Comptroller Glenn Hegar held an event to submit a statement showing the state’s financial condition and to estimate the revenue it can expect to receive during the next two-year period. A recording of this event will be posted here. A news release from the Comptroller’s Office can be found here.
This report is intended to give you an overview and highlight the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.
Comptroller Glenn Hegar
- Record revenue collections left with an astonishing cash balance
- Many positive forces have contributed towards this growth including spikes in energy prices and highest rate of general inflation in many years
- Expect a mild recession that will be shallow and short; cannot loose side of the fact that every tax dollar is coming out of the pocket of tac
- $188b available for general-purpose spending. 23.6% more than in 2022-23
- $148.2b in GR-R tax collections, other GR-R revenue @$17.12b
- $32.7b surplus/beginning balance expected
- Must reserve $10.2b for transfers to the ESF and SHF; will hit threshold in 2025
- $150m set aside for the Texas Tomorrow Fund
- $108.4b in federal and $68b in other revenues; unavailable for GR purpose spending
- Inflation has played a large role in driving revenues and do not expect to subside quickly
- $8.6b natural gas tax collections
- Volatility in sales taxes is one reason the ESF was created
- Can be tapped with a super-majority vote
- $1.2b unobligated remaining in GR must be transferred to the Rainy Day Fund; which does not happen often
- Projecting planned transfers in FTY 2025 would put ESF above its cap of $26.38b at $28b
- ESF may not reach its cap in 2025
- State tax revenues not constitutionally dedicated
- 87th legislature limited growth in GR related spending
- Consolidated include spending; general purpose spending
- 433% growth rate limit was set by the legislature
- Enormous amount of projected revenue is a once in a lifetime opportunity for the legislature
- Caution the legislature; unlikely to have an opportunity like this again, but need to ensure funds are not used for ongoing costs
- Legislature should consider salary adjustments, development of skilled trade workforce, border funding, meaningful property tax reductions
- Projected BRE already reflects $3.8b carried over from 2021
- BRE is subject to uncertainty; economic environment is full of challenges and possibilities
Questions & Answers
Q: Summarize your
- Hegar – Have had robust tax collections and severance tax collections in oil and gas; in the last several months are paying $45b on taxable items than we were a year ago
- Hegar – Last session state prudently spent federal funds and were able to hold over other state funds to this year
- Hegar – Last years fiscal collections was a record 26% increase over the year before
Q: $188.23b is total available for spending, includes the $32.7b cash carry balance?
- Hegar – Total includes the cash carry-over balance; total GR available for spending
- Hegar – Have a constitutional/statutory spending limit; have up to $189b for general purpose spending
Q: BRE already reflects $3.8b carried forward; how much additional money is available for lawmakers to substitute in the coming budget?
- Hegar – Roughly $4b sitting in the treasury that Texas has not appropriated
Q: Noted your priorities; go further in depth with that?
- Hegar – Need to look out for long-term liabilities as a state; continuations such as pension issues among others
- Hegar – Mild recession and a mild cash carry over balance happening at the same time is rare; need to continue to invest in infrastructure such as broadband, water, road, electric grid, being able to adjust government employee salaries including teachers
- Hegar – If local governments do not keep their rates lower as property values rise; need to take a meaningful step with property taxes
Q: If property tax cuts count against our spending limits?
- Hegar – Have two different limits and thresholds; have never seen a legislature willing to go above those limits
- Hegar – Can take dollars out of GR and take a portion into a savings account allocated for a specific purpose in the future
Q: You have been focused on water issues and broadband connectivity; federal funding available for water infrastructure needs to be obligated this session? Other priorities to meet future water needs?
- Hegar – Population is growing rapidly and strain on water system will continue to be greater
- Hegar – Need to see if legislature wants to reevaluate if they need to set aside funds or appropriate them in this session
- Hegar – Is no incentive to decrease water use; certain parts of the state need to step up
Q: All information in available on the comptroller’s website; make sense to lower amount paid into the ESF?
- Hegar – $13b in the ESF currently and expect it to have almost $27b after this session
- Hegar – If we do not have the same oil and gas production, need to ensure we save as much we can
Q: Noted uncertainty in 2024-25, but is there a sum of money fiscally prudent to set aside and not spend?
- Hegar – Between -8% relative to general purpose spending in case of economic downturns or natural disasters
- Hegar – Do not see the need for the legislature to use the ESF, but is up to them to decide
- Hegar – Spending limits are important, but being able to set aside some of these funds to use in the future would be prudent
Q: Where do you see oil prices going?
- Hegar – Do not budget off of severance taxes as they are very volatile; are unforeseen changes to the global economy like the Russian invasion of Ukraine and as China is opening its economy back
- Hegar – Have oil prices to $70-80 per barrel moving up to 90 in the second part of the biennium
- Hegar – December of next year 95% certainty somewhere between 37-175 per barrel
Q: How much of growth is attributable to inflation and do we think the feds actions will get inflation under control? Interest rates?
- Hegar – As of the last three months have seen 13-15% sales tax receipts due to inflation
- Hegar – Reiterates consumers have spent $4.5b more a month on taxable items
- Hegar – Fed is committed to bringing inflation down, but will take a longer time
- Hegar – A number of people have been priced out of owning a home/car and entering into construction projects
Q: Delta between projected expenditures in 2022-23 and final expenditures?
- Hegar – Is the $32.7b surplus; a piece is federal dollars and expenses they thought they would have, but ended up not having
Q: How much can they spend without busting the spending cap?
- Hegar – One question is there an unincumbered balance transfer; bottom line the revenue estimate provided today cannot be spent in total
- Hegar – Would not guess they would bust either spending limit
Q: Given temporary nature of surplus, any interest in investing in Sovereign Wealth Fund, Permanent School Fund, or legacy fund?
- Hegar – Those discussions are just starting and are a lot of ideas out there
Q: Cost of debt service as interest rates are going up? What are some long term obligations? Hearing if Texas is still a good investment?
- Hegar – Are a AAA state and legislature has taken additional steps to address things that could affect our credit ratings
- Hegar – Imperative to look at these in the long-term to ensure Texas remains affordable
Q: See using some cash carry over to provide retired teacher pension increases?
- Hegar – Have no doubt legislature will look at all the different areas such as retired teachers and a cost-of-living adjustment
Q: Recession shallower than other places?
- Hegar – Texas is the best place to be