Comptroller Glenn Hegar issued the Biennial Revenue Estimate to the 87th Legislature on January 11, showing the state is projected to have approximately $112.5 billion in revenue available for general-purpose spending during the 2022-23 biennium. The 2022-2023 Biennial Revenue Estimate can be found here. Slides from this event can be found here.
This report is intended to give you an overview and highlight of the discussions on 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
- Find ourselves in unprecedented circumstances; no previous recession/economic downturn has helped us guide our projections
- Unique economic environment has created uncertainties
- Initially $4.8 billion beginning balance for biennium for general purpose spending
- State revenue was ahead of 2019 estimate as of March, but pandemic resulted in steep declines
- $112.53 billion total available for general purpose spending for 22-23
- Around $1 billion deficit for the beginning of this session (later specified deficit is approximately $950 million)
- Increase of $7 billion in GR-R collections from last biennium
- Projected shortfall must be made whole by the 87th Legislature
- BRE does not include any possible savings from 5% cuts, these could eliminate projected ending shortfall
- Any new GR appropriations needed in a supplemental budget would increase deficit
- $5.83 billion in required severance tax transfers to ESF and SHF
- $270 million GR that must be set aside to cover shortfall in TX Tomorrow Fund
- $270 billion in All Funds revenue for 22-23
- Revenue sources is 87% tax revenue, sales taxes 61.7%
- Wayfair collections – sales tax projections have performed better than expected, Texas benefited in the SCOTUS decision in Wayfair regarding online marketplace sales tax; in first 12 months of these collections saw $1.3 billion & mostly revenue state did not previously collect
- Other sources of tax revenue did not fare as well, severance, hotel occupancy, and alcohol/beverage taxes down the most
- 570k fewer jobs as of November than in February
- In addition to 5% cuts, some of the Federal CARES Act funding could be used to replace some required GR spending, turning shortfall into surplus
- Estimated $11.6 billion in ESF by end of FY2023
- May be a capacity for potential consumer spending after COVID-19 concerns decrease
- Some of the federal CARES Act funds or funding from the new aid package passed in December could be used to substantially improve projected shortfall
- Substantial supplemental appropriations bill could increase spending and reduce GR for the next biennium
Questions & Answers
Q: BRE shows a smaller shortfall than projected in July; why?
- Hegar – Revenues from sales tax collections not as negative, online sales tax requirement
- Hegar – Oil & Gas, severance, hotel occupancy, etc. have been down
- Hegar – Most states are seeing similar trends and more positive projections than earlier
Q: Not counting the 5% cuts; could you go over what is not included in this projection?
- Hegar – Many areas are not down as we initially thought; retail has been higher than anticipated
- Hegar – Anticipate savings will be around $1 billion; legislature will have to officially recapture those funds not used by agencies
- Hegar – Any swap/federal funds were not taken into account; will be a substantial amount of money, but not sure how it will be used
- Hegar – Depends on supplemental appropriations the legislature takes
Q: The energy sector taxes are looking better than expected; timing of recover?
- Hegar – Expect will remain 40 per barrel through the year and will be around $50 next biennium
- Hegar – Do not see a dramatic recovery in prices or production for the next 12 months
Q: Any thoughts on potential impacts to education related funding?
- Hegar – After conversations with members, everyone intends to maintain commitments to public education made last session
Q: Could you expand on potential for CARRES Act funds?
- Hegar – Some funds were to be spent on specific items; a large part was for COVID-19 type expenses, was to expire in December
- Hegar – Last act extended this deadline; still working on what those dollars will be spent on
- Hegar – Substantial amount will be able to swap for General Revenue
Q: How will estimate funding for highway projects?
- Hegar – Originally thought highway funding will continue to happen and will meet thresholds
- Hegar – Severance sales tax collections seem to be down, but have slightly increased recently due to oil prices being up
- Hegar – Will still be a substantial amount, but just less than expected before the pandemic hit
Q: Lawmakers in past sessions have welcomed upward revisions in the amount of revenue available to them. Does the uniquely difficult economic situation make it more or less likely that you’ll have good news for lawmakers later in this session?
