State Budget Practice Report Cards and Budget Resources Guide

Its rainy day fund deposits of almost $12 billion helped get Texas a top A average in reserve funds for fiscal 2017 through 2019. Yet the second-most-populous state managed only a D-minus average in legacy costs, the lowest mark possible, after appropriating less for public worker pensions and other postemployment benefits (OPEB) than actuaries recommended.

With annual contributions to the three pensions administered by the Employment Retirement System of Texas less than actuarially determined amounts, funding was 71 percent of estimated obligations in 2018. While that was 1 percentage point above the total for all states, it represents a decline from 2016, when the system was 73 percent funded. Texas also failed to follow actuarial recommendations for OPEB, which includes health care. In fiscal 2018, the state contributed only $325 million, just 16 percent of the actuarial sum.

The state’s A average in reserve funds reflects policies that track best practices cited by the Volcker Alliance in the recent working paper, Rainy Day Fund Strategies, A Call to Action. The dedication of the No. 1 crude oil–producing state to maintaining a healthy economic stabilization fund is rooted in a vigorous funding system linked to the volatility of its petroleum and natural gas revenues. This includes the deposit of a large portion of severance tax collections in years when they exceed 1987 levels. Additionally, Texas deposits half of any unencumbered general fund surplus into the stabilization fund at the end of each biennium.

Texas’s improvement in multiyear expenditure and revenue estimating processes helped it earn a C average in budget forecasting. The state did not extend revenue or expenditure projections beyond its biennial budget in 2017 but began to do so the following year, when a legislatively mandated report provided expenditure and revenue forecasts for 2018–27. 

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 2020 Volcker Alliance report, Truth and Integrity in State Budgeting: The Balancing Actwhich 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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