Taxes & SpendingTexas Comptroller Projects $4.6 Billion Budget Shortfall Due to Coronavirus Tax Revenue Hit

Texas' revenue abundance has shrunk as coronavirus and the oil downturn compressed consumption. Comptroller Glenn Hegar issued a new biennium projection to account for the changes.
July 20, 2020
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A one-two punch combo has been delivered squarely on the chin of Texas’ economy, and thus, Texas Comptroller Glenn Hegar announced a projected $4.6 billion budget deficit for the biennium.

With the new estimate, the 2020-2021 biennium will yield a projected 8.3 percent decrease in total revenue from 2018-2019.

Coronavirus, government lockdowns, and the larger world oil market tumble have driven a drastic deficit in actual tax revenues brought in compared with projections.

Hegar said of the new projection, “The economic contraction associated with COVID-19 has resulted in revenue collections this fiscal year that are much lower than our earlier CRE projections.”

He continued, “It’s important to note that this revised estimate carries unprecedented uncertainty. This estimate also assumes that restrictions on businesses and individuals will be lifted before the end of this calendar year and that economic activity will strengthen but not return to pre-pandemic levels by the end of this biennium.”

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Back in June, the state’s tax revenues were down 17 percent from the biennium projections. That was despite a stronger-than-expected January and February of tax collections.

And now, the projection has been changed to $110.19 billion in General Revenue funds — down $11.6 billion from the original projection.

Coincidentally, that’s nearly the amount the State of Texas spent on its school finance and property tax buydown in the 86th Legislative Session when it increased overall spending by $15 billion.

In an online hearing of the Legislative Budget Board, Hegar further underscored his optimism that Texas can weather this financial uncertainty better than other states. “Going into this, Texas was in a strong cash-flow position and had a solid cushion with its Economic Stabilization Fund, so that puts us in a better position than others at the start,” he added.

Hegar then projected that Texas will experience a slight economic contraction next year when the rest of the country starts to speed up, due especially to the state’s reliance on oil and gas.

This new projection, the comptroller’s office says, does not account for the five percent budget cut requested of some state agencies by state leadership. Any savings from that, which will likely be minor compared with the overall makeup of agency spending because of those exempted, will reduce the deficit.

For the state’s Economic Stabilization Fund (ESF), also known as the Rainy Day Fund, the new biennium-ending balance is set at $8.79 billion. Because it’s funded significantly on severance taxes, the stability of the ESF has been questioned. Smaller-than-estimated contributions to the ESF and the State Highway Fund are also projected by the comptroller.

The state also received $6.2 billion in federal aid, but that funding comes with restrictions, namely that the money must be spent on coronavirus-related expenses. Hegar is hoping these restrictions will be removed to allow the state to use the funds more freely.

Hegar further added, “In the coming months, some economic indicators will establish new records for rates of growth, but those records will be on the back of this year’s unprecedented declines.”

“The rebound will leave many measures of economic health below pre-pandemic levels. Consumers and businesses must be confident the virus is controlled before economic output, employment and revenues return to pre-pandemic levels.”

Whether this estimate will come true or need to be amended comes down to whether consumer habits return to pre-coronavirus levels and whether governments, both local and state, allow the resumption of business-as-usual.

And if those habits do not trend back toward normal, the state will have to tighten its belt further in the next legislative session. Because of its reliance on consumption taxes, the state’s portion of the average taxpayer’s burden is largely tied to their ability to pay.

Whereas at the local level, because of the property tax-heavy system, property tax rates are not necessarily, if at all, decreasing along with the taxpayer’s ability to pay. To make things even more complicated, some localities are choosing to take advantage of the hotly debated property tax loophole, allowing rates to increase up to eight percent without voter approval.

This means that someone who lost their job from the pandemic may still have to pay a property tax bill that’s higher, in some instances significantly so, than last year’s bill.

Regardless of how things unfold, a bumpy financial road lies ahead for the state, local governments, and taxpayers alike.

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Brad Johnson

Brad Johnson

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 watching and quoting Monty Python productions.

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