On Sunday, the Texas Tribune’s Cassi Pollock reported Texas Comptroller Glenn Hegar held a call with members of the Texas legislature to provide a debrief on the state of Texas’ economy.
The lion’s share of the discussion, State Rep. Terry Canales (D-Edinburg) told The Texan, centered on the unemployment increase and the oil and gas industry, as it relates to the economic downturn.
“The biggest concern was the rate of unemployment and seeing it jump into double digits,” Canales began. Texas’ unemployment rate has remained very low in recent months — even hitting historically low levels.
Indeed, for years, Texas has been leading the nation in job growth.
Canales highlighted tanking oil prices and its impact on the Texas economy as something, “we’re all concerned with.”
“Will Texas’ share of the global oil and gas market ever rebound to where it has been recently?” Canales asked. “It looks like it certainly won’t for quite a while.”
Indeed, that can have a tremendously negative effect on Texas’ fiscal health, especially as severance tax accounts for much of the “Rainy Day Fund” and the state highway fund.
Canales is very concerned about this, not only because of the severance taxes, but also given that the oil and gas industry is one of the largest employers in the state.
“From an international perspective, there is a conglomerate of oil and gas interests that are doing what they can to ensure Texas shale fails,” Canales added. One example Canales pointed to was Saudi Arabia’s supertanker charter expansion that, according to Reuters, is an effort to “flood world oil markets.”
Such a supply increase would further reduce costs that have already drastically fallen.
Many of Canales’ constituents are employed in the oil and gas industry. As such, the effects of the impending economic downturn will land right at his, and his constituent’s, doorstep.
State Rep. Matt Schaefer (R-Tyler) — who has spoken with Comptroller Hegar about this subject but missed parts of this week’s call due to discussions with hospitals in his district — also spoke with The Texan.
As of March 24, Smith County (in which Tyler sits), has 14 confirmed cases of coronavirus with no related fatalities thus far. This puts Smith County, on a per capita basis, among the higher-afflicted counties in the state.
Schaefer immediately pointed to hospitality-type businesses looking for some short-term relief.
“Restaurants, particularly, are looking for immediate sales tax payment relief,” he specified.
This specific concern was presented to Hegar on the call, which he stressed was not something he had the authority to act upon.
Schaefer concurred and reiterated this point, saying, “I don’t believe the comptroller has the authority to pick and choose which industries don’t have to pay sales tax. I am not aware of a law that would allow [the Comptroller] to selectively decide who pays the tax.”
Schaefer also pointed out that the sales tax money “doesn’t belong to the restaurants.”
It’s essentially, Schaefer specified, money sitting in escrow from the consumer then paid to the state which is distributed across more than 1,000 different jurisdictions.
“If you were to hold those payments, you wouldn’t be holding money from the state, you would be requiring this extremely complicated accounting process for all of the jurisdictions” — effectively cutting the localities off from funding they rely on, not least so during a health crisis such as this.
“Secondly, the state has cash flow requirements,” meaning, the state doesn’t have the ability to print money and, Schaefer added, “has to look at revenues and expenses like a business does in that respect.”
“The comptroller has been very clear that if any business is having trouble making payment, they are to go ahead and file paperwork and then evaluate them on a case-by-case basis,” he continued.
“[Comptroller Hegar] is fully aware of the hospitality industry being ground zero right now.”
Every single legislator, Schaefer offered, is taking phone calls left and right from their local businesses about their economic struggles, current or foreseen.
As a conservative, Schaefer sees this as a real opportunity to “trim the fat,” so to speak. “We are going to really see where the wasteful spending is,” the Appropriations Committee member said.
He continued, “If there is any blessing in this curse it’s that you are able to force agencies to look at core operations when normally they have no motivation to do that whatsoever.”
Like much of the coronavirus discussion, a lack of fully illustrative available data is a barrier which any policymaker must confront. For Schaefer, the state’s financial planners must face this problem as well.
“We think we can cash flow through the end of the fiscal year and be okay, but we’ve got to analyze the data as best we can to make those decisions.”
While some offsets will occur preventing full loss of sales tax revenue — such as, Schaefer suggested, restaurant consumers increasing their grocery spending as their dining out decreases — “there’s no question [in Schaefer’s mind] that the net effect (on government sales tax revenues) is negative right now.”
