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Lawsuits and low oil prices

Both are threatening the next Texas budget.

BagOfMoney

Last week, lawyers for the state of Texas got the latest in a string of bad legal news.

A lawsuit challenging the state’s foster care system as inhumane appeared to gain steam when an appeals court rejected the state’s request to stop the appointment of two “special masters” to recommend reforms.

The overhauls that have been discussed so far would be pricey to implement — as much as $100 million per year, according to rough estimates from the state comptroller’s office. But they actually are on the lower end of all the extraordinary legal expenses the state is facing at a time when stubbornly low oil prices are simultaneously threatening to blunt its coffers.

Three other lawsuits against the state — two of them pending before the Texas Supreme Court, with rulings expected soon — could cost the state billions if it ends up on the losing side. Experts say the state may have the cash to cover one of them in a single budget cycle, but probably not any more than that — especially if low oil prices persist, dampening the state’s stream of tax revenue. That could mean budget cuts when lawmakers meet for the 2017 session, at least if the Republican-dominated Legislature remains steadfast in its refusal to tap the state’s nearly $10 billion Rainy Day Fund.

Two of those three lawsuits, both tax cases, could cost the state a combined $10.4 billion in tax refunds and up to $2 billion in collections per year beyond that, according to the comptroller’s office, which is closely monitoring them.

Potential cost estimates do not exist for the last case — a high-profile challenge to the state’s public education funding system — but past school finance rulings have cost the state billions.

Such sums would handily eclipse the state’s $4.2 billion projected surplus, which could itself dwindle if oil prices remain low and further blunt tax collections. (Comptroller Glenn Hegar has already lowered projections once.)

“Any of those by themselves are a huge hit,” said Dale Craymer, president of the business-backed Texas Taxpayers and Research Association. “But if you start losing two or three of those issues then, yeah, it’s much more questionable that the state’s general revenue reserves are sufficient to cover that.”

See here and here for some background. There’s not much that can be done about the price of oil, though after years of living it up, and of politicians claiming credit for all that robustness, I doubt there’s much sympathy out there for us. The rest are the result of policy and/or legislative decisions, some of which may well bite us in the bottom line. I’m rooting for the Supreme Court to stick it hard to the Lege on school finance, but the other cases I’d rather see the state win. As much political hay as there is to be made in a chaotic situation, there’s nothing good from a public policy perspective on those cases, and I have little faith the Lege would do a good job cleaning up the mess. But on school finance, all bets ought to be off. We’ll see how it goes.

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  1. […] hegemony in Texas, it’s scandal and corruption. (If there are two things, I’d add having the state’s economy go into the crapper, but that one will still require overcoming the slash-and-burn argument, so it’s not as clear […]

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