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Chapter 10: The State Economy and the Financing of State Government
True/False Questions
1. The tax structure of Texas is complicated by the fact that the poor pay a greater percentage of
their income in taxes than do the wealthy in Texas.
2. After adjustments for population growth and inflation are made, the Texas budget has been
relatively flat from the period from 1990 to 2004.
3. Historically, the Texas economy was based on natural resources such as oil, land, and water.
4. In 2000, almost one-half of the Texas economy is derived from the production, processing, and
sale of agricultural products.
5. The collapse in the price of oil in the 1980s created a major economic dislocation for the Texas
economy.
6. The North American Free Trade Agreement created a major boom for the border cities of Texas.
7. The Texas tax structure is highly elastic and is easily adjusted for the cycles in the economy.
8. Taxes create over three-quarters of the revenue necessary to fund the Texas budget.
9. The largest non-tax revenue source for the Texas budget are intergovernmental transfers from the
federal government.
10. Sales of lottery tickets now fund about ten percent of the Texas budget.
11. Grants from the federal government which go to fund specific programs are called categorical
grants.
12. The per capita state debt in Texas is about the same as the national average.
13. For the legislature to engage in deficit financing requires a four-fifths vote of the legislature.
14. Since the year 2000, college and university tuition in Texas has steadily been reduced.
15. The Texas legislature has been shifting the burden of financing the state budget from the
taxpayers to others by raising the fees for governmental services.
16. The Texas tax structure is generally classified as progressive.
17. Texas is rated by the Citizens for Tax Justice as being one of the states with the most regressive
tax structure in the nation.
18. A fair tax structure is a value associated with a democratic government.
19. A severance tax is a tax levied on natural resources which are removed from the earth.
20. In 2006 the Texas corporate franchise tax was changed to make it in effect a corporation income
tax.
21. The per capita tax burden in Texas places Texas as having one of the highest tax burdens of any
of the urban states.
22. The current strategy by the national government is to increase the amount of federal aid flowing
to the states.
23. Privatization is a name given to the practice of having governmental activities conducted by
corporate rather than governmental employees.
24. Primary responsibility for the planning of the Texas budget rests with the Legislative Budget
Board.
25. The final version of the appropriations bill is written by a conference committee appointed by the
presiding officers of the Texas legislature.
26. The Comptroller of Public Accounts has an item veto over items in the budget.
27. The Comptroller of Public Accounts must certify the budget passed by the legislature before it
can go to the governor.
28. The item veto of the governor allows the governor to strike out individual provisions from the
appropriations bill.
29. Health and Human Services and Education account for three-quarters of the Texas budget.
30. The state of Texas is responsible for the building and upkeep of school buildings of Texas public
school buildings.
31. Texas spends more on education per capita than most other major urban states.
32. Texas ranks in the upper quarter of the states in per capita spending on health and human
services.
33. The percentage of the state’s budget spent on highways has increased over the past two decades.
Multiple Choice Questions
1. Since 1990, after adjusting for inflation and population growth, the budget of Texas has:
A. increased over fifty percent
B. decreased over fifty percent
C. increased about twenty-five percent
D. barely kept pace with inflation
2. The Texas economy was initially based on:
A. exploitation of natural resources such as oil, land, and water
B. manual labor
C. industrial growth
D. technological services
3. The tax system of Texas cannot readily adjust for economic cycles. Thus it is said to be
A. regressive
B. progressive
C. proportional
D. inelastic
4. Which of the following was not cited by the authors as a reason for the ups and downs of the
Texas economy and budget?
A. over-production of oil and the resulting drop in prices
B. decreased federal aid over the past twenty-five years
C. a drop in the state’s income tax
D. serious cycles of inflation
5. Almost one-half of the state’s revenue comes from:
A. user fees
B. investment income
C. taxes
D. rebates from local governments
6. The official charged with the collection of most of the state’s taxes is the
A. State Treasurer
B. local county tax-assessor collectors
C. Comptroller of Public Accounts
D. Governor of Texas
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7. Which of the following sources of revenue for the state of Texas has not experienced declines in
recent years?
A. general sales tax
B. state lottery
C. severance taxes
D. oil and gas leases
8. The largest single non-tax revenue source for the state of Texas has been
A. the lottery
B. drivers license fees
C. federal aid
D. college and university tuition
9. Before the state of Texas can borrow money on the credit of the state, what must happen?
A. the legislature must approve a bill to borrow the money
B. the governor must sign a personal note for the money
C. the voters must give approval by adopting a constitutional amendment
D. the Comptroller of Public Accounts must approve the loan
10. Which of the following is an example of a regulatory tax?
A. state severance taxes
B. tobacco and liquor taxes
C. corporate franchise tax
D. general sales tax
11. The Texas tax system is generally classified as
A. highly progressive
B. generally progressive
C. generally proportional
D. generally regressive
12. Taxes on tobacco and alcoholic beverages are generally listed as
A. general sales taxes
B. selective sales taxes (excise taxes)
C. income taxes
D. gross receipts taxes
13. Which of the following taxes is not levied in Texas?
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A. general sales taxes
B. personal income taxes
C. inheritance taxes
D. severance taxes
14. Which of the following would be an example of a progressive tax?
A. motor vehicle tax
B. liquor tax
C. cigarette tax
D. personal income tax
15. A regressive tax is one that
A. charges persons with different levels of income the same rate of tax
B. taxes a larger percentage for those with lower incomes
C. taxes a larger percentage for those who have higher incomes
D. taxes everyone the same percentage of their income
16. Which of the following is not a strategy used by the state of Texas to meet the needs of additional
revenue?
A. performance evaluation to make government more effective
B. increasing fees on citizens for governmental services
C. changing the revenue structure
D. all of the above have been utilized
17. The entity that take the lead in formulating the budget for the state government during the
planning phase is the
A. State Auditor’s Office
B. Executive Budget Office
C. Legislative Budget Board
D. staffs of the House Appropriations or Senate Finance Committees
18. Which of the following is a major role of the Comptroller of Public Accounts in the budget
process?
A. providing periodic estimates of available revenue
B. providing periodic reports of state spending
C. certifying the final budget before it goes to the Governor for approval
D. all of the above are important roles of the Comptroller
19. Which of the following functions receives the largest share of federal funding?
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A. education
B. pollution control
C. health and human services
D. transportation
20. The function which received the majority of federal funds is
A. health and human services
B. education
C. transportation
D. public safety
Essay Questions
1. How has the cyclical nature of the Texas economy affected the state’s budget? What does the
term inelastic mean as applied to a state budget?
2. What are the major categories of taxes levied in Texas? Which group of taxes produces the most
revenue?
3. Discuss the concept of a progressive and a regressive tax system? Which does Texas have? Why
do most experts believe this to be the case?
4. Describe the main steps of the budget process in Texas. How significant is the Legislative Budget
Board in the budget process? How significant is the governor?
5. What functions require the most revenue in Texas? How does Texas rank with other states in per
capita spending on education and highways?
6. Based on your analysis, what are the chances that the state of Texas is likely to adopt an income
tax in the immediate future?