Title: Chapter 14 - Financing State Government (Trailblazer Trek).html
Course: Civic Action Project (CAP): Connecting Government Concepts to Your Community > Section: Texas Government Trailblazer Treks

💰 TCC Texas Government Trailblazer Trek: Financing State Government

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💰 Chapter 14: Financing State Government ⭐

Explore how Texas raises revenue and spends taxpayer dollars!

💵
Revenue
📊
Budgeting
🏛️
Spending

🎓 Welcome, Trailblazer!

Enter your name to begin your journey through Texas state financing:

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1

Introduction to State Financing

Understand the basics of how Texas funds its government operations.

🌟 145 points available
2

Texas Revenue Sources

Learn about sales tax, severance taxes, federal funding, and more.

🌟 175 points available
3

State Government Spending

Discover where Texas spends its money and budget priorities.

🌟 165 points available
4

The Texas Budgeting Process

Explore how the state budget is developed and approved.

🌟 170 points available
5

Issues in State Financing

Analyze ongoing challenges in Texas state finances.

🌟 160 points available
📊 Generate Completion Report
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💰

Introduction to Financing State Government

🎯 Learning Objectives

- Analyze state financing issues in Texas
- Understand the role of property taxes in local government

In Texas, local governments, including school districts, cities, counties and special districts, are financed through ad valorem taxes, which multiply the appraised value of the property by a tax rate set by the governing body of the local government. As real estate values in Texas climbed after the oil bust of the 1980s, many homeowners became increasingly incensed at local government leaders proudly proclaiming that they hadn't raised taxes while presiding over huge increases in revenue provided by rising property tax appraisals.

🏠 Ad Valorem Taxes
Ad valorem taxes are taxes that multiply the appraised value of a property by a tax rate set by the governing body of the local government. This is the primary method used to finance local governments in Texas, including school districts, cities, counties, and special districts.
🔍 Click to explore: Who is Dan Patrick and what did he do about property taxes?

+30 points! 📻 Property tax reform!

Conservative radio talk show host Dan Patrick was elected to the state senate in 2006, with outrage over property taxes his key issue. Senator Patrick helped pass a law creating a 10 percent cap on single-family residential property tax appraisal increases that could be realized by taxing authorities in any given year, allowing homeowners to "ramp up" to large sudden appraisal increases over time.

🔍 Click to explore: What happened with the 2019 "tax swap" proposal?

+30 points! 🔄 The failed tax swap!

For the 2019 legislative session, Texas Republicans vowed to curb property tax increases while recognizing the need to increase the state's share of school funding. One alternative: a "tax swap" that would raise Texas' 6.25% state sales tax rate by a penny, using that money to provide additional state funding for public education and to offset required reductions in school property tax rates.

Despite enthusiastic support from the "big three" – Governor Greg Abbott, Lieutenant Governor Dan Patrick, and House Speaker Dennis Bonnen – the proposal encountered stiff opposition from Republicans and Democrats across the political spectrum, and quietly disappeared from the legislature's agenda without a vote.

❓ What type of tax is used to finance local governments in Texas?
Income tax
Ad valorem (property) tax
Sales tax
Excise tax
✅ Complete Section 1
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💵

Texas Revenue Sources

🎯 Learning Objectives

- Identify the sources of state revenue in Texas
- Understand why Texas relies on sales taxes instead of income taxes

Texas is one of only seven states that do not levy a state income tax. The other 43 states collect an income tax ranging from 2% in Tennessee to more than 13% in California. Accordingly, Texas has to find other ways to pay for government services.

🏛️ Federal Funding - The Largest Revenue Source
The largest single source of revenue for state government in Texas is federal funding, which is slightly more than a third of all state revenue at $75 billion for the most recent two-year budget cycle. To put that number into perspective, Texas individuals and businesses paid $280 billion in federal income and employment taxes in Fiscal Year 2018 alone. Federal funding goes to a variety of state government functions but is used mostly to pay for healthcare programs.
🔍 Click to explore: How does the sales tax work in Texas?

+35 points! 🛒 Sales tax explained!

