4. the level of consolidated general revenue appropriations for the current state fiscal biennium; and

5. the limit on the amount of consolidated general revenue appropriations that could be appropriated for the next state fiscal biennium.

In this memorandum, each item of information is discussed in this same order.

Limit on the Rate of Growth of Consolidated General Revenue Appropriations

The methodology for calculating the limit on the rate of growth for the CGR limit is set in the Texas Government Code, Section 316.002(a)(2), in the following words:

(2) the limit on the rate of growth of consolidated general revenue appropriations for that state fiscal biennium, as compared to the previous state fiscal biennium, by subtracting one from the product of:

(A) the sum of one and the estimated average biennial rate of growth of this state's population during the state fiscal biennium preceding the biennium for which appropriations are made and during the state fiscal biennium for which appropriations are made; and

(B) the sum of one and the estimated average biennial rate of monetary inflation during the state fiscal biennium preceding the biennium for which appropriations are made and during the state fiscal biennium for which appropriations are made.

Mathematically, the formula described by the statute looks like:

Attached Graphic

Estimated Rate of Texas Population Growth

The statute does not define the state's population, rather Texas Government Code, Section 316.001(e) directs the LBB to determine the rate of growth of the state's population as follows:

(e) The Legislative Budget Board shall determine the rates described by Subsection (c) using the most recent information available from sources the board considers reliable, including the United States Bureau of Labor Statistics Consumer Price Index and the Texas Demographic Center.

The U.S. Census Bureau defines the state's population as follows:

The resident population includes all people currently residing in the state on a specific date. The population estimate at any given time point starts with a population base (e.g. the last decennial census or the previous point in the time series), adds births, subtracts deaths, and adds net migration (both international and domestic).

The Texas Demographic Center (previously the Texas State Data Center) was initiated in 1980 to establish a state level liaison to the U.S. Census Bureau for better dissemination of Texas census data. In the mid-1980s, the Texas Population Estimates and Projections Program was established with the overall objective of providing annual estimates of the population of Texas counties and places and biennial projections of the population of the state and counties. The Texas Population Estimates Program produces annual estimates of the total populations of counties and places in the state and estimates of county populations by age, sex, and race/ethnicity. The Texas Population Projections Program produces projections of the population of the state and all counties in the state by age, sex and race/ethnicity.

Table 7 displays the most recent breakdown of the Texas population estimate from the Texas Demographic Center. Table 9 shows historical growth rates of Texas population over that last 20 biennia.

Estimated Rate of Monetary Inflation

The statute does not define monetary inflation, rather Texas Government Code, Section 316.001(e) directs the LBB to determine the rate of monetary inflation as follows:

(e) The Legislative Budget Board shall determine the rates described by Subsection (c) using the most recent information available from sources the board considers reliable, including the United States Bureau of Labor Statistics Consumer Price Index and the Texas Demographic Center.

The U.S. Bureau of Labor Statistics defines the Consumer Price Index as follows:

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Prices for the goods and services used to calculate the CPI are collected in 75 urban areas throughout the country and from about 23,000 retail and service establishments. Data on rents are collected from about 50,000 landlords or tenants. The weight for an item is derived from reported expenditures on that item as estimated by the Consumer Expenditure Survey.

Table 8 shows the U.S. Bureau of Labor Statistic's Consumer Price Index broken down by the weights applied to each of the large expenditure categories for the most recent month available. As an example, the largest weighted expenditure in the Consumer Price Index is consumer expenditures on shelter.

The U.S. Bureau of Labor Statistic's reports the Consumer Price Index on a monthly basis. Because the state's fiscal year begins on September 1 and ends August 31, an adjustment is required to present these data on a biennial basis. The Legislative Budget Board uses the average of the Consumer Price Index over the 24 months of a biennium to represent the rate of monetary inflation during the state's fiscal biennium. Table 9 shows the historical record of the rate of growth in monetary inflation for the past 20 completed biennia, using the data published by the U.S. Bureau of Labor Statistics.

