In Texas, most state spending is in the areas of education, health and human services, and public safety and criminal justice.
A Closer Look: Health & Human Services
As the figure above illustrates, spending on health and human services was the second-highest category of spending in the 2018-19 biennium — and spending on this category compared to other state spending increased from 31% in the 1996-97 biennium to 36.4% in the 2018-19 biennium (during this same period, state expenditures increased overall, with 2018-19 expenditures totaling 167.2% compared to those from 1996-97). Much of the state’s health and human services funding is related to Medicaid, which is a federal social welfare program that is jointly funded by the federal government and state governments. Medicaid is one of the largest state budget expenditures and accounts for around one-fourth of most state budgets. As medical costs skyrocket, policymakers worry about the ability of states to continue to fund Medicaid benefits at current levels.
Shortfalls in Revenue
Sometimes, revenue projections exceed actual revenue. Recall that Texas fiscal policy follows a pay-as-you-go system, which means that the state cannot spend more than it receives in revenue. As a result, when revenue shortfalls occur, the state must either find a way to continue funding current spending levels by tapping into the Rainy Day Fund, borrowing money, or reducing spending.
Between legislative sessions, the Legislative Budget Board (LBB) or governor may recommend prohibiting a state agency from spending money appropriated to it by the Texas Legislature (i.e., an involuntary budget reduction), transferring money from one state agency to another, or changing the purpose for which an appropriation was made. Recommendations made by the LBB require approval from the governor, and recommendations made by the governor require approval from the LBB.
Another method that has been used to reduce spending is a hiring freeze. For example, in January 2017, Governor Abbott, with the approval of the LBB, implemented a statewide hiring freeze; this prevented many state agencies, from filling vacant positions that were funded by state appropriations through the end of the fiscal year (August 31, 2017). Some agencies and/or positions were exempted from this hiring freeze.