The 77th Legislature will have $60.8 billion available for general revenue-related appropriations for the 2002-03 biennium. This revenue will come from three sources: tax collections; non-tax receipts such as fees, lottery proceeds, and interest; and the 2000-01 biennium ending balance. (See Figure 1.)
Aside from certain fund balances, only four funds affect the discretionary spending detailed in the General Appropriations Act. These funds, which are referred to as "general revenue-related funds," are the General Revenue Fund, the Available School Fund, the State Textbook Fund, and the Foundation School Fund Account. The remaining funds depend upon federal receipts or revenues that are dedicated by the constitution or by statute. A prime example is the constitutionally-dedicated State Highway Fund.
The states tax system is the main source of general revenue-related funding. Taxes are expected to contribute 86.1 percent of total net general revenue-related funds. Compared to the amount collected for the 2000-01 biennium, tax collections in 2002-03 are expected to register a 5.9 percent increase.
As has been the case since 1988, state sales tax revenues will continue to account for more than half of all state tax collections. The sales tax will remain Texas most important state tax, but the moderating growth rate in collections that first surfaced in 1999 is expected to continue, due in part to higher interest rates, the associated slowdown in housing-related purchases, reduced capital gains from a weaker stock market, and an increasingly cautious consumer market. In the 1998-99 biennium, sales tax collections registered a 15.4 percent biennial growth rate. For 2000-01, the biennial growth rate is expected to drop to 12.0 percent; and for the 2002-03 biennium, the growth rate is expected to fall even further, to 7.1 percent.
Other major state taxes should register moderate increases during the biennium. Subject to many of the same factors affecting the sales tax, motor vehicle sales tax collections are expected to cool off after their phenomenal growth during the 1998-99 and 2000-01 biennia. Franchise tax collections, however, are anticipated to decline in absolute terms, dropping off slightly in the 2000-01 biennium and to a more pronounced degree in 2002-03. Slower national economic growth, higher interest rates, weakening corporate earnings, and the application of several new franchise tax credits are among the reasons for the decline.
Even with higher prices, oil production and regulation taxes are expected to fall by 20.7 percent during the 2002-03 biennium, because of production declines. Most producers in the state are working old fields, and new drilling has been hampered by concerns about price stability and the lack of available rigs and manpower.
In contrast, motor fuel tax revenues will show a substantial increaseon the order of 38.3 percentin the 2002-03 biennium. While fuel consumption is expected to increase during the next biennium, the magnitude of the change in tax collections is illusory, merely the consequence of a timing change enacted by the 75th Legislature. This legislation delayed until fiscal 2000 the June and July 1999 motor fuel allocations from the General Revenue Fund to the State Highway Fund. After accounting for the reduction of fiscal 2000 collections caused by the delay, the biennial growth rate between 2000-01 and 2002-03 is expected to be 6.7 percent.
While tax collections provide the most important source of general revenue-related funds, non-tax revenues are still important. Total non-tax revenue receipts to general revenue-related funds will be $8.1 billion in 2002-03. Lottery proceeds will contribute $1.6 billion, trailing the states largest non-tax revenue category, license, fee, fine, and penalty revenues, at $2.2 billion. The diminished importance of lottery proceeds as a portion of non-tax revenue reflects the downward trend that started with the 1998-99 biennium, when biennial net proceeds fell by 9.4 percent. For the 2000-01 biennium, proceeds are expected to fall by 19.8 percent, tapering off to a 5.9 percent reduction in the 2002-03 biennium. One important reason for the decline is the maturation of the lottery.
Earnings on state investments provide another big source of non-tax revenue. Most interest and dividend earnings accruing to general revenue-related funds are produced by the Permanent School Fund (PSF). A significant factor driving the increase in revenue from the PSF is greater income from fixed-income securities.
Beyond general revenue-related funds, the state will receive $48.5 billion in federal receipts and other revenues dedicated for specific purposes and thereby unavailable for general spending. Federal receiptson the order of $31.9 billionaccount for the majority of this revenue. This money is earmarked for such expenditures as Medicaid, highways and transportation, and education.
Taking all state revenue sources into account, the state is expected to collect $106.8 billion in revenue for all state funds during the 2002-03 biennium.
In fiscal 2000, the Comptrollers Office and the Legislative Budget Board began a joint project to more closely align the Biennial Revenue Estimate (BRE) with the various methods of financing used in the General Appropriations Act. Because of this project, some items previously classified as "General Revenue" have been reclassified as "Other Funds" in this BRE because they are considered to be appropriated receipts or "pass-through" money in the appropriation process. As such, the historical and forecasted tables in this publication have been changed to present an accurate comparison of revenue growth. In addition, several other changes have been made to improve this report, including new tables on "Estimated Federal Income" and "Estimated Other Funds Revenue."