A halt on sales tax collections will further burden the cash flow projections the state operates from. All the while, a sales tax reprieve could help those businesses whose businesses have been effectively closed during this time. However, not all businesses are struggling. Some, like grocery stores, are largely doing well in this tumultuous time.
Which brings the discussion back to Schaefer’s original point of contention: picking and choosing which businesses receive the reprieve and which do not.
It is not as simple as declaring a sales tax halt for the entirety of a certain area like what follows a natural disaster. All that is merely academic, however, since the comptroller sees no authority to enact such a reform. It would have to be done, if at all, through a special session — something Schaefer sees as possible, but unlikely — or through the governor’s emergency powers.
Another concern facing lawmakers is the health of Texas’ retirement systems.
With over 535,000 beneficiaries, the Texas Employees Retirement System (ERS) is financed through taxes and wage contributions — funded by taxes. And so, with the state heavily reliant on sales tax revenue, if that revenue source takes a tumble (as it would during a recession or depression) then a ripple effect would be caused affecting the pensions of Texas employees and retirees.
Before this economic downturn, Schaefer said the ERS was in a difficult spot and some reform would have to be made, similar to what the state did this past session with the Teacher’s Retirement System. “You can’t wipe something like $12 trillion out of equities and not have huge hits to retirement systems.”
Indeed, it appears Texas is in for some rough sailing in both the short- and long-term.
In the short term, the two things Canales would like to see the state do most is A) alleviate confusion over its various protocols and procedures that have been implemented and B) ramp up coronavirus testing efforts.
Canales was one of two State House Democrats who didn’t sign a letter to Gov. Abbott calling for a statewide shelter order. The reasoning, Canales said, was that it is a power reserved for the executive branch and that it’s not the legislature’s job to be weighing in on it.
Should the governor introduce a shelter order, Canales said he’d be right behind it. But for now, he trusts the business owners to take the necessary precautions to prevent the virus’ spread in their facilities.
Businesses all over have adjusted by limiting the foot traffic in their stores — “one in one out” lines stretching around the building, or even block, can be seen at many H-E-B stores as they self-regulate how many customers are in their store. Canales also said that his local hardware store was doing the same during his latest visit.
But, regarding the governor’s actions, Canales is frustrated with the sheer volume of information being thrown at the public through the governor’s dozen executive orders — all the while trying to separate what’s accurate and what is not.
“Some clarity would go a long way.”
Abbott has maintained in recent days that Texas’ testing capabilities are being ramped up, but were slow out of the gate — as was much of the country. This countrywide sluggishness has only further cemented Canales’ frustration with the federal government — something he maintains he has always been skeptical of regardless of who’s in power.
He stressed, “Texas should not be behind anybody on this, we’ve got one of the strongest economies in the world.”
“I’m being flooded with calls, emails, Facebook messages — you name it — of constituents and businesses asking all sorts of questions from travel restrictions to how to handle feeling sick.”
Much of this, Canales suggested, could be fixed with a “unified, concerted effort to clarify procedure.”
“I know their position is now to focus on local control — which we were moving away from, but are now going back to — but that unified message needs to come from the governor’s office.”
Both Canales and Schaefer are seriously concerned about what lies ahead, but as Canales put it, “In the darkest of times there’s always a silver lining.”
Schaefer, too, is encouraged. He sees his community coming together to cushion the blow of what is to come.
“People of faith are stepping up during this opportunity to help their community and spreading messages of hope.”
Canales, meanwhile, applauded the school districts’ efforts to feed students who, since schools are closed, no longer have access to daily lunch. School districts across the state are diligently working to ensure their students can eat, just as they would if school were still in session.
“The unification and coming together of communities — even with the social distancing best practices — is a bright spot in a time of darkness. The reality is, this is nothing like any of us have ever experienced, but community organizations, elected officials, and citizens are working together to make sure people are taken care of,” Canales concluded.
Various organizations, Schaeffer stated, are pooling their resources to try and lessen the pain felt by the community as a whole — whether it’s to provide medical supplies, food, or congregating online for church services to maintain some semblance of normal in an abnormal time.
He underscored, “One thing that will be made abundantly clear as this situation unfolds: Texans are doing extraordinary things in these extraordinary times.”
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Brad Johnson is 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.