Final Project
Texas
State Financial Crisis
Texas is the second largest state in the USA
in terms of area and population. It is located in the southern part of the USA.
It is spread over an area of 696 581 square kilometers while the approximate
population is 27, 469,114 people, showing almost 9.2% increase from the 2010
census. The main economic activities of Texas are mining, agriculture, and
commerce. The wildlife of this state is famous the world over. People get
engaged in sports and play the vital role in promoting their culture. The
primary modes of transport are railway, highways, and airports (Begley, 2007).
According to the analysis of the U.S State
Government’s budget, the state's budget in 2015 was 99.7 billion dollars. The
estimated expenses of 2015 are $112.6 billion. An increment of $4.1 billion was
observed. The GSP (Gross State Product) was 1, 648,007 million US dollars,
making Texas second after California. The state's GSP has been increasing
continuously since 2002. Besides the increase in the GSP, Texas has some
deficits. The 2014 deficit was $340.9 billion. The project is to find out the
problem that leads to increasing the debts even when the GSP is satisfactory. It
also aims to evaluate the possible ways that can be used to provide and
maintain the stable finances in Texas, enabling the government to take more
care of the citizens (Allen, 2008).
Texas' substantial economic activities are
its main revenue sources. There is also the important role of the agricultural
practices, the technology, energy resources, and well-versed business
activities. In 2015, the trusts were not included in the revenue sources. Thus,
these cannot be counted towards the primary income source.
2015 revenue sources
Tax collected
Taxes are the primary source of revenues
for Texas. The taxes are collected from everyone who is directly or indirectly
involved in economic activities within the state. The government of Texas
ensures that all the commercial enterprises have paid the taxes timely. This
allows the government to make sufficient money to support the citizens. Thus,
better healthcare, education, and sports facilities are provided. Moreover, the
money remains in circulation. Ultimately, this leads to successful projects
related to the transportation, and others (Allen, 2008).
In 2015, the government state
collected taxes from every economic activity that occurred in the state:
|
Taxes
|
Amount($millions)
|
%in total
|
Change from 2014 %
|
|
Sales
|
28 910. 86
|
26.4
|
5.6
|
|
Rental and motor vehicle sales
|
4 514. 19
|
4.1
|
7.2
|
|
Fuel
|
3 446.16
|
3.1
|
3.9
|
|
Franchise
|
4656.29
|
4.3
|
-1.6
|
|
Insurance
|
2 049.42
|
1.9
|
5.2
|
|
Natural gas production
|
1 280. 41
|
1.2
|
-32.6
|
|
Cigarette and tobacco
|
1 532.41
|
1.4
|
14.2
|
|
Alcoholic beverages
|
1 138.78
|
1.0
|
8.1
|
|
Oil production
|
2 879.05
|
2.6
|
-25.7
|
|
Inheritance
|
-3.82
|
0.0
|
-33
|
|
Utility
|
480.77
|
0.4
|
0.5
|
|
Hotel
|
525.82
|
0.5
|
8.3
|
|
Others
|
272.73
|
0.2
|
1.8
|
|
Total
|
51 683.06
|
47.2
|
1.4
|
Other sources
Besides the taxes, other
sources of revenue are earnings from the federal government. The federal
government gives money to the states every year for proper accomplishment of
operations. In 2015, Texas received $36.7 billion. It was 33.5% of the total
amount given by the federal government. According to an estimate, it was 7.1%
more than the amount given to it in 2014.
Other sources of income are
license fees, fines, and different types of penalties. The Texas government
collects money through the provision of licenses to the businesspeople, and
enterprises that operate in the state. Not only this but also the money is collected
from any other activity that needs licensing. Fines are applied to the
businesses that fail to meet the requirements of the government, or they have
broken any rule. Penalties apply to the residents and the firms that do not
adhere to state's policies. In 2015, Texas government collected $9.65 billion
which was 13.6% more than 2014's collection.
Income is also generated from interest
rates and investments. The state has some international investments. Money is
received from the loan offers. Interest is applied on credit card services. In
2015, Texas collected $1.4 billion which was 4.8% lesser than what it received
in 2014 (Gore, 2006).
Income from land is another
source of revenue. The income from properties is generated when the lands are
leased to the locals or other interested parties. Lands are lent to
international firms. Texas made around $1.55 billion from lands' sales in 2015.
It was 16.9% lesser than what it collected in 2014.
Income is also generated
from settlement claims. The Texas government raises money by setting claims.
