Those funds fall into the General Revenue category and can be disbursed by the legislature through supplemental appropriations by a simple majority vote.
For context, the 2020-2021 ending treasury balance was $11.23 billion. The new forecast is slightly below the near-$30 billion high-end projection Hegar gave The Texan last month, different due to a more conservative approach to the estimate.
Comptroller Glenn Hegar announced the windfall on Thursday, saying, “This is due in part to a strong global economic recovery coupled with the war in Ukraine and a period of limited investment in fossil fuel production and refining capacity.”
“This estimate is subject to substantial uncertainty,” he said. “High inflation, geopolitical conflicts and renewed COVID restrictions among our global trading partners could impair economic activity.”
Hegar stressed that these estimates are conservative and subject to change pending further economic developments.
For the 2022-2023 biennium, Hegar projects $149 billion in general revenue funds available — up $31 billion from the $251 billion budget passed for the current 2021-2022 biennium. The legislature also passed a stronger spending increase cap, requiring a three-fifths vote of both chambers to exceed the population-plus-inflation line.
The treasury balance estimate is up almost $14 billion from the November 2021 update, another drastic change from 2020’s dire forecasts driven by the coronavirus pandemic and the resulting government shutdowns.
Sales tax collections, the state’s largest component of tax revenues, over the last 15 months averaged $3.5 billion. Each of the last three months, oil and gas severance tax collections surpassed $1 billion — the first time that has occurred.
On Wednesday, the U.S. Bureau of Labor Statistics announced the Consumer Price Index — an annualized calculation of inflation — showed a 9.1 percent increase over the last 12 months.
Inflation has been on the rise across the country after multiple years of ramped-up coronavirus spending from Congress and the U.S. Treasury along with the supply chain ripple effects caused by the pandemic and government-mandated shutdowns.
The higher cost of everything is a significant driver of these record-breaking tax collections.
“It is important to realize that inflation is a significant contributing factor in why we have seen record tax collections in sales tax and other revenues over the last year,” Hegar said.
Hegar projects a $13.6 billion balance in the Economic Stabilization Fund (ESF), the state’s savings account dubbed the “Rainy Day Fund,” at the end of Fiscal Year 2023, which begins September 1. The ESF is paired with the State Highway Fund in terms of funding mechanism: mainly through oil and gas severance taxes.
For every severance tax dollar brought in, $0.375 is earmarked for each the Rainy Day Fund and the highway fund.
The comptroller expects to transfer $3.58 billion into each fund by the end of the next fiscal year — nearly 2.5 times the 2022 transfer. A two-thirds supermajority of both chambers is required to disburse money from the ESF. In 2019, the legislature used $6.2 billion from the ESF to support its $11.6 billion marquee school finance and property tax buydown appropriation.
Hegar noted that this windfall of severance taxes is not primarily due to growing oil and gas production, but the ballooning prices both commodities are experiencing. At the time of Hegar’s last estimate, the price for a barrel of oil was around $80 and natural gas was at $5 per million British thermal unit (MMBtu).
Today, oil sits at $95 per barrel, after spending much of this year over $100, and natural gas is just shy of $7 MMBtu.
While this windfall means the legislature will have lots of money to spread around, it’s not exactly an omen of good financial times to come — in fact, it may be the opposite.
“Nobody could have predicted what the economy has been doing,” Hegar told The Texan. “But at some point, there’s going to be a recession — we just don’t know when, why, or for how long.”
Something being discussed around the Capitol is a buydown-to-elimination of the school district Maintenance & Operations (M&O) rate — the single largest component of property tax bills. Gov. Greg Abbott even backed its elimination, and the foremost plan to date is by the conservative Texas Public Policy Foundation to use $0.90 of every surplus dollar to buy down the M&O rate over 10 years to eliminate it entirely.
Including recapture funds — the mechanism that takes local property taxes from wealthier districts and distributes them to poorer districts — school M&O rates brought in roughly $30 billion last year.
Even if the legislature appropriates this whole balance, plus some, toward buying out the M&O rate, it’d still only be a one-time expenditure. Going forward, not only would it require a statutory change, but also a way to replace the funding. In 2019, the state leaders floated a 1 percent sales tax swap to supplant a portion of local property tax funding for schools. After public opinion soured on the idea, the proposal was abandoned.
But to go this route permanently, Hegar said it’d require a sales tax increase from the current 6.25 percent to 11.5 percent. But with localities adopting their own smaller sales tax rates, 2 percent in most metro areas, many consumers would realistically see a 13.5 percent increase in that scenario.
The legislature has already earmarked $3 billion from its tranche of federal coronavirus aid for property tax relief next session.
Property taxes are far from the only thing members of the legislature will aim to spend this sum on. But with Abbott’s stronger support and serious consideration going on in both chambers, it may be one of the bigger items.
All of these figures are subject to change, and Hegar will issue another update in his Biennial Revenue Estimate in January as the legislature reconvenes for the 88th Regular Session.
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Brad Johnson is a senior reporter for The Texan and an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.