Amid concerns that tumbling oil prices could push the Texas economy into a recession, Comptroller Glenn Hegar offered a cautiously optimistic tone on the future of the Texas economy Monday, announcing that lawmakers will have $113 billion to haggle over in crafting its next two-year budget.
“Our projections are based on expectations of a moderate expansion in the Texas economy and reflect uncertainties in oil prices and the possibilities of a slowing global economy,” Hegar said.
The biennial revenue estimate sets a limit on the state’s general fund, the portion of the budget that lawmakers have the most control over. The general fund typically makes up nearly half of the state’s total budget.
Hegar predicted that Texas will take in $110.4 billion in revenue from taxes, fees and other income during the 2015-16 biennium. Hegar’s $113 billion projection also includes money expected to come from leftover funds in the current biennium. With the addition of federal funds and other revenue sources, lawmakers should have a total of $220.9 billion for the 2016-17 budget.
The state’s Rainy Day Fund is also projected to grow to $11.1 billion by the end of the next biennium if lawmakers choose not to use any money in the fund.
The state will end the current biennium, which ends Aug. 31, with $7.5 billion in leftover funds, Hegar said. That surplus will be split three ways between general revenue, the Rainy Day Fund and the state highway fund.
Two years ago, Comptroller Susan Combs estimated that the Legislature would have $208 billion for its budget, including $101.4 billion in general revenue and $11.8 billion in the Rainy Day Fund. Lawmakers ultimately passed a $200 billion budget.
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The liberal Center for Public Policy Priorities has estimated that lawmakers will need to increase general spending from the current $95 billion to $101 billion to maintain the state’s current level of services. More than half of that $6 billion spike comes from Health and Human Services, where an increase in medical costs and Medicaid cases in particular has grown.
Don’t expect that to happen. Indeed, if Dan Patrick has his way, it will never happen. The good news is that this is a reasonably sunny estimate, meaning The Lege will be able to do at least some of the things it wants to do without too much voodoo, assuming it doesn’t impose some ridiculously lowball artificial limits on itself, which it must be noted is always a possibility. But just because there’s revenue available doesn’t mean it isn’t spoken for, or at least in demand. The Observer explains.
On one hand, it’s not a crisis budget, and it’s not one that will require legislators to make cuts (though they might anyway.) The office of Lt. Gov.-elect Dan Patrick released a brief statement that characterized the comptroller’s estimate as a green light for his agenda, which has included the promise of significant tax cuts: It provided “adequate revenue to secure our border, provide property and business tax relief while focusing on education and infrastructure. I intend to accomplish these goals.”
On the other, the “surplus” is a lot less than it looks at first glance, in part because the amount of budget trickery the Legislature has employed over the years. Gov.-elect Greg Abbott and Patrick have called for ending road funding diversions and making the Texas Department of Transportation whole again. But about $3 billion in additional revenue is needed to end diversions, and TxDOT says it needs an additional $5 billion just to keep the system at the current level of congestion—that is, without making any forward progress.
In education, the state has not yet gotten back to the level of funding that preceded 2011’s gargantuan cuts to public ed—a portion was restored in 2013, but a significant amount of money is needed even beyond what was the case in 2011, thanks to population growth. And it’s unclear how proposed voucher programs would affect the system’s overall cost.
And then there’s tax cuts. The truly sweeping tax overhauls that were talked about during the election, like substituting property taxes for increased sales taxes, seem to have fallen off the radar for now. In the past, GOP lawmakers of all stripes have passed minor tax bills and sold them to the voters as massive ones. That may be Patrick’s play, but even modest tax reductions will shave the “surplus” down in a hurry.
The question as always is what gets prioritized, and what gets left out. I believe this is an accurate summary:
Budget expert Dale Craymer, president of the business-based Texas Taxpayers and Research Association, pointed out that lawmakers in writing the next budget will have the cushion of unspent cash and “a pretty solid non-oil-and-gas base to our economy.”
Still, he said, the “three great wants” of tax relief, transportation and public education are big-ticket items.
“The state is still in a good position to deal with maybe one of these,” Craymer said, “but certainly not all three.”
I’d say that’s the priority order for the Republicans. What happens if the Supreme Court forces them to deal with public education, especially if they don’t leave themselves any room to do so? Your guess is as good as mine.
Goldman Sachs has already said Hegar is as wrong as rain: http://socraticgadfly.blogspot.com/2015/01/texas-faces-15-percent-state-oil.html