The sales tax is the state's largest source of tax revenue. It is collected by local merchants and remitted to the state at 6.25 percent of the sales price of taxable goods. Local taxing jurisdictions (cities, counties, special-purpose districts, and transit authorities) may also impose sales and use tax up to 2 percent for a total maximum combined rate of 8.25 percent.

Exemptions include: groceries, property used in manufacturing, agricultural items, gas, electricity, and water. Still, sales taxes brought over $62 billion into the state treasury during the most recent two-year budget cycle.

🛢️ Severance Taxes
Texas levies an oil production tax at 4.6% of market value and a natural gas production tax at 7.5% of market value, minus certain deductions. These "severance taxes" combined to produce an estimated $4.9 billion during the most recent budget cycle. Severance taxes are taxes imposed on the removal of natural resources within a taxing jurisdiction.
🔍 Click to explore: What are excise taxes?

+35 points! ⛽ Excise taxes revealed!

An excise tax is a sales tax on a specific product or service. Texas excise taxes include:

- Motor fuels: Gasoline and diesel at $0.20/gallon; LNG/CNG at $0.15/gallon equivalent – yielded $7.1 billion
- Tobacco: Cigarettes, cigars and tobacco – raised $2.9 billion
- Alcohol: Alcoholic beverages – yielded $2.6 billion

🔍 Click to explore: What is the business margins tax?

+30 points! 🏢 The franchise tax!

A business margins tax, still officially called a "franchise tax," brought in an estimated $3.8 billion. It's a complex tax that can be calculated four different ways, with businesses using whichever formula results in the lowest tax:

1. 70% of total revenue
2. Total revenue minus costs of goods sold
3. Total revenue minus total compensation and benefits
4. Total revenue minus $1 million

This flexibility was necessary when legislators abolished the old franchise tax in 2007 because a straight percentage of gross receipts would be much harder on a grocery store (high turnover, thin margins) than a jewelry store (few items, high markup).

📋 Other Revenue Sources
- Insurance premium tax: $5.3 billion (1.75% accident/health/life; 1.6% property/casualty; 1.35% title; 4.85% independently procured)
- Hotel occupancy tax: Just over $1 billion
- Licenses, fees, fines, penalties: $12.6 billion
- Interest and investment income: $3.2 billion
- Lottery: Just over $4 billion
- Land income (mineral royalties, leases, grazing, timber, sand): $2.8 billion

❓ What is the state sales tax rate in Texas?
5.00%
6.25%
7.50%
8.25%
❓ What is the largest single source of revenue for Texas state government?
Federal funding
Sales tax
Property tax
Severance taxes
✅ Complete Section 2
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📊

State Government Spending in Texas

🎯 Learning Objectives

- Discuss state government spending in Texas
- Understand the balanced budget requirement

📋 Fiscal Policy
In economics and political science, fiscal policy is the use of government revenue collection (mainly taxes) and expenditure (spending) to influence the economy. While the U.S. Government can borrow money—even for operating expenses—the state government of Texas cannot. The Texas Constitution requires that Texas operate under a balanced budget. The state may only spend as much as it estimates it will receive in revenue during any fiscal biennium.

The state government in Texas has budgeted to spend $251 billion over the 2020-21 biennial budget cycle, a significant increase over the $217 billion budget for the previous two-year cycle. Lawmakers agreed to increase spending by $11.1 billion on public education and to offset mandated local property tax cuts.

🔍 Click to explore: What are the biggest spending categories?

+35 points! 📈 Where the money goes!

Public education is the state's single largest spending category, followed closely by health and human services. While most of the health care portion is paid with federal funds, nearly every public education dollar must be raised locally through state taxes.

Key budget items include:

- Foundation school program (state's share of K-12 education)
- Medicaid and Medicare
- Child Protective Services
- Transportation
- Mental health
- Higher education
- Criminal justice
- Border security
- Teacher retirement and health benefits
- State employee retirement

🔍 Click to explore: What were the 2020-21 budget highlights?

+30 points! 💰 Budget priorities!

An optimistic revenue forecast from State Comptroller Glen Hegar allowed legislators to spend 16% more than in the 2017 budget. Much of the additional spending went to Republican leadership's top priorities:

- Education: $94.5 billion allocated (including K-12 and higher education) – a 10% increase
- Health and human services: $84 billion – increased only 1%, with Medicaid receiving a $900 million cut (mostly federal funding)

Historic note: Governor Greg Abbott approved the budget without a single line-item veto—the first time a Texas governor approved an entire state budget since Governor Allan Shivers signed a budget without changes in 1955.

