The 78th Legislature will have $54.1 billion available for general revenue-related appropriations for the 2004-05 biennium. This revenue will come from three sources: tax collections; non-tax receipts such as fees, lottery proceeds, and interest; and the 2002-03 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 state's tax system is the main source of general revenue-related funding. Taxes are expected to contribute 86.1 percent of total net revenues. Compared with the amount collected for the 2002-03 biennium, total general revenue-related tax collections in 2004-05 are expected to register a 1.3 percent increase. As has been the case since 1988, state sales tax revenues will continue to account for more than half of all state general revenue-related tax collections. The sales tax will remain Texas' most important state tax, but the declining growth rate in collections that started in 1999 has turned into a negative growth rate in fiscal 2002, due in large part to the national economic doldrums that started in the spring of 2000. In 2000-01, sales tax collections registered a 12.2 percent biennial growth rate. For 2002-03, the biennial growth rate will drop to 1.5 percent. In 2004-05, however, the trend is expected to reverse course and register a 4.0 percent growth rate.
Other major state taxes are expected to display mixed results in 2004-05. Subject to many of the same factors affecting the sales tax, motor vehicle sales tax collections are expected to cool off substantially in 2003 and remain virtually flat through 2004-05. Franchise tax collections are anticipated to display a pronounced decline, dropping 7.4 percent in 2002-03 and 1.1 percent in 2004-05. Slow national economic growth, weak corporate earnings, and the continued application of several new franchise tax credits are among the reasons for the decline. In contrast, motor fuel tax revenues are expected to grow by 2.3 percent.
Oil production and regulation taxes are expected to fall by 19.0 percent in 2004-05 because of production declines and lower prices. Most producers in the state are working old fields; and no significant discoveries have been made to arrest the downward trend. While natural gas taxes are estimated to increase by 2.7 percent in 2004-05, this is because a legislative repeal of previous "speed-up" legislation resulted in the 2002-03 biennium being credited with one fewer month of collections than 2004-05.
While tax collections provide the most important source of general revenue-related funds, non-tax revenues are still important. Total general revenue-related non-tax receipts are estimated at $7.8 billion in 2004-05. Of this amount, lottery proceeds are expected to contribute $1.6 billion, second only in this category to license, fee, fine, and penalty revenues, at $1.7 billion.
Earnings on state investments provide another significant source of non-tax revenue; as with many other state revenues, this source, too, is expected to show a decline. The Permanent School Fund (PSF) produces most interest and dividend earnings accruing to general revenue-related funds. Historically low interest rates are the main reason for the reduction in PSF revenues.
Beyond general revenue-related funds, the state will receive $57.8 billion in revenues dedicated for specific purposes and thereby unavailable for general spending. Federal receipts--on the order of $41.4 billion--will account for the majority of this revenue. Dedicated revenues are earmarked for such expenditures as Medicaid, highways and transportation, and education, among many other purposes.
Taking all state revenue sources into account, the state is expected to collect $114.2 billion in revenue for all state funds during the 2004-05 biennium.