Texas has a $27 billion surplus. Should it cut taxes or invest in infrastructure?

AUSTIN — With state government poised to enjoy a massive budget surplus, lawmakers on Friday began debating in public how to use the money.

Republicans who are likely to remain in control of the Legislature after next month’s election are talking tax cuts. Democrats are questioning that approach, saying shrewd investments in improving infrastructure and workforce training could help the state economy grow even faster.

Sen. Paul Bettencourt, R-Houston, told an audience of tax professionals and people who represent businesses that at least a portion of the $27 billion surplus projected by Comptroller Glenn Hegar should go toward further reductions of school property taxes.

“When you have excess funds, part of the money’s got to go back to the taxpayers,” said Bettencourt, who heads the Senate Local Government Committee.

“That’s who actually gave it to you in the first place.”

Bettencourt didn’t endorse a suggestion by Gov. Greg Abbott that at least half of the $27 billion surplus be applied toward a property tax cut.

Abbott first threw out the idea at a reelection campaign rally in Fairview on Aug. 31, about six weeks after Hegar increased his guess about how much of a cushion the state will enjoy at the end of the current two-year budget cycle.

Bettencourt, who has championed property tax relief, called the idea of applying half of a surplus to tax cuts “a good model.”

But there’s stiff competition for the excess dollars as preparations intensify for next year’s legislative session, he noted.

“Humorously, there’s a story that’s … going around the Capitol that we have $1 trillion worth of requests for those $27 billion,” Bettencourt said at the annual meeting of the Texas Taxpayers and Research Association in Austin. “There’s going to be a slew of requests.”

GOP leaders have made school property tax cuts a top agenda item for the 2023 session. Abbott, Lt. Gov. Dan Patrick and Speaker Dade Phelan, R-Beaumont, have said they plan to use $3 billion in federal COVID relief funds on property tax reduction.

Patrick, the Senate’s presiding officer, greeted Hegar’s July 14 surplus announcement with a laundry list of how he’d spend the money: $4 billion more for property tax cuts; an increase in the exemption from a home’s value for school taxes to $60,000, from $40,000; suspending state motor-fuels taxes for the rest of this year; and providing retired teachers with another “13th check,” to help offset their lack of cost-of-living increases.

“Texas homeowners must receive tax relief before we commit to any new spending,” Patrick said.

‘Leaving out the renters’

On Friday, Austin Democratic Rep. Donna Howard told the tax-research group that the GOP leaders’ talk of huge property tax cuts is “a disservice to having a real honest and open discussion.”

In 2006, Howard’s first session, the Legislature committed $14 billion of state money over two years to buy down school maintenance and operations tax rates by one-third, she noted.

Property tax cuts and the recent increase of the homestead exemption, from $25,000 to $40,000, are “beneficial,” she said.

“But we’re leaving out the renters,” said Howard, a nurse and former school board president who is the longest-serving Democrat on the budget-writing House Appropriations Committee.

Hegar’s guess about the surplus “might be even higher” when the Republican tax collector and revenue forecaster has to issue his biennial revenue estimate in January, she said.

Howard was referring to Hegar’s constitutional duty to give lawmakers, near the start of their session, his best guess on how much state discretionary revenue will remain unspent at the current cycle’s end — Aug. 31, 2023.

Hegar also has to guess how much revenue the state will take in during the succeeding 24 months. His revenue estimate sets the ceiling on what lawmakers may spend in the 2024-25 budget they write next session.

Howard ticked off “investments” that could soak up all of the $27 billion surplus — improvements to broadband, water-supply structures, transmission lines and paying the $6.3 billion of debt that electricity generators and other energy companies had to “securitize” after the 2021 winter freeze. She included full funding of TEXAS Grants for four-year college students and a community college tuition assistance program, saying it’s needed to improve the “educated workforce pipeline.”

Don’t do “knee jerk” tax cuts, she urged.

“What is going to give us the long-term benefit that we need?” Howard asked.

As in the past, lawmakers might be able to cobble together enough state funds to buy down school tax rates so that the average homeowner receives “a couple of hundred dollars” of relief, she said.

“But we have to sustain that and bake that into the budget and it’s an ongoing expense,” Howard said. “I hope we’ll have a lot of discussion about this and that we’ll come [into session] not with things decided, but with all the issues before us.”

The session starts Jan. 10.