People receive help to resolve the claims from the attorney. To get rid of the
issues, they pay as much money as the officials have decided. Because of the
settlement of the claims, the Texas government made $0.54 billion in 2015. It
was 0.5% of the total revenue, indicating a 5.9% decrease as compared to 2014's
collection (Michaels & Balling, 2009).
Revenues are also gotten
from the sales of goods and services. The government sells the variety of
products and services to the locals as well as to other states. In this way, it
makes handsome money. As a result of the sales of the goods and services, the
Texas government made around $0.4 billion in 2015. It was 0.4% of the total
revenue of 2014, indicating a 63.4% increase.
Net Lottery proceeds are
another source of income that Texas State gets benefited from. The high amount
of income is collected from the lottery proceeds. In 2015, the Texas government
earned $1.9 billion. It was 1.7% amount of the total revenues and an increment
of 0.8% as compared to 2014's earnings
The contribution in the
projects related to employees' prosperity fetches considerable amount of income
to the Texas government. In 2015, Texas officials received $55 billion which
was the insignificant percentage of the total annual income. However, this was
still 36.1 % lesser than what the government earned in 2014 (Begley, 2007).
The Texas government has
other sources of income too. It makes use of all of them to generate revenues.
Due to multiple fundraising sources, Texas raised $ 5.59 billion revenue in
2015 indicating 5.1% of the total revenue collected. It was 8.7% more than what
it collected in 2014.
The total revenue collected
by the Texas government from the other sources in the year 2015 was $ 57.75
billion. It was 52.8% of the income, and a 7% increase was observed from 2014.
The total net revenue collected in 2015 was $109.43 billion. It was an increase
of 4.3%.
2015 Expenditure
The Texas state investment
is classified into two classes: expenditure by category and expenditure by
function.
The spending by category in
the year 2015 was $30091 million. This was in the form of public assistance
payments. Roughly, it was 13.9% more than the amount of 2014. Grants awarded to
the foundation school program in 2015 were 12 902.3. It was 3.3% more than the
grants of 2014. On the other hand, the subsidies to higher education were $
707.5 million, about 0.6% more than in 2014. Other grants were $ 1 851.1
million that were almost 20.8% more than 2014's grants (Begley, 2007).
Other expenditures by
category are highways construction and maintenance. It was 2.2% more in 2015
than 2014, while in 2014 the capital expenditure was reduced up to 235.1,
making the percentage of 21.2%. The cost of goods sold was 347.7. Also, the
salaries and wages cost was 6 845.5, about 5.1% change was observed as compared
to 2014. The employee benefit payment and payroll related costs were 3 790.5
and 1 912.0 respectively.
These were 1.5 and 5.7 %
more than 2014. The professional services and fees were 1 716.7. It was 10.7%
more than 2014. Not only this but also the travel costs were 108.1 that was
14.1% more than 2014's expenses. The supplies and materials, communication and
utilities, debt service interests, the lottery winnings, claims and judgments
all cost 616.4, 288.5, 896.4, 315.6 and 52.7. Respectively, these were 3.1,
0.4, 2.2, 11.4, 19.6% lesser than 2014 (Begley, 2007).
The repairs and maintenance, rentals and leases, printing
and reproduction and other expenditures were 594.2, 185.3, 32.6 and 1643.1.
These were 17.4, 6.4, 0.8 and 1.4% more in 2015 as compared to 2014. The total
expenditures in 2015 by category are 71409.4 that is 7.8 % higher than 2014.
The second class of
investments is spending by the function. In this form, the state has to spend
on multiple projects and operations. Executive, legislative, government
subtotal and administrative expenses are 4224.1, 81.9, 4480 and 81.9 million
dollars in 2015. These have been 2.5, 6.9 and 2.2 % more, and 4.7% less than
the 2014's expenditures.
Education, benefits of
employees, health and human services, public safety, and the transport sector
expenses have been 21 423.7, 5 328.7, 29, 177.3, 2 748 and 5 031 million
dollars. This indicates an increase of 3.6, 6.4, 14.2, 3.9 and 6.1% as compared
to 2014.
Natural resources, the
recreation services, regulatory services, lottery winnings, interests on debts
and capital costs have been 1476.7, 314.1, 315.6, 896.4 and 235.1 million
dollars. These were 8.9 and 4.6% more than 2014. A decrease of 11.4, 2.2 and
21.2% from 2014 was also observed. The total expenditure by function was 71
409.4 that was 7.8% more than 2014.
From the above analysis of
revenue and expenses, it is noted that Texas State gets the highest revenues
from taxes. At the same time, the biggest expenditure goes to education,
health, and human services sector. The investments in healthcare in 2015 have
been hugest. The total cost was $71409 million and the revenues were $5.1
billion. Thus, Texas should be able to cater for its needs (Allen, 2008).
