Senator Jane Nelson (R)-Flower Mound, Chair of the Texas Senate Finance Committee, announced that every state agency will be required to use zero-based budgeting for the next biennium’s budget. Standard practice has been to have each agency use zero-based budgeting on a rotating basis, but this will not be a normal budgeting cycle.
In a May 8th letter to Senator Bob Hall, Senator Nelson wrote, “As I meet with each agency to review their appropriation requests, I will begin at ZERO. The bill I file will adhere to both constitutional spending limits as well as… (the) philosophy of ‘If you don’t have it, you shouldn’t spend it.'”
Agencies generally prefer an incremental approach when budgeting; This involves starting with the current spending levels and adding or subtracting from them as needed. This approach assumes that the current level of spending is appropriate and efficient. Zero-based budgeting requires agencies to explain the ongoing relevance of each funded activity. It is designed to eliminate activities that were needed when initiated but have since have become unnecessary or redundant. This budget process is like the sunset provisions in state law, which require every agency to be evaluated periodically to see if its function is still relevant.
It is expected that the legislature will begin the 87th Legislative session with a revenue projection of several billion dollars short of current spending levels. This revenue shortfall is the result of not only the COVID-19 pandemic but also the decision an oversupply of oil and gas from foreign countries, which put the prices in free fall and resulted in much lower oil and gas tax revenue for Texas.
Texas Comptroller Glenn Heger estimates the “Rainy Day Fund” will have about $8.5 billion at the end of this biennium. Some relief also is expected from the Federal Government. The speed with which the economy recovers will have an economic impact on the budget. All signs point toward a difficult budget cycle and Senator Nelson aims to approach this proactively.