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Banking THE ECONOMIST: The state of Texas spending

THE ECONOMIST: The state of Texas spending

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This year, the State of Texas will spend more than $140 billion. With about 27.5 million residents, more than 260,000 square miles and a $1.5 trillion economy, substantial resources are required to maintain quality of life and public safety, provide for education and infrastructure, and serve as a safety net through social programs.

Detailed databases related to spending and budgets for the state are readily available. For example, the Texas Comptroller’s Office maintains a detailed dataset of expenditures by category (www.TexasTransparency.org), which provides a look at where the money goes down to the penny. Here is a rundown of categories where spending topped $1 billion per year based on actual state outlays during fiscal 2015 (which ended Aug. 31).

Just over $1 billion was spent in 2015 for repairs and maintenance, including buildings and other real estate as well as computer software. Another billion went to supplies and materials, including more than $251 million for medical supplies. Debt payments are a notable use of funds, with more than $1 billion going to interest and $7 billion to principal payments. The state invested almost $6 billion in short-term investments and funds, which is largely a function of cash management through the year. Professional services and fees reached almost $3 billion; these are things such as medical services, architectural and engineering services, information technology services and legal services.

Infrastructure improvement is one place where Texas spends significant money. Spending for highway construction, maintenance and right of way topped $5 billion last year. However, with rapid population and economic growth, congestion remains a problem in urban areas. Maintenance and safety enhancements are desperately required in many areas, but funding limits preclude addressing all needs. If the state’s roadways are not well maintained and expansion projects are not undertaken to help keep congestion under control, it will cost much more in the future, both in terms of additional outlays and especially in lost productivity and efficiency. There has been some progress given additional funds allocated during recent legislative sessions, but $5 billion per year simply won’t cut it given the growing needs and miles of roadways.

Employee benefits approach $8 billion per year, including sizable outlays for retirement programs. Like many states, Texas is facing a substantial unfunded-pension problem. Many state employees have “defined benefit” retirement plans, meaning that their benefits are based on some set criteria (such as years of service and salary level) rather than amounts they have contributed. It is crucial to ensure that we are setting enough money aside to deal with these obligations in the future.

Salaries and wages for state employees topped $11 billion in 2015. Nearly $6 billion went to permanent, full-time state employees, and more than $4 billion went to higher education salaries, including faculty and staff.

A category called “interfund transfers” accounts for $20 billion per year, but it’s mainly a pass-through account for various retirement funds (such as the Teacher Retirement System) and sales tax allocations.

More than $25 billion in 2015 went to public education through the foundation program and grants to elementary and secondary schools, with another billion for junior colleges. Even so, Texas remains near the bottom in terms of spending per student. An analysis by the U.S. Census Bureau ranked Texas near the bottom of all states, with spending well below the U.S. average. The National Education Association placed Texas at number 40 based on spending in K-12 public schools and average daily attendance. While methods, measures and rankings vary, Texas clearly ranks near the bottom in terms of spending on public schools. Quality of education is directly related to individual success in the job market, and workforce preparedness drives the potential for economic growth. Investing in education is essential, and changing demographics increase the need for adequate resources.

The largest spending category is public assistance payments, with $43 billion. Medical services and specialties accounts for $25 billion, with billions more in various other medical categories. Other types of assistance are relatively small, such as grants for community service programs (just over $2 billion) or foster care ($657 million). Much of this amount (and others) comes to the state through federal programs.

State spending has been growing over time, but not enough to keep pace with population and economic expansion. An analysis by the Kaiser Family Foundation ranked Texas 47th among all states in terms of per-capita state spending, illustrating the low level of outlays compared with most areas.

While runaway spending is clearly to be avoided, we have fallen critically behind in several areas. Keeping tax burdens low is laudable, but spending more now could avoid bigger problems down the road. In fact, if Texas doesn’t catch up on unfunded pensions, restructure programs in crisis such as foster care and child protective services, improve education at all levels, and make a dent in infrastructure shortcomings, we will almost certainly face higher taxes in the future to deal with spiraling problems, not to mention a much less robust economy.

M. Ray Perryman is president and CEO of The Perryman Group www.perrymangroup.com. He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.

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