Budget Overview
All Funds appropriations for the House proposed 2024-25 budget (HB 1) total $288.7 billion. This is an 8.3% increase from what was allocated in the 2022-23 General Appropriations Act, but a 2.9% net decrease from what was actually spent during the biennium, $297.2 billion. All Funds include all methods of finance: General Revenue Funds (GR), General Revenue–Dedicated Funds, Federal Funds, and Other Funds. General Revenue Funds under HB 1 total $130 billion.
Available Revenue and Budget Limits — What can the Legislature spend?
The 88th Texas Legislature has $188.2 billion available for general-purpose spending, which can be used for almost any purpose in the budget and includes GR and unappropriated GR-Dedicated funds. This number also includes the remaining unexpended balance from the 2022-23 biennium — commonly referred to as a “surplus”— of $32.7 billion, plus estimated tax revenue for the 2024-25 biennium, minus dedicated transfers for various purposes. However, Texas has budget caps that limit available spending. There are two constitutional limits and one statutory cap that restrict appropriations. The Legislature can only spend up to what the lowest cap dictates; as of now, that is the Tax Spending Limit set at $4 billion for the House introduced budget. Under this limit, the House can only spend up to $4 billion more than the GR amount introduced in the House budget, capping spending at $134.1 billion. This limit may increase as funds are added to the supplemental budget (the budget “base”) for 2023. Any spending over the limit requires a simple majority vote to “bust the cap.”
Economic Stabilization Fund Set to Reach Constitutional Limit
Rainy day funds are a useful tool to ensure that the many services the state provides to its most vulnerable citizens can continue during times of economic downturn. However, even the architects of the original rainy day fund never expected it would grow as large as it has. The Comptroller of Public Accounts (CPA) projects that the Economic Stabilization Fund (ESF), also known as the “rainy-day fund,” is projected to reach its constitutional maximum balance during fiscal year 2025. By the end of the 2024-25 biennium, it will have an ending balance of $27.1 billion, a $13.4 billion increase from the 2022-23 biennium. No recommendations for ESF appropriations have been made in HB 1. It’s unlikely that lawmakers will have the supermajority vote to tap into these funds with the state’s current economic growth.
State Employee Pay Raises
The statewide turnover rate for fiscal year 2022 was 22.7%, the highest turnover rate in at least 10 years. Better pay/benefits was the top reason cited for leaving state agency employment. Both the House and Senate introduced budgets take this into account and include $1.8 billion for a 10% across the board pay raise for all state employees over two years, or a minimum of $6,000 over the biennium. Article IV lays out the rules for these salary increases, with specific appropriations listed under each agency.
HB 1 on Health, Public Education, and Criminal Justice
General Revenue Funds (GR) have the most flexibility to shift based on priorities, relative to other methods of finance. The largest drivers of the General Revenue budget are Education (Article III), Health and Human Services (Article II), and Public Safety and Criminal Justice (Article V) respectively. These three articles combined make up 90% of the $130 billion of GR appropriations proposed for 2024-25. This report offers a preliminary view of the highest funded agencies within these articles that make up the vast majority of state funding.
Article II – Health and Human Services
Article II funding has a direct impact on the health and well-being of Texans. Texas has both the highest number and highest percentage of any state whose residents do not have health care coverage, and those numbers could swell if the state does not have the ability to determine Medicaid eligibility when the federal Public Health Emergency (PHE) expires in May of this year.
The House All Funds recommendation for the Health and Human Service (HHS) Agencies is $97.4 billion, a decrease of $11.6 billion from the 2022-23 budget, largely due to a decrease in COVID-related federal funding. General Revenue (GR) Funds total $35.8 billion, an increase of $3 billion from 2022-23. HHS spending is primarily driven by Medicaid, the Children’s Health Insurance Program (CHIP), and Child Protective Services.
Health and Human Services Commission
The purpose of the Health and Human Services Commission (HHSC) is to improve the health, safety and well-being of Texans. Under HB 1, HHSC receives the largest appropriation within Article II at $88.6 billion in All Funds for the 2024-25 biennium. This is a decrease of $6.5 billion from the 2022-23 biennium. GR Funds total $35.8 billion, an increase of $3 billion from the 2022-23 biennium.