❓ What does the Texas Constitution require regarding the state budget?
Texas must operate under a balanced budget
Texas can borrow unlimited amounts for operating expenses
Texas must maintain a budget surplus
Texas can run a deficit up to 10% of revenue
❓ What is Texas' single largest spending category?
Health and human services
Public education
Criminal justice
Transportation
✅ Complete Section 3
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📝

The Texas Budgeting Process

🎯 Learning Objectives

- Outline the procedure for a state budget to be developed and approved
- Understand the roles of key agencies in the budget process

The Texas Constitution has long required state government to operate on a two-year budget cycle. This has the advantage of forcing lawmakers and agencies to think ahead in a way that states with annual budgets do not.

🏛️ Key Budget Agencies
Responsibility for preparing an initial draft of the budget is shared by the governor, through the Governor's Office of Budget, Planning, and Policy (GOBPP), and the legislature through the Legislative Budget Board (LBB). The LBB appoints a budget director, who brings together budgeting requests from various state agencies and prepares appropriations bills for them.
🔍 Click to explore: What is Stage 1 of the budget process?

+35 points! 📋 The drafting stage!

In the first stage, the LBB develops a draft budget based on detailed legislative appropriations requests (LAR) from each state agency. The process follows these steps:

1. Each agency creates a strategic plan providing the basis for LBB funding recommendations
2. LARs from each agency are sent to the LBB, Comptroller's office, and other agencies by late summer/early fall
3. The LBB and GOBPP hold hearings with each agency about their LAR
4. The Comptroller's office prepares the Biennial Revenue Estimate (BRE) – a detailed forecast of expected state revenue with a defined spending ceiling

🔍 Click to explore: What is Stage 2 of the budget process?

+35 points! 🏛️ The legislative stage!

The second stage involves the legislative process:

1. By the seventh day of each regular legislative session, appropriations bills are submitted by the LBB to the House Committee on Appropriations and the Senate Finance Committee
2. Committees hold hearings and make changes reflecting BRE limits and funding priorities
3. Final versions are sent to the full House and Senate for approval
4. Differences are reconciled in a conference committee (composed of representatives from both chambers)
5. The budget cannot take effect until "certified" by the Comptroller – the official ruling that the state has enough money to pay for everything

✏️ Line-Item Veto Power
Texas governors have a power U.S. presidents can only dream about. The governor is empowered under the state constitution to review an appropriations bill and to veto individual spending items without vetoing the entire bill. Most Texas governors have used this power sparingly. Governor Greg Abbott signed the 2020-2021 appropriations bill without a single line-item veto after having vetoed $120 million from the previous session's budget.
👤 Glenn Hegar, Comptroller

Glenn Hegar was elected as the 36th Texas Comptroller of Public Accounts in November 2014. The Comptroller is Texas' chief financial officer — the state's treasurer, check writer, tax collector, procurement officer, and revenue estimator. The Comptroller's certification is required before any state budget can take effect.

❓ What is the Biennial Revenue Estimate (BRE)?
A list of all state agency requests
A detailed forecast of expected state revenue prepared by the Comptroller
The governor's budget proposal
The final appropriations bill
❓ What special power do Texas governors have regarding the budget?
They can increase spending without legislative approval
They can refuse to certify the budget
They can veto individual spending items without vetoing the entire bill
They can borrow money without legislative approval
✅ Complete Section 4
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⚠️

Issues in Texas State Financing

🎯 Learning Objectives

- Analyze the effectiveness of the state's financing of public services
- Identify continuing issues in state financing in Texas

Texas is a large, growing state with a long international border, susceptible to hurricanes and overly dependent on the fortunes of the oil and gas industry, even as concerns over climate change make the future of the fossil fuel industry uncertain. As today's college students become tomorrow's voters and elected officials, there are a number of nagging problems that will need to be faced.

🔍 Click to explore: What's the problem with property taxes?

+30 points! 🏠 Property tax challenges!