Forecasting Texas Population and Monetary Inflation

In reviewing standard statistical techniques for forecasting or projecting Texas population and monetary inflation, the Legislative Budget Board has obtained the latest economic forecasts from the following sources, listed alphabetically: (1) Moody's Analytics, (2) Perryman Group, (3) S&P Global, (4) Texas A&M University - Department of Economics, and (5) Texas Comptroller of Public Accounts. These forecasts are based on econometric models developed and maintained by the forecasting services listed. In addition, the Legislative Budget Board has obtained the most recent population projections from the Texas Demographic Center.

Although each forecasting service approaches the development of economic projections differently, several characteristics are common to the econometric models from which the Texas population and monetary inflation estimates are derived. First, each model assumes that the U.S. economy is the driving force behind Texas economic activity. As a result, forecasts of U.S. economic variables are needed to drive each model. Secondly, each of the econometric models is structural in nature, representing certain assumptions about the structure of the Texas economy, consistent with economic theory. Structural models typically entail detailed modeling of key sectors of the state's economy, followed by statistical testing to establish relationships with other sectors of the economy.

Table 10 shows details of the Texas population and monetary inflation growth rates of the various forecasting services for the average of the 2024-25 biennium over the 2022-23 biennium and the 2022-23 biennium over the 2020-21 biennium. These forecasts range from 2.07 percent to 2.62 percent for Texas population and from 9.38 percent to 10.17 percent for monetary inflation.

The Texas population and monetary inflation growth rates shown in Table 10, or any more recent forecasts if available, will be presented to the Legislative Budget Board for its consideration in adopting this item of information. The Board is not limited to one, or any combination of the growth rates, when adopting a Texas population growth rate or monetary inflation growth rate for the 2024-25 biennium.

Table 11 shows the sources and dates for the Texas population and monetary inflation growth rates presented in Table 10.

Consolidated General Revenue Appropriations 2022-23 Biennium

The amount of consolidated general revenue appropriations in the 2022-23 biennium, the base biennium, is the fourth item of information to be determined by the Legislative Budget Board. As of November 16, 2022, the Legislative Budget Board (LBB) staff estimates this amount to be $124,165,562,000. Table 12 details the calculation of this amount.

Calculating the 2024-25 Limitation

The limitation on consolidated general revenue appropriations in the 2024-25 biennium, the fifth item of information, may be illustrated by selecting a growth rate, adding one, and multiplying it by the 2022-23 adjusted biennial appropriations base. A change to the 2022-23 adjusted biennial appropriations base would result in a corresponding change to the 2024-25 biennial limit.

Method of Calculating 2022-23 Consolidated General Revenue Appropriations

As previously stated, LBB staff estimates the amount of consolidated general revenue appropriations in the 2022-23 biennium to be $124,165,562,000. This section details the sources of information used in this calculation.

Texas Government Code, Section 316.001 (a) defines "consolidated general revenue appropriations" as follows:

(a) For purposes of this subchapter, "consolidated general revenue appropriations" means appropriations from:

(1) the general revenue fund in the state treasury;

(2) a dedicated account in the general revenue fund in the state treasury; or

(3) a general revenue-related fund in the state treasury as identified in the biennial statement required of the comptroller under Section 49a, Article III, Texas Constitution.

Table 13 shows consolidated general revenue appropriations classified as the following: (1) "estimated to be" line-item appropriations, and (2) sum-certain line-item appropriations.

1. "Estimated to Be" Line-Item Appropriations:

Each of these items under the subheading "estimated to be" may change under certain circumstances. For purposes of this calculation, most fiscal year 2022 amounts are based on actual 2022 expenditures. Most amounts for fiscal year 2023 are taken from Senate Bill 1, Eighty-seventh Legislature, Regular Session, 2021; Senate Bill 1605, Eighty-seventh Legislature, Regular Session, 2021; and House Bill 5 and House Bill 9, Eighty-seventh Legislature, Second Called Session, 2021, Senate Bill 8, Eighty-seventh Legislature, Third Called Session, 2021, and other legislation affecting appropriations.