Medicaid
Funding recommendations total $76.9 billion for Medicaid in All Funds, including $30 billion in GR Funds and $100 million in GR-Dedicated Funds for the Texas Medicaid Program. Included in these amounts is $71.7 billion in All Funds for Medicaid Client Services. This is a decrease from the 2022-23 biennium for Medicaid funding due to an $8.2 billion decrease in Federal Funding from the Families First Coronavirus Response Act (FFCRA), which provided qualifying states with a temporary 6.2 percentage point increase to Federal Medical Assistance Percentages (FMAP) for certain Medicaid and CHIP expenditures. FMAP determines how the federal and state funds are split. The end of the Public Health Emergency (PHE) in May of this year will trigger a return of the pre-pandemic FMAP for the 2024-25 biennium, subsequently lowering the proportion of federal funds for the Medicaid and CHIP.
Medicaid client numbers are also expected to decrease due to the ending of the PHE and related policies. These clients who were on continued Medicaid coverage due to the PHE will now need to redetermine their eligibility for Medicaid. During this transitional period of “unwinding,” in which Medicaid eligibility is re-evaluated, the HHSC expects to see a 5.2% decrease in Medicaid caseloads and an 86.9% increase in CHIP (Children’s Health Insurance Program) caseloads during the 2023 State Fiscal Year (SFY).
Reimbursement Rates (Exceptional Item Request)
HHSC is expecting the cost per client to increase by at least 3.2% during the 2023 SFY, impacted by situations such as the utilization of services, aging, births, and advances in medical practices. This will have a direct impact on the Medicaid and CHIP contracts with providers. HHSC conducts biennial fee reviews for Medicaid and other client services and routinely updates where reimbursement rates should be. These reviews have found a significant increase in costs without changes in reimbursement rates. Some rate categories have not been updated for long periods of time due to the substantial fiscal impact on the state and a lack of available appropriations to support such a significant increase in cost. HHSC has identified five priority categories of reimbursement rates to increase to positively impact client access to high quality care. These categories are Community Attendant Services, Physician Evaluation and Management, End Stage Renal Disease, Female Genital System Surgery, and Private Duty Nursing.
Women’s Health Programs
Approximately $427 million has been recommended for Women’s Health Programs, including Healthy Texas Women, the Family Planning Program, and Breast and Cervical Cancer Services. This is an increase of approximately $82 million from the 2022-23 biennium. Approximately 35% of these funds are from GR Funds, and the agency has requested additional funding to provide better birth outcomes and maintain client access to these programs.
State Hospital Construction
HB 1 includes an intent to provide $2.3 billion in Supplemental Appropriations for fiscal 2023 for state hospital construction and increasing inpatient capacity. Funding recommendations in the 2024-25 biennium include an increase of $141.3 million from the 2022-23 biennium to provide residential services and support for 12 state-operated campuses and the Rio Grande State Center. The HHSC is seeking funds for 168 new beds at the John S. Dunn Behavioral Sciences Center in Houston, pre-planning for state hospital construction in Wichita Falls and Terrell, to support operations at the planned state hospital in Dallas, and to maintain contracted beds to help reduce the state hospital system waitlist. The agency is also requesting funding for a grants management system to aid the process by which organizations apply for grants, with the ultimate goal of improving mental health outcomes.
Other Noteworthy Appropriations
Funding recommendations for Additional Health Related Services total $3.5 billion, which include programs such as the Breast and Cervical Cancer Services Program, Family Planning Program, Mental Health Services for Adults and Substance Abuse Prevention, Intervention and Treatment.
*In comparing the Senate and House Summary of Legislative Budget Estimates for Article II, recommended funding totals are almost identical.
Article III — Education
Public education in the United States is a state responsibility. Article III, Agencies of Education, is the largest driver of the state budget, accounting for 38% of All Funds and nearly half (46%) of General Revenue. The majority of Article III funds go toward funding the state-local public education system, which served approximately 5.7 million students during the 2021-2022 school year.
Approximately $110 billion was recommended by the House for Article III, Agencies of Education, for the 2024-25 biennium. That is a 7.7% increase from 2022-23. Of that, $79 billion is recommended for Public Education, representing an 11.7% increase. General Revenue funding for Article III totals $59 billion with Public Education receiving $38 billion, a decrease of 5.1% While the overwhelming majority of funds for public education are dedicated to the Texas Education Agency (TEA), the Texas School for the Blind and Visually Impaired and the Texas School for the Deaf are also included in the Public Education category.