There are some cases of debt
deficits seen in Texas. The project will identify causes of debt deficit in the
state. The debt per capita in the last ten years is:
|
Year
|
Debt
|
|
2005
|
$1139
|
|
2006
|
$1172
|
|
2007
|
$1263
|
|
2008
|
$1404
|
|
2009
|
$1563
|
|
2010
|
$1633
|
|
2011
|
$1661
|
|
2012
|
$1620
|
|
2013
|
$1669
|
|
2014
|
$1644
|
From the above analysis, it
is clear that the Texas State has had an increase in its debt per capita level
from 2005 to 2011. During the same period, the debt reduced by $41 per capita.
It then increased by $ 49 in 2013 and again decreased by $25 in 2014. All these
fluctuations indicate instability in the fiscal health of the state. The debt
per capita of the state in 2015 was $1577. The total debt has been $40 billion.
However, the local government increases the debt by four times making up to
$192 billion (Allen, 2008).
The debt of Texas is because
of high expenditures of the local government. According to the Combs' report,
the local government raises the debt from $40 to $192 billion. Thus, it has
become a burden for the state to ensure a balance between the revenues and the
expenditures.
Another source of the
problem is inflation. Due to the inflation, the interest rate increases. Thus,
the state has to pay heavy amount for the debt services. The Texas government
spends more money than it gains, making it a significant burden on the economy.
Texas also has the high
population as compared to other states of the USA. The government here has to
take care of a lot of things. It has many immigrants and low-income earners
that need help from the officials to carry out their activities. More money is
spent on helping such individuals. Also, the expenditure of the health
facilities is very high. On the other hand, the education sector needs large
income. Thus, it is not possible to raise more revenue from taxes that could
cover up the massive expenditure of education and health services.
The voters are also willing
to spend on municipal-finance jewels, bangles, and beads. It has led many local
schools to open up athletics facilities. In Allen, a $60 million high school
stadium has been opened which has an area of 83000 residents. The stadium's
building cost is worth $119 million. The price included all the luxuries. There
are more than 100 school stadiums that have been opened in Texas in the last
five years. For example, the Carthage high school spent $750000 from bond. It
bought video scoreboard for its football stadium (Michaels & Balling, 2009).
The local government’s
retirement systems also have an enormous effect on increased debt. The systems
have not disclosed the financial information needed to verify the financial
position of the system. Thus, they have been poorly funded. It leads to
increase in the contributions to the pension schemes that municipalities are to
make. Some costs on employees are rapidly growing. In Austin, the cost of
fringe benefits has been increased from 15 to 30% (Michaels & Balling,
2009).
From the above, it is
evident that the Texas State faces a significant number of problems. It is
strongly needed to find out the solutions that could help to ease the debt
burden imposed by the government of Texas. Each problem, therefore, has to be
solved so that the debt burden can be reduced.
The first possible solution
is to reduce expenditures of the local governments. They need to decrease the
number of projects they undertake, thus reducing the debt burden of the state.
The retirement systems need to be reformed so that the financial information is
disclosed in the better way. Also, there is need of determining the financial
position of every local government. They have to be well funded so that they
can meet the requirements that could reduce the annual increments, causing an
increase in the debts (Gore, 2006).
The voters should reduce
their expenditure on the municipal-finance beads, jewels, and beagles. The
building of the stadium used by high schools should not be built with
government's funds because this ultimately increases the debt. It will disturb
the revenues. It is needed to recover the money spent in the construction of
the stadiums. The state should develop shared stadiums which can be used by the
high schools for their students rather than spending money individually to
build their stadiums.
Not only this but also the
state has to reduce the loans it takes from outside sources. It is because the
loans increase the debt of the state. In 2015, the debts of the state have been
$ 1.25 million which is actually the loan it has to pay. These loans fetch a
big interest rate that the state has to pay thus increasing the expenditures (Gore,
2006).
1. Gore, A.
(2006). The Financial Crisis of the USA: What we can do about it. Emmaus,
PA: Rodale.
2. Michaels,
P. J., & Balling, R. C., Jr. (2009). Texas and Washington as the States:
Whats going on. Washington, DC: Cato Institute.
3. Allen, L.
(2008, August). Will the USA’s Economy Change? Global warnings.
Smithsonian, 35(5), 44-52.
4. Begley,
S., & Murr, A. (2007, July 2). What are the Economic Crisis? An Overview of
American Economy. Newsweek, 150(2), 48-50.
