Texas Comptroller Glenn Hegar released the Biennial Revenue Estimate 2018-19 report on January 9, 2017, which acts as a guidepost for how much revenue the 85th Texas Legislature has available. Given the state’s constitution requires a balanced budget, the report sets the stage for legislators on the amount of revenue available to appropriate and cut taxes in the 2017 Legislative Session.
The report shows that there is an estimated 2.7 percent decline to $104.9 billion in general revenue (GR)-related funds available for certification. However, the Comptroller notes that GR-related funds would be up 1.7 percent to $109.6 billion without the constitutionally-dedicated funds of $4.7 billion in sales tax revenue for transportation, which notes the importance of leaving GR available for legislative priorities.
When you include GR, GR-dedicated, and other funds, total state funds amounts to $149.9 billion. State funds plus federal funds equals the amount of all funds of $224.8 billion. The Conservative Texas Budget Coalition, composed of the Texas Public Policy Foundation and 12 other member organizations, has set maximum limits on appropriations of these funds for a conservative budget. These limits are $147.5 billion in state funds and $218.5 billion in all funds. These amounts are increases of 4.5 percent above the current budget based on population growth plus inflation during the last two fiscal years.
Therefore, the Comptroller’s revenue estimates highlight that the 85th Legislature can effectively prioritize taxpayer dollars to pass a conservative budget and cut taxes.
Baked in the Comptroller’s revenue estimates include oil price projections of $47.73 in fiscal 2017, $54.11 in 2018, and $59.26 in 2019. Although the U.S. Energy Information Administration (EIA) forecasts over calendar years and not fiscal years, the Comptroller’s oil price projections are in the same ballpark as the EIA. These oil prices during the upcoming budget period contribute to a 32.3 percent increase to $4.7 billion in oil production and regulation taxes compared with the current period.
Another part of the revenue picture is the Economic Stabilization Fund (ESF), known as the “rainy day fund,” that’s primarily funded by severance taxes (oil and natural gas production and regulation taxes). The ESF is expected to increase to $11.9 billion at the end of the 2018-19 budget period, which is below its constitutional cap of 10 percent of certain GR funds of $16.9 billion. Although some legislators may try to appropriate these dollars, there are plenty of GR-related funds available without touching ESF dollars, which should be used for only essential purposes.
When legislators use these revenue estimates to craft the 2018-19 budget, the Comptroller notes that they should also consider the uncertainty surrounding federal economic policy, oil prices, global economic growth, and other factors. Given these known and unknown variables, legislators must restrain spending by passing a historic second consecutive conservative Texas budget. This would allow them to allocate any extra dollars to killing the business margins tax, adhering to the overwhelming research showing elimination would boost personal income and employment for Texans.
The 85th Legislature has a grand opportunity to follow the proven recipe of restraining spending and cutting taxes to best support greater economic prosperity in Texas.
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.