Texas Education Agency
The Texas Education Agency (TEA) is the largest public education agency, with recommended funding totaling $72.5 billion, an increase of 13.5% from last biennium which is largely due to an increase to the Foundation School Program. GR funds total $32 billion, a decrease of 6.1% with Other Funds filling the gap.
Foundation School Program (Rider 3)
Foundation School Program (FSP) funding represents the largest appropriation item for the TEA. It is the state’s primary vehicle for formula funding to school districts. Formulas, prescribed by the Legislature, determine how much state and local funding each school district receives based on several factors including average daily attendance (ADA), student characteristics, district characteristics, and tax rates. FSP formula funding aims to equalize funding for schools, regardless of property wealth.
Recommended appropriations for the FSP total $57.7 billion in All Funds, accounting for nearly 80% of the agency’s total appropriation. FSP recommended funds represent a 20% increase from 2022-23, attributed to increased costs associated with student enrollment growth (which has yet to recover to pre-pandemic levels) and property tax reductions, including statutorily mandated rate compression.
What about Property Tax Relief?
HB 1 includes approximately $15 billion for property tax relief. Of that, approximately $5 billion is statutorily mandated by HB 3, 86(R). On top of this, the House proposed budget includes $9.75 billion for additional property tax relief. The Senate version, SB 1, also appropriated the same amount for property tax relief with the stipulation that $3 billion be used to increase the homestead exemption from $40,000 to $70,000.
Basic Allotment Remains Unchanged (Rider 3)
Both the House and Senate proposed budgets leave the basic allotment, schools’ baseline per-student funding, at $6,160 each fiscal year. This figure has remained unchanged since the passage of HB 3 in 2019. According to Every Texan, if the basic allotment were adjusted for inflation using the Bureau of Labor Statistics’ Consumer Price Index, it would be $7,325 per student today, roughly an extra $1,165 per student. For the 2024-25 budget, the basic allotment would need to be $7,506 for 2024 and $7,671 for 2025 to account for inflation.
Many public education advocates are calling for an increase in the basic allotment to address the rising cost of everyday district expenses, such as supplies, transportation, and textbooks. Additionally, school staff have seen the purchasing power of their paycheck shrink as the cost for groceries, gas, and other goods increased.
No Specific Items for Teacher Pay (Rider 82)
Teacher salaries have remained stagnant, and lag behind the national average by more than $7,500. Nonpartisan surveys have found that nearly 40% of teachers must take second jobs during the school year just to make ends meet, and 77% of teachers have considered leaving the profession. Meanwhile, efforts to provide state-funded private school vouchers threaten to siphon off students and funding from neighborhood public schools.
HB 1, as introduced, has no proposed appropriation to increase teacher pay. However, Rider 82 states an intent to provide increased funding for school districts. Possible strategies include, but are not limited to, funding for increased compensation and benefits for teachers; additional funding for the Teacher Incentive Allotment; or increases to the Basic Allotment.
Increasing the basic allotment would allow for an increase in teacher and support staff salaries, as 30% of any additional revenue schools receive must go toward compensation. Additionally, TEA’s Legislative Appropriations Request (LAR) requested funds for their Teacher Vacancy Task Force, a group that the TEA formed in March of 2022 to study the factors impacting educator staffing and provide recommendations. TEA anticipates that the task force will present specific recommendations for teacher retention that will become an exceptional item request for House and Senate budget writers to consider this session.
Increased Funding for School Safety Included in the Supplemental Budget
The supplemental budget includes $600 million to assist school districts in implementing school safety initiatives in fiscal year 2023. The TEA’s LAR acknowledged that since the tragedy in Uvalde, that left 19 students and two teachers dead, the TEA has significantly expanded its school safety oversight and support work under the direction of Gov. Abbott beyond the capacity of its current single state employee (FTE) allocation for school safety.
Article V – Public Safety and Criminal Justice
Additional state funding for workers in adult and juvenile correctional facilities is needed to keep those facilities properly staffed and address infrastructure needs.
