Study Guide To Go
1. Identify Texas state agencies that responded to Hurricane Katrina, and list key services
provided by each agency.
2. Summarize the view of economist Milton Friedman on preservation of freedom and the role
of government, and explain why you agree or disagree.
3. Explain the difference between regressive taxes and progressive taxes.
4. Define the terms general sales tax and selective sales tax, and give examples of each.
5. Identify and describe gambling operations that are sources of state revenue in Texas, and
comment on their importance for financing state government.
6. Give arguments for and against expanding state-taxed gambling operations in Texas.
7. Describe Texas’s “tobacco suit windfall,” and explain why you support or oppose
securitization of this settlement.
8. Identify and briefly describe the steps in Texas’s fiscal management process that begins
with preparing a budget and ends with auditing state finances.
9. Summarize recent funding problems for Texas’s public schools, and explain how school
finance was restructured in 2006.
10. Summarize recent funding problems for Texas’s public colleges and universities, and
explain how the legislature has reacted to the needs of students and institutions of higher
11. Comment on the cost of Medicaid and the Children’s Health Insurance Program (CHIP),
and explain what, if anything, should be done to change financing of these programs.
12. Explain how Texas is meeting the need for an expanded state highway system, and express
your opinion concerning the construction of toll roads.
13. Summarize recent findings of the Texas State Parks Advisory Committee, and explain the
financial actions that you recommend.
14. Outline the mission and the philosophy of Texas state government as set forth by the
Governor’s Office of Budget, Planning and Policy, and the Legislative Budget Board.
Explain why you agree or disagree with these statements.
I. Fiscal Policies
A. Taxing Policy
B. Budget Policy
C. Spending Policy
II. Revenue Sources
A. The Politics of Taxation
1. Sales Taxes
2. Business Taxes
3. Death Tax
4. Tax Burden
5. Tax Collection
B. Revenue from Gambling
C. Nontax Revenues
1. Federal Grants-in-Aid
2. Land Revenues
3. The Tobacco Suit Windfall
4. Miscellaneous Sources
D. The Public Debt
1. Bond Review
2. Economic Stabilization Fund
III. Budgeting and Fiscal Management
A. Budgeting Procedure
1. Legislative Budget Board
2. Governor’s Ofﬁce of Budget, Planning and Policy
3. Budget Preparation
B. Budget Expenditures
C. Budget Execution
IV. Future Demands
A. Public Education
1. Sources of State Funding
2. Funding Equalization
3. Restructuring School Finance
B. Public Higher Education
1. Community College Funding
2. University Funding
3. Tuition Deregulation
4. Texas Tomorrow Funds
5. State Grants
C. Public Assistance
D. Other Needs
2. Public Safety Programs
3. Homeland Security
Overview of the Text (pp. 437-474)
Experiences with Hurricanes Katrina and Rita remind Texans that government action requires
financial resources. This chapter focuses on the balance between costs and services; and it
presents an overview of the state’s fiscal policies, its budgeting processes, and the most costly
public policy areas.
Fiscal Policies (p. 440). While financial negotiations between Texas and the federal government
continued after the hurricane disasters, a ruling by the Texas Supreme Court forced the state to
find new revenue sources to cover spending for its public schools. Thus, the Lone Star State faced
key challenges to its low tax approach to fiscal policy, which concerns taxes, government
spending, public debt, and management of government money.
Texas lawmakers have established a regressive tax structure that bears most heavily on low-
income people, but most Texans do not favor an income tax.
The Texas Constitution prohibits state borrowing “except to supply casual deficiencies of
revenue, repel invasion, suppress insurrection, and to defend the state in war.” In support of a
pay-as-you-go balanced budget policy, the legislature cannot authorize spending in excess of the
comptroller’s estimate of anticipated revenue (unless approved by a four-fifths majority in each
house). Historically, Texans have called for limited state spending. They have supported
spending for highways, roads, and other public improvements but not for social services.
A relatively high general sales tax (with some exemptions) and several selective sales taxes are
the principal sources of state revenue. Additional state money is received from business taxes (for
example, severance taxes on production of oil and natural gas), a state lottery, taxes on other
gambling operations, federal grants-in-aid, non-tax revenue from state-owned land, and the
tobacco suit windfall.
The state borrows money by issuing general obligation bonds and revenue bonds as well as
commercial paper and promissory notes. Bond issues must be approved by the legislature and the
Texas Bond Review Board. The state’s Economic Stabilization Fund (“rainy day” fund) operates
like a savings account from which money can be withdrawn to meet emergencies.
Texas’s fiscal management process begins with a budget covering two fiscal years. This spending
plan involves drafting by the legislative Budget Board and the Governor’s Office of Budget,
Planning and Policy, authorization by the legislature, and execution by the governor and the
Legislative Budget Board. Purchasing, accounting, and auditing are other important areas of
Low taxing levels and restrained spending have kept the cost of Texas government relatively low,
but the twenty-first century is producing strong demands fiscal policies that will address a
growing population’s needs for adequately funded public schools, community and technical
colleges, and universities. At the same time, the state must address needs for public assistance to
benefit the poor, roads and highways to facilitate movement of people and goods, and programs
to promote public safety and homeland security.
Looking Ahead (pp. 474). In the future, Texas’s government agencies will be pressured to meet
more demands for services while receiving less money. Can government become “smaller,
smarter, and faster” while meeting the challenges of the twenty-first century?
Overview of the Selected Readings
“Put This Effort in Drive” (pp. 479-480)
The level of spending on Texas state parks is so low that the Lone Star State ranks 49th among the
50 states on a per capita basis. More distressing to many Texans is the fact that extra money paid
for “conservation” license plates and funds raised from a special tax on sporting goods are not
reaching their intended—and promised—destination, state parks. As a result of the reduced
budget for the parks system, which has been shrinking since 1990, many facilities show neglect
and even disrepair. Other facilities have had to be shut down or sold. Members of the State Parks
Advisory Committee believe that it is time to reverse this trend and dramatically increase park
funding, resume park upkeep, and give Texans’ access to their parks.
“The Mission and Philosophy of “Texas State Government” by Governor Rick Perry
Governor Perry lays out his personal philosophy of government and sets forth priorities. He wants
departments and agencies of state government to implement that philosophy, as well as to make
his priorities their focus. Perry’s beliefs, as outlined here, comport with traditional conservatism.
Thus, they include limited state government, with most decisions made by (and responsibilities
resting with) individuals, their families, and local governments. Further, he notes that state
government should be open, honest, efficient, and fair; one of its important tasks is safeguarding
taxpayer dollars by eliminating waste and corruption. Additionally, the governor argues that
competition is the greatest motivator for individuals; however, he also says that helping Texas
matters more than winning for one’s party or oneself. Beyond principles, the governor has
outlined priority matters for state government to address. Among these are education, the
economy, healthcare, and protection for neighborhoods and communities.