State Budget Practice Report Cards and Budget Resources Guide

Despite Texas’s $12.5 billion rainy day reserve and triple-A credit ratings, most of its grades on budget practices for fiscal 2016 through 2018 show room for improvement.

The state’s worst performance was in legacy costs—a D-minus, the lowest grade possible. Texas did not follow actuarial recommendations in making annual contributions for either its public employee pension plans or other postemployment benefits, mainly health care. Only five other states received an average grade of D-minus in legacy costs. 

While Texas recorded a C average in forecasting, its annual mark in the category rose to B in 2018 from D in 2016 and 2017 after a legislative decision to experiment with long-term revenue and expenditure estimates. The General Appropriations Act for the 2018–19 biennial budget required the Legislative Budget Board to produce a report analyzing the impact of economic and demographic growth on state finances for ten fiscal years, September 2019 through August 2029. The legislature will then evaluate the process and determine whether to continue providing the long-term estimates.

Texas posted a B average in budget maneuvers, though its grade of B in 2017 fell to a C in 2018. The decline stemmed from the state’s decision to expedite a sale of unclaimed securities, which added $500 million for spending in the 2018–19 biennial budget. If any of these securities are claimed in the future, they must be repaid.

Texas averaged an A in reserve funds, thanks to policies that specify when cash from the rainy day fund can be withdrawn and a timetable for its replacement. The state learned the hazards of operating with no cash cushion in 1988, when an oil bust crimped revenues and pushed it to establish the Economic Stabilization Fund. With a record balance in the fund as of November 2018, Texas is trying to ensure the ability to deliver basic services does not depend on unpredictable petroleum revenues and that reserve fund deposits are linked to the volatility of state revenues.

Download Printable State Report Card

To emphasize the need for clear and comprehensible budgets to inform citizens, promote responsible policymaking, and improve fiscal stability, the Volcker Alliance in 2016 began a study of budgetary and financial reporting practices of all fifty states. The Volcker Alliance’s mission is to improve the effectiveness of the administration of government at all levels. Making state budgeting more transparent and accountable is an important part of that goal.

The report cards presented here are taken from the 2018 Volcker Alliance report, Truth and Integrity in State Budgeting: Preventing the Next Fiscal Crisis which proposes a set of best practices for policymakers. For those wishing to gain greater insight into state fiscal issues, the accompanying budget resource guide is derived from the Alliance publication State Budget Sources: An Annotated Guide to State Budgets, Financial Reports, and Fiscal Analyses (2016). 

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