Recommended appropriations for Article V, Public Safety and Criminal Justice, total approximately $18 billion, an increase of 32.1% or $4.4 billion from the 2022-23 biennium. General Revenue (GR) funds make up the majority of all methods of finance for Article V. Recommended GR funds for Article V total $17.4 billion for the 2024-25 biennium, a 46.6% increase from 2022-23 due in part to state dollars replacing one-time federal Coronavirus Relief Funds. Salary increases also account for the increase in GR recommended funds.
The Texas Department of Criminal Justice (TDCJ) recommended appropriations constitute the largest portion of Article V GR funding at about $7.8 billion, a 27.7% increase from 2022-23. The purpose of TDCJ is to incarcerate offenders in state jails, prisons, and private correctional facilities, provide funding and oversight of community supervision, and to supervise offenders on parole. Their mission is to provide public safety, promote positive change in offender behavior, reintegrate offenders into society, and help victims of crime.
Maintaining Pay Raises for Correctional Officers
HB 1 includes $2.8 billion GR funds for correctional security-operations, which includes salaries and overtime costs for correctional officers, supervisors, wardens. This $379 million increase from the 2023-24 biennium aligns with the agency’s request to maintain a 15% pay raise correctional officers received in April 2022. TDCJ has stated that this pay raise improved correctional officer retention rates and decreased the number of vacancies.
Salary Increases for TDCJ Staff
The Texas Juvenile Justice Department had the highest turnover rate for state employees in fiscal year 2022. The TDCJ had the second highest at 32.8%. HB 1 includes about $300 million for a 10% salary raise over two years for TDCJ staff, including parole officers, administrative staff, and unit support staff. According to TDCJ’s LAR, parole officer attrition is currently 24%. Administrative and support staff attrition has a 21% vacancy rate. In Rider 64, about $64.8 million was recommended for a 5% salary increase for Community Supervision and Corrections Department (CSCD) staff, which is 5 to 10% less than what TDCJ requested for different positions within the CSCD.
Funding for Health Care and Health Care Providers
Around $701 million is recommended for hospital and clinical care and psychiatric medical care for inmates, which is about $106 million less than requested by TDCJ. Unit-based health care is provided by the University of Texas Medical Branch (UTMB) and Texas Tech University Health Sciences Center (TTUHSC). The TDCJ requested $285.8 million of additional funding on behalf of these university providers to maintain current services, replace medical equipment that is over 15 years old (the American Hospital Association’s standard useful life for medical equipment is 5 to 7 years), and for additional medical providers, including 17 mental health positions. Without this additional funding, which considers the increasing costs of healthcare, services may be reduced for inmates.
Vacancies for correctional managed health care employees are at an all-time high at 22%. HB 1 included an increase of $59.8 million to go towards providing salary increases for certain correctional managed health care employees and funding a new sheltered housing facility at the Montford Unit in Lubbock to address this issue.
No Appropriation for Climate Control in Prisons (Rider 65)
Only 30% of Texas prison units are fully air conditioned, causing an increased risk of heat- related illnesses and deaths. HB 1 includes a rider that indicates intent to provide $1.1 billion for the installation of climate control equipment and associated weatherization in all state correctional facilities. The rider specifies that correctional housing areas must maintain a temperature within 65 to 85 degrees Fahrenheit. Additionally, TDCJ must, to the greatest extent possible, offer vocational opportunities to inmates in the HVAC trades when installing and maintaining this equipment.
Body Cameras for Correctional Officers
Supplying body cameras to correctional officers is supposed to help increase transparency and protect staff and inmates in prisons. A $23.9 million increase in GR funds was included to provide body cameras to correctional officers at 23 maximum security facilities.
Funding for Educational and Vocational Training Programs (Rider 63)
HB 1 recommends $3 million go towards HB 2352, 87(R) to expand the educational and vocational pilot program by including inmates released on early parole.
*HB 1 and SB 1 are nearly identical in recommended appropriations for TDCJ.
The LSG will provide further analysis of the changes made throughout the House markup process and the conference committee stage.
Index:
Methods of Finance:
- General Revenue Funds include the non dedicated portion of the General Revenue Fund and is the state’s primary operating fund.
- General Revenue-Dedicated Funds are made up of approximately 200 accounts that are dedicated for specific purposes by statute or the funds-consolidated process.
- Federal Funds are composed of grants, allocations, payments, or reimbursements received from the federal government by state agencies or institutions.
- Other Funds consist of any funds that are not included in the General Revenue Fund.
All Funds refer to the compilation of these four methods of finance.