austin: 106.1% of U.S. Average– Dallas: 98.5% of U.S. Average– Houston: 96.1% of U.S. Average


District Property Value Per Weighted Student Average Daily Attendance

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

1 51 101 151 201 251 301 351 401 451 501 551 601 651 701 751 801 851 901 951 10011051Districts Ranked by District Property Value Per WADA

DistrictTaxable Value Per WADA

Equity LineTaxable Value Per WADA($271,400)

Robin Hood Line Taxable Value Per WADA($305,000)

(WADA)


School Funding in Next State Budget

Per-Pupil K-12 Spending, in 2005 $

$-

$2,000

$4,000

$6,000

$8,000

$10,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Legislative Budget Board, S.B. 1 Funding for TEA & TRS, and Bureau of Econ. Analysis

State Aid Federal Local


Price Tags• Biennial cost of public school enrollment growth = At least $1.5 billion

• Biennial cost of 3% inflation for public schools = At least $2.4 billion

• “Ending” Robin Hood = At least $2.3 billion

• “Buying down” local school property taxes by 10 cents per $100 taxable value = At least $2.2 billion

• Biennial cost of one candy bar per year per child is $4.3 million


Source: Comptroller of Public Accounts, Annual Property Tax Report; Cash Report.

From a Taxpayer’s Point of ViewMajor State and Local Taxes in Texas, 2004

County Property7%

Special District Property

5%

School Property28%

Other State Taxes21%

State Sales25%

City Property7%

Local Sales7%

Sales Tax 32%

Property Tax 47%


From the State’s Point of View: All Revenue

State Revenue Sources, 2004(Total: $62.1 billion)

Federal Funds35%

Other6%

Lottery3%

Taxes45%

Interest/Investment Income

2%

Licenses, Fees, Permits, Fines,

Penalties9%


From the State’s Point of View: Taxes Only

State Tax Collections, 2004(Total: $27.9 billion)

Motor Fuels10%

Motor Vehicle Sales and Rental

10%

Sales55%

Franchise7%

Insurance4%

Sin (Cigarette, Tobacco,Alcohol)

4%

Other6%

Gas/Oil Production3%


Our Tax Base is Inadequate

0.80

1.00

1.20

1.40

1.60

1.80

2.00

2.20

2.40

2.60

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Total SalesPersonal Income

Taxable Sales

Taxable Property ValueTotal Property Value


Indicators of Ability to Pay

Texas US Average

Texas rank

Per Capita Personal Income, 2003

$29,076 $31,459 29th

State and Local Taxes as a Percent of Personal Income, 2002

9.3% 10.2% 41st

Source: CPPP, using data from Bureau of Economic Analysis and the Census Bureau.


14.2%

8.2%7.0%

6.5%

5.1%

0%

3%

6%

9%

12%

15%

<$21,797 $21,797-39,743 $39,743-61,734 $61,734-96,693 >$96,693Household Income

Perc

enta

ge o

f Hou

seho

ld In

com

e Pa

id in

Tax

es

Households with the Lowest Income Pay the Highest Percentage in State and

Local Taxes


Not Taxing Where the Money Is

$0

$50

$100

$150

$200

$250

$300

$350

<$21,797 $21,797-39,743 $39,743-61,734 $61,734-96,693 >$96,693

Household Income

Tota

l Inc

ome

Per

Gro

up($

bill

ions

)


Revenue Options •Cigarette tax: $1/pack increase raises $1.7

billion biennially•Video Lottery Terminals: $1.1 billion

biennially. “Crack cocaine” of gambling•Revised Franchise Tax (Business Activity Tax):

Pre-tax net income, add back compensation minus first $30,000 per job times 1.95%•Sales tax rate increase — but this is extremely

regressive, and TX already has one of the highest rates•Sales tax base expansion (to services not

covered now)


21

0%

1%

2%

3%

4%

5%

6%

<$26,816 $26,816-52,844

$52,844-81,990

$81,990-126,345

>$126,345

Annual income

Perce

nt of

family

inco

me

Current Property Taxes If Replaced with Sales Taxes

If We Replaced Current School Property Taxes with Sales Taxes


-0.2%(-$266)

0.2%$161

0.4%$213

0.6%$183

1.2% $141

-0.4%

0.0%

0.4%

0.8%

1.2%

1.6%

1 2 3 4 5Perc

ent o

f Hou

seho

ld In

com

e

$12,136 $31,127 $50,643 $78,062 $177,773 Average Annual Household Income

Source: CPPP Policy Page 232, Tax Equity Note Confirms that Most Texas Families Would Pay More Under HB 3, the “Tax Relief Bill”, March 2005.

House Proposed Tax Change(H.B. 3)


The Texas ConstitutionArticle 8 - TAXATION AND REVENUE

Section 24 - PERSONAL INCOME TAX; DEDICATION OF PROCEEDS

(a) A general law enacted by the legislature that imposes a tax on the net incomes of natural persons . . . must provide that the portion of the law imposing the tax not take effect until approved by a majority of the registered voters voting in a statewide referendum held on the question of imposing the tax.

(b) A general law enacted by the legislature that increases the rate of the tax, or changes the tax, in a manner that results in an increase in the combined income tax liability of all persons subject to the tax may not take effect until approved by a majority of the registered voters voting in a statewide referendum held on the question of increasing the income tax.

(f) In the first year in which a tax described by Subsection (a) is imposed and during the first year of any increase in the tax that is subject to Subsection (b) of this section, not less than two-thirds of all net revenues remaining after payment of all refunds allowed by law and expenses of collection from the tax shall be used to reduce the rate of ad valorem maintenance and operation taxes levied for the support of primary and secondary public education. In subsequent years, not less than two-thirds of all net revenues from the tax shall be used to continue such ad valorem tax relief.


(g) The net revenues remaining after the dedication of money from the tax under Subsection (f) of this section shall be used for support of education, subject to legislative appropriation, allocation, and direction.(h) The maximum rate at which a school district may impose ad valorem maintenance and operation taxes is reduced by an amount equal to one cent per $100 valuation for each one cent per $100 valuation that the school district's ad valorem maintenance and operation tax is reduced by the minimum amount of money dedicated under Subsection (f) of this section, provided that a school district may subsequently increase the maximum ad valorem maintenance and operation tax rate if the increased maximum rate is approved by a majority of the voters of the school district voting at an election called and held for that purpose. The legislature by general law shall provide for the tax relief that is required by Subsection (f) and this subsection.

(Added Nov. 2, 1993.)

TEXAS CONSTITUTION (Cont’d.)


How Would An Income Tax Work?

$11.5 billion $1.8 billion

$4 billion Two-thirds of income tax revenue would be returned to taxpayers through lower property tax rates

Uncle Sam would pick up 10% of the cost of an income tax through higher deductions on federal tax returns

Net cost to Texas taxpayers after lower property taxes, federal tax deduction changes

Total income tax revenue = $17.3 billion annually


A State Income Tax, With Property Tax Reductions, Would Benefit Most Texans

-8-6-4-20246

Lowest 20% Second 20% Middle 20% Fourth 20% Top 20%

Income Group

Tax C

hang

e as %

of I

ncom

e

Income tax Property tax reduction Net change


Texas:One and Indivisible

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