Texas continues to fund a lot of its public school obligations, as well as community colleges, with local property taxes. This system depends on the government assessing the value of every piece of real estate and capital equipment in its jurisdiction and deriving a fair value every year.

The problems:

- Harris County had to resolve more than 388,000 property tax protests in 2017, removing more than $5.8 billion from the property tax rolls
- Property tax value reflects the value of an often speculative investment more than the taxpayer's actual ability to pay

🚫 Constitutional Income Tax Ban
In November 2019, Texas voters approved a state constitutional amendment to prohibit the imposition of a state income tax – an "insurance" measure sought by Texas Republicans who see the possibility of Democratic legislative majorities in the future. The income tax prohibition could only be removed by another constitutional amendment, which would take a two-thirds vote of the House and Senate and a majority of voters in a subsequent election.
🔍 Click to explore: What other financing issues does Texas face?

+30 points! 🔮 Future challenges!

Health Care: Paid largely with federal funds, health care closely rivals education as the state's largest spending area. Texas' rejection of Medicare expansion during the Obama administration left counties, hospitals, insurance companies and service providers to pay for increasing indigent health care needs.

Gambling Revenue: Texas has chosen not to follow all of its bordering states in its rejection of casino gambling. While Texans gamble, they travel to Louisiana, Arkansas, New Mexico, and Oklahoma—or do so illegally—depriving Texas of potential revenue. Colorado has netted more than $1 billion annually from recreational marijuana.

Higher Education: As college replaces high school as the minimum education for many jobs, how will Texas accommodate increasing high school graduates and those who cannot afford rapidly rising tuition, fees, textbooks, and housing?

📋 The Bottom Line

Texas legislators do many things, but the only thing they are constitutionally required to do each session is to adopt a budget. It is always the most important and most difficult task taken on by the legislature, although it is seldom the issue that generates the most constituent interest and media attention. More attention and scrutiny from ordinary Texans is the beginning of any long-term solution to the state's budget challenges.

❓ What did Texas voters approve in November 2019 regarding taxes?
A 1% increase in the sales tax
A cap on property tax increases
A constitutional amendment prohibiting a state income tax
Legalization of casino gambling
❓ What is the ONLY thing Texas legislators are constitutionally required to do each session?
Pass education reform
Redraw legislative districts
Adopt a budget
Confirm gubernatorial appointments

📚 Chapter Glossary

Ad valorem taxes: Taxes that multiply the appraised value of a property by a tax rate set by the governing body of the local government.
Appropriations: Authorization by the legislature to a government agency or body to spend up to a particular amount of money.
Biennial Revenue Estimate (BRE): A detailed forecast of the revenue that the state is expected to take in over the next biennium, prepared by the Comptroller's office.
Debt: The total amount the government owes across all years.
Deficit: The annual amount by which expenditures are greater than revenues.
Excise taxes: Taxes applied to specific goods or services as a source of revenue.
Fiscal policy: The use of government revenue collection (mainly taxes) and expenditure (spending) to influence the economy.
Progressive tax: A tax that tends to increase the effective tax rate as the wealth or income of the taxpayer increases.
Regressive tax: A tax applied at a lower overall rate as individuals' income rises, thus the tax burden falls more heavily on lower-income individuals.
Severance taxes: Taxes imposed on the removal of natural resources within a taxing jurisdiction, such as oil, natural gas, coal, uranium, and timber.
Strategic plan: A plan that includes a mission statement, goals, population served, means to achieve goals, and measures to assess success.
✅ Complete Section 5

💰 TCC Texas Government Trailblazer Trek

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TCC Trailblazer Trek - Completion Report

Chapter 14: Financing State Government

A
95%
Student Name
Not Entered
Date Completed
-
Time Completed
-
Level Achieved
Explorer

Section | Topic | Status | Points
1 | Introduction to State Financing | ❌ | 0/145
2 | Texas Revenue Sources | ❌ | 0/175
3 | State Government Spending | ❌ | 0/165
4 | The Texas Budgeting Process | ❌ | 0/170
5 | Issues in State Financing | ❌ | 0/160

📝 Instructor Note

This report documents the student's completion of Chapter 14: Financing State Government. The percentage score reflects both content exploration and knowledge check performance. Students should aim for 80% or higher to demonstrate mastery.

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