In an interview with The Texan, Comptroller Glenn Hegar said that current projections estimate the state treasury to have a balance of between $15 billion and $16 billion at the end of the year. The Economic Stabilization Fund (ESF), also known as the state savings account or “Rainy Day Fund,” is estimated to have a $13.5 billion balance by January.
“Right now, the economy is really remarkable and has been really for the last year-plus,” Hegar said. “Obviously, two years ago businesses got shut down and I’d made the point then that Texas entered into that unknown with a really strong foundation — really, stronger than every other state and nation.”
The pandemic — and the government-mandated shutdowns and market uncertainty that came with it — sparked grim economic realities and projections. The price of West Texas Intermediate oil futures plummeted almost to negative $40 per barrel, while sales tax revenues dropped substantially month after month.
Fiscal outlooks became so bleak that in July 2020, Hegar projected a $4.6 billion budget shortfall for the 2020-2021 biennium. But steadily over time, those conditions improved as businesses reopened and pent-up demand ran buck wild. By January 2021, that projection shrank to only a $950 million shortfall — which by May last year turned into a $725 million surplus.
Coming full circle, in July last year, Hegar announced that small surplus had grown to $5 billion for the 2021-2022 biennium.
In the throes of the 2022-2023 biennium, those economic projections continue to improve. Hegar’s July 2021 projection estimated $8 billion in additional funds available for this biennium. And now the treasury balance could double that.
The ESF is funded by oil and gas severance taxes, and when the plunge occurred, its ability to keep up with required funding levels was thrown into question. Unsurprisingly, the state’s 2021 ESF contribution was about 30 percent lower than its 2020 contribution made up of pre-coronavirus tax collections.
But the recovery since has been quite remarkable. As of May, sales tax collections are 21 percent above the previous fiscal year. Oil and gas severance taxes are up 90 percent and 195 percent from last year, respectively. Total tax collections are up 35 percent from the previous year.
These are all consumption taxes, meaning that consumers are spending more money.
“The economy rebounded pretty strongly,” Hegar said of the recovery from the initial brunt. “Now, that said, as we all know now, businesses are dealing with three things: inflation, [struggling] supply chains, and labor shortages.”
“Ever since about February 2021, Texas has really just been on a remarkable pace — stronger than we could have anticipated. But now the economy is not as strong and there are a lot of concerns about its direction.”
Hegar still contended that Texas has as good a foundation as any other on which to weather economic turbulence, but added that he doesn’t know exactly where it’ll head.
Pointing to an area of concern, he added that while May sales tax collections were 9 percent higher than the same month last year, inflation was over 8 percent. “While revenues are higher, because of this administration and their terrible policies, so many costs have gone up as well,” Hegar said.
Governor Greg Abbott responded to the comptroller’s statements on Twitter, “We must use a substantial portion of this money to cut property taxes in Texas.”
When it reconvenes next year, the Texas legislature will likely have quite a pile of money to spend. It already has multiple new items it hopes to spend money on, such as school safety expenditures and continued property tax compression.
Inflation has and will continue driving up the cost of everything it hopes to pursue. But compared to this time two years ago, fiscal projections are looking up.
Update: A comment from Gov. Greg Abbott has been added to this article.
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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.