Budgets are a very important tool to predict future revenues and expenses and re-evaluated after a set interval, like a year. On one hand, budgets are financial plans for a specified period of time, thus can give insight into the operations of a corporation, state, and municipal government (Person & Geißler, 2021) . On the other hand, budgets are contingency tools that detail how much resources a state and municipal government have earmarked for emergencies as well as help in setting priorities. For instance, no one could have predicted the emergence and global impact of the COVID19. After 2020, however, each government (state and municipal) will start to earmark resources to deal with such a pandemic should it emerge in the future (Dzigbede et al., 2020). Lastly, budgets are a communication tools, from the state and municipal government to the stakeholders they serve, such as the public (Volk et al., 2017). As a result, the budget need to not only detailed but also easy for the public to understand without necessarily having a background in finance, accounting or any other related field. Part of being a communications tool implies that the budget needs to be formally structured. This paper argues the position that municipal and state level budgets should be prepared and published in a format that communicates the associated service are, the programs, the operating budget (and justify it), expenditures, and the associated financial health risks together with their implications.
Budget Structure
In this budget assessment assignment, the State of Texas was chosen due to both my personal interest as well as how well it communicated, thus satisfying the position taken in this paper. The year of interest is the 2020 fiscal year as it was mainly disrupted by the COVID19 pandemic. My overall position is that the budget message presents an adequate overview of the State of Texas and its financial position. Governor Greg Abbott discusses the proposed budget in terms of the needs the residents of the state want to be met. For instance, to ensure economic vibrancy and a sustained future for the state and its residents, the governor proposes a public-school finance reform that is aimed at filling a few holes and correcting some errors. As a result, the governor decided to appropriate $250.7 billion for the state’s 2020-2021 budget (Abbott, 2019). From this example, it is clear that the published budget is clear and easy to understand. Not only is the public made aware of the any budgetary decision, but also such decisions are justified in terms that relate to the welfare and future of the state as a whole. All this information is also summarized in the following figure.
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Figure 1 . Texas Budget Cycle for public communications. Source: Legislative Budget Board (2020)
While a budget message is an overview of the state’s position, it is not a piece that reports the problems experienced by the state. Instead, it is a publication that outlines how the state plans to overcome its numerous social, economic, and political challenges. For instance, the unemployment rate for veterans is very high for Texas (Khose, 2020). As a result, Abbott (2019) proposes several financial incentives for businesses and employers. For instance, to encourage businesses and other employers to hire veterans, thus improving their financial situation, Abbott (2019) proposes to provide different tac benefits. If a business hires a veteran, they become eligible for a $15,000 reduction in their taxable values. With a 20% cap on their taxable income, businesses can save up to $300,000 by hiring multiple veterans. The incentives also target corporations (for-profit and non-profit) if they provide support to the veterans, especially in providing housing and treatments for mental health illnesses and substance abuse. With a maximum exemption of $300,000, corporations could be a great impact on resolving most of the issues. This and other information are summarized in the figure below.
Figure 2 . Recapture funding share trend. Source: Abbott (2019)
Therefore, it is clear that the proposed budget by Governor Greg Abbott not only presents a clear message about the state’s situation, but also solutions to solving some of the challenges. In other words, the few points discussed above indicate the role of the budget as a communications tool, where the message presents an adequate overview of the State of Texas and its financial position. Furthermore, the budget’s message communicates some of the state’s strategic goals, such as improving the quality of public education and improving the quality of life for veterans. However, the reviewed budget does not reveal a separate capital budget and capital improvement programs.
Service Area or Program
For other states, budgeting is a financial operation that is unrelated to politics. In Texas, however, the budgeting process and approval is deeply related to state politics. For instance, the Texas Constitution requires that any operating budget prepared for any fiscal year to be balanced. As a result, the amount of spending in any year should be equal to the revenue the state collects. In other words, no deficit financing. If the state plans on an expansion, it will have to secure the funds from its current revenues streams or cut back on some of its programs. Such a regulation has several advantages. For instance, it means that the state’s financial health will always be good as it does not owe other entities, like the Federal government. The main drawback, however, is that the state cannot immediately change its plans as they need to be deliberated and approved by different stakeholders. Furthermore, the pace of progress will be slow as the only way to source funds is to increase government revenue. This and other information are summarized in the figure below.
Figure 3 . Impact of tax rate on revenue limit. Source: Abbott (2019)
However, there is a limit to the amount of taxes a state government can collect. For instance, Texas collects 6.25% sales tax, which includes personal property and other selected services (Comptroller, 2019). The state, however, does not have a personal income tax, thus limiting its maximum revenues and the pace of development. Regardless, these political constraints do not limit the work done by the reigning government. For instance, Texas’s Medicaid program in 2016 received the most funding of $24 billion (Abbott, 2019). However, priorities shift as newer issues emerge. Therefore, the 2020-2021 budget Abbott (2019) proposed focused on educational reforms and property taxes. In other words, the teacher retirement system was set to receive more funding. The property tax reforms, on the other hand, were aimed at relieving the pressure put on the state’s credit rating due to its long-term liabilities.
However, the Texas budget is not just about programs like Medicaid, teacher retirement system, and reforming the state’s property taxes. As a result, the budget is broken into five main service areas. The first are is the General Revenues Fund budget that holds the state’s main operating funds. Through this fund, the state’s fees and taxes are decided. Therefore, all Texans have a deep stake as any changes could impact their businesses and lives. The second service area is the General Revenues Dedicated Funds budget that allocates resources to meet the state’s specific needs. For instance, if the State of Texas were to increase or decrease the amount of funds allocated to higher education tuitions or renovate some of the parks, these funds would be listed and justified in this area. As a result, not all Texans will immediately be concerned by modifications or changes in this service area.