2. Sum-certain Line-Item Appropriations:

As calculated in Table 13, the amount shown for "Total Sum Certain Line-Item Appropriations" is the difference between total appropriations and the items listed separately as "estimated to be appropriations." Consolidated general revenue appropriations in Table 13 include those made by Senate Bill 1, Eighty-seventh Legislature, Regular Session, 2021; Senate Bill 1605, Eighty-seventh Legislature, Regular Session, 2021; and House Bill 5 and House Bill 9, Eighty-seventh Legislature, Second Called Session, 2021, Senate Bill 8, Eighty-seventh Legislature, Third Called Session, 2021, and other legislation affecting appropriations.

Texas Government Code, Section 316.001 (d) states that two types of appropriations are to be excluded from the computation of consolidated general revenue appropriations.

(d) For purposes of this subchapter, the following appropriations must be excluded from computations used to determine whether appropriations exceed the amount authorized by Subsection (c):

(1) an appropriation for a purpose that provides tax relief; or

(2) an appropriation to pay costs associated with recovery from a disaster declared by the governor under Section 418.014.

Appropriations made for these two purposes are classified as either one-time or recurring. One-time appropriations are those assumed to have no ongoing cost in future state fiscal biennium. Conversely, recurring appropriations are expected to have ongoing costs in future state fiscal biennium. One-time appropriations are excluded from the computation of consolidated general revenue appropriations for the current and upcoming state fiscal biennium. Since recurring appropriations are already included in the current biennium's appropriation calculation, only changes from the current biennial level are excluded from the computation of consolidated general revenue appropriations for the upcoming state fiscal biennium. Finally, for appropriations to pay costs associated with recovery from a disaster, only appropriations made after the date the disaster is declared and before the date the disaster declaration ends are excluded from the computation of consolidated general revenue appropriations. Table 14 shows appropriations excluded from the computation of consolidated general revenue appropriations for the 2022-23 biennium.

Total consolidated general revenue appropriations for the 2022-23 biennium include those made by Senate Bill 1, Eighty-seventh Legislature, Regular Session, 2021; Senate Bill 1605, Eighty-seventh Legislature, Regular Session, 2021; and House Bill 5 and House Bill 9, Eighty-seventh Legislature, Second Called Session, 2021, Senate Bill 8, Eighty-seventh Legislature, Third Called Session, 2021, and other legislation affecting appropriations. Any subsequent appropriations made by the Eighty-eighth Legislature, 2023, for the 2022-23 biennium also would be included in total appropriations.

Grand Total

Table 15 shows the calculation of the total adjusted biennial appropriation included in limitation base. A grand total of $121,000,192,084 in 2022-23 biennial consolidated general revenue appropriations is included in this analysis. This amount serves as the base for calculating the limitation on 2024-25 consolidated general revenue appropriations as required by the Texas Government Code, Section 316.001. This item multiplied by the average estimated rate of growth of Texas population and monetary inflation from the 2020-21 biennium to the 2022-23 biennium and the 2022-23 biennium to the 2024-25 biennium produces the limitation on consolidated general revenue appropriations for the 2024-25 biennium pursuant to the Texas Government Code, Section 316.001.

Attached Graphic

Attached Graphic

Attached Graphic

Attached Graphic

Attached Graphic

Attached Graphic

Attached Graphic

Attached Graphic

Attached Graphic

Attached Graphic

Attached Graphic

Attached Graphic

Attached Graphic

Attached Graphic

Attached Graphic

TRD-202204601

Stewart Shallow

General Counsel

Legislative Budget Board

Filed: November 16, 2022