The 87th Session of the Texas Legislature began this January with the usual hot topic of the budget. A heightened concern this year was how much the deficit (or budget shortfall) would be, since COVID-19 ravaged the economy last year and significantly reduced Texas’ tax revenue.
When the Texas Comptroller released the Biennial Revenue Estimate (BRE) in January, there was slight relief since the projected budget shortfall of $946 million was far less than the expectations as stated last year. The BRE also provides the fiscal outlook for the next biennium. What were the projections? “It depends” seems to be the simple answer. Mostly it depends on how soon people can return to work and normal shopping activities, as well as the final budget passed by Legislators in this Session. The appropriations legislators make, and the general revenue generated from heightened economic activity will be the main determinants of how well Texas is set for the future.
Senate Bill 1 (S.B.1) is the general budget bill that was filed January 21st. It will go through a series of committee hearings and markups to reflect changes deemed necessary. S.B.1 currently meets the standard set forth by the Texas Public Policy Foundation (TPPF) for a Conservative Texas Budget. This is very good because it means that S.B.1 includes appropriations less than the maximum threshold for spending as recommended by TPPF. This threshold is set by determining inflation plus population growth and shows how much taxpayers can pay so taxpayers are not overburdened. Otherwise, Texans would be saddled with extra expenditures which would be reflected in higher taxes to cover things that the state could not afford. Keeping taxes low is one reason why the growth of the overall budget should remain limited.
Part of maintaining a limited budget includes not depleting the Economic Stabilization (Rainy Day) Fund on items that can be covered by trimming the budget elsewhere. Some members of the legislature immediately pointed out that there was money in the Rainy Day Fund when COVID-19 began spreading throughout the nation. Presumably, money to be used for purposes of the pandemic. However, the rules about spending from the fund require that specific conditions and purposes be met. Also, let us not forget that the federal government sent money to the states through the CARES Act to address COVID-19 related issues.
Revenues to the Rainy Day Fund are generated by oil and gas production taxes. Take into consideration the devastation of the oil and gas sector last year. Less production, lower revenue, and layoffs yielded less money available for deposits into the Rainy Day Fund. This cut deeper into the wound of the reduced state income for Texas than the usual ups and downs of the oil and gas industry. We are also confronted with the fact that the energy sector is rapidly changing and finds itself the target of an unfriendly administration in Washington, D.C. There is no guarantee that a depleted Rainy Day Fund will be quickly replenished.
Texans elect legislators to represent our best interests which include fiscal responsibility. Legislators are entrusted with great power, along with the even greater responsibility of making proper appropriations for the state budget every two years. It is a core function allotted to them by the Texas Constitution and one they must not break faith with. It would be unwise to diminish Texas’ safety net, overspend, and pass off the bill to taxpayers at any time but all the more so in these uncertain economic times.
In some past sessions, the legislature has been willing to spend Rainy Day funds on pet projects they simply wanted to do. This session legislators must hold the line rather than overspend and pass the buck to struggling taxpayers. These types of actions are the opposite of being fiscally responsible or maintaining a Conservative Texas Budget. With enough of this behavior, Texas’ credit rating will come crashing down.
To maintain a Conservative Texas Budget, we must exhaust all other possibilities and utilize other sources before even thinking about using our Rainy Day Fund. Spending cuts must always be the preferred first option for dealing with the budget shortfall before even considering raiding the Rainy Day Fund.