The third service area is the Federal Funds budget that receives all financial resources and reimbursements received from the federal government. These funds are important as they are adding a significant amount of money on the state’s gross revenue to offset the lack of an income tax or low sales taxes. The fourth service area is the Other Funds budget that is allocated to serve programs that do not fit in the other categories. These include trust funds, higher education funds, and highway funds. The last service area is the All Funds budget that cumulatively adds all the other service areas. This service area, however, is specially focused on funding state and federal government programs through the specific agencies.
Funds in Operation
Of all the funds, the Texas Enterprise Fun (TEF) receives the largest funding as it plays the roll of a financial incentive tool that receives cash grants as awards. This is essential for the economy of Texas as these funds (tools) can then be allocated to projects that add value to the state. These include projects that help create employment opportunities or capital investments. For instance, the Texas Moving Image Industry Incentive Program was created to open more job opportunities and garner interest in the film and arts industry receives its grants from the TEF. Furthermore, other strategic funds like the Coverdell Forensic Sciences Program, County Essential Grands, Specialty courts, and Crime Stoppers Assistance fund receive their funding from the TEF. Note the diversity of the projects funded by the TEF and their strategic importance to the welfare and financial future of the state.
For the government to operate efficiently, it needs funds equal to the different functions. As a result, the State of Texas has different funds in operation for each of the government functions. It should be noted, however, that allocating funds is done on the needs of the government function and importance to the state and country. The following is a list of the state’s funds in the financial year 2020 -2021.
The General Government fun received $6.7 billion, a drop from $7.5 from the financial year 2018 – 2019.
Health and Human Services received received $84.8 billion, an increase from $83.5 billion from the financial year 2018 – 2019.
Judiciary funding received $875 million from $857 million in the financial year 2018 – 2019
Public safety and criminal justice received $15.4 billion from $18.4 billion in the 2018 -2019 financial year.
Natural resources received $8.9 billion from $6.5 billion in the 2018 – 2019 financial year.
Financial Analysis
In the 2013-2014 fiscal year, the state of Texas did not collect enough revenues to cover its programs. As a result, it was not able to pay for its school property taxes. As a result, individual schools, counties, and municipalities were forced to take up the slack. The failure in the revenue collection and subsequently budgeting was a result of the state’s decisions made in 2006, resulting in a deficit financing of $10 billion. Since then, the government has made amendments, reforms, and improvements that by 2019, the state was left with $2.89 billion in cash from the two-year budget period. These are shown in the figures below.
Figure 4 . Federal share of state general revenue that dropped in 2013, resulting in problems. Source: Comptroller (2019)
Figure 5 . Maintenance and Operations (M&O) property tax for Texas school districts from 2008 - 2017. Source: Comptroller (2019)
As such reforms continue, the economic stability and position of Texas will improve (Ramsewy, 2019). However, the COVID19 pandemic is set to have unpredicted consequences, especially long-term consequences that are yet to be experienced. Of all the improvements the state has made, Ramsey (2019) points out the few that were key. First, the sales, motor vehicles and rental taxes increased by $429, $227, respectively. Secondly, the taxes obtained from the oil industry netted $399 billion while insurance and cigarette and tobacco taxes summed up to $188 million and $79 million, respectively (Ramsey, 2019).
Conclusion
In summary, budgets are financial plans for a specified period of time, thus can give insight into the operations of a corporation, state, and municipal government they are also contingency tools that detail how much resources a state and municipal government have earmarked for emergencies as well as help in setting priorities. Lastly, budgets are a communication tools, from the state and municipal government to the stakeholders they serve, such as the public. As a result, the budget need to not only detailed but also easy for the public to understand without necessarily having a background in finance, accounting or any other related field. Part of being a communications tool implies that the budget needs to be formally structured.
This paper has used the budget for the State of Texas to prove that municipal and state level budgets should be prepared and published in a format that communicates the associated service are, the programs, the operating budget (and justify it), expenditures, and the associated financial health risks together with their implications. When the requirements are met, the citizens not only understand which taxes they should be paying, why, and where those funds are allocated. The whole process promotes transparency and public understanding about their state’s finances. For instance, businesses could take advantage of the tax benefits by reading the proposed budgets since they are communicated in a language that does not require one to have a background in finance or accounting to understand.
References
Abbott, Greg. 2019. GOVERNOR’S BUDGET 2020 – 2021. https://gov.texas.gov/uploads/files/press/Governors-Budget-FY-2020-2021.pdf
Comptroller, Texas. 2019. Fiscal year analysis. https://comptroller.texas.gov/economy/fiscal-notes/2019/jan/funding.php
Dzigbede, K. D., Gehl, S. B., & Willoughby, K. (2020). Disaster resiliency of US local governments: Insights to strengthen local response and recovery from the COVID‐19 pandemic. Public administration review , 80 (4), 634-643.
Khose, S., Moore, J. X., & Wang, H. E. (2020). Epidemiology of the 2020 pandemic of COVID-19 in the state of Texas: the first month of community spread. Journal of community health , 45 , 696-701.
Legislative Budget Board. 2020. Fiscal year 2020 Operating Budget Instructions for Executive and Administrative Agencies, Appellate Courts, and Judicial Branch Agencies. https://www.lbb.state.tx.us/Documents/Instructions/Operating_Budget/Op_Budget_Instructions.pdf
Person, C., & Geißler, R. (2021). State Supervision of Local Budgets: from Forbearance to No Concession. In The Future of Local Self-Government (pp. 229-242). Palgrave Macmillan, Cham.
Volk, S. C., Berger, K., Zerfass, A., Bisswanger, L., Fetzer, M., & Koehler, K. (2017). How to play the game. Strategic tools for managing corporate communications and creating value for your organization (No. 3). Communication Insights.