- Hegar – Revenue estimate will remain the same, but stresses a couple months more of data is needed to have an accurate estimate
- Hegar – Numbers will adjust and change especially this year, numbers will possibly need to be adjusted in April or May
- Hegar – Hopefully vaccine rollout goes smoother, higher consumer confidence faster economic recovery
Q: Any thoughts regarding the amount of the anticipated Medicaid shortfall or other holes the supplemental budget will fill?
- Hegar – Numbers are constantly changing; typically Medicaid will be off in millions or billions
- Hegar – Supplemental shortfall looks about $1.5 billion
Q: Have legislators indicated to you any plans of pulling from the ESF this session, whether it’s for COVID-19-related or other initiatives?
- Hegar – Have conservative funding practices; still need to save a healthy balance for the next session
- Hegar – Will need to look at other funding sources before using all of the Rainy Day Funds
- Hegar – Does not look like they will use a substantial amount of the Rainy Day Funds
Q: Which of those taxes you looked at were hit the hardest?
- Hegar – Still have 570,000 less jobs than before the pandemic
- Hegar – Hardest hit: hotel, vacation, hospitality, leisure, restaurants/bars, mixed beverage tax
- Hegar – Some have been offset by spending in other areas, but continue to see a decrease in collections from those and related industries
Q: How much money would the 5% cuts amount to?
- Hegar – Does not include public education funding or Medicaid; both cannot be touched
- Hegar – Only 1/3 of the budget was required to make that cut; will about to about $1 billion
- Hegar – Are retained currently in the treasury and will be utilized after the legislature recognizes those funds
Q: Touch on some of the issues related to pension issues discussed?
- Hegar – Want to continue to highlight the long term
- Hegar – Legislature has taken positive stands in water infrastructure, highway, flood control, and public education
- Hegar – Need to take better steps towards teacher’s pensions and other pensions
- Hegar – Continue to talk about solutions so there is not unfunded liability
Q: How does this shortfall compare to budget challenges that lawmakers faced in previous sessions, including in the 2011 legislative session? Not as serious? More serious?
- Hegar – Had $10 billion shortfalls in 2003, and $4.5-$27 billion deficits in 2011
- Hegar – This budget cycle is in much better shape than both of those; recovery trajectory looks positive
Q: The expansion of the sales tax to remote sales was a very important updating of our tax system to reflect the changing economy. What other changes could be made to keep state revenue up with changing economic structures?
- Hegar – Marketplace providers or remote sellers need to collect and remit taxes like brick-and-mortar stores
- Hegar – Need to ensure we are keeping up with technology
- Hegar – Implemented a rule change in where those sales taxes going to; need to be consistent to ensure for local revenue they are going towards their intended sources
Q: Is there a guess as to when most of Texans will have been vaccinated? Given the positive potential, what is the upside?
- Hegar – Has been a significant amount of savings on an individual level, but some are significantly hurting
- Hegar – Is a potential for the economy to have an uptick in the next 12 or 18 months
Q: Have we seen any negative indicators through bankruptcy filings and or property tax collections for commercial property regarding that sector?
- Hegar – Residential has increased, but buyers continue to have demand
- Hegar – Commercial values are slightly down; businesses still have a demand to move to Texas
- Hegar – Texas appears to be in a better place for businesses to move to than New York, Los Angeles, and Chicago
Q: The Biden admin/next Congress has plans to get additional dollars to states. How could that impact your projection?
- Hegar – Important to see what the state itself receives, will be the biggest impact to the state treasury
- Hegar – Any dollars that come into the state through individuals could also impact the overall economy to have a possible positive impact to the economy
Q: Last session the legislature passed HB20 and HJR 10 which proposed to create a legacy fund to pay long term obligations of the state. Has this generated any new revenue for the next biennium?
- Hegar – Have gotten more flexibility by the legislature to preserve core of the ESF, but get some more on returns
- Hegar – Have made a better return on those dollars over the last couple years; more flexibility this office has will be overall better for the returns
Q: The cost estimate for HB 3 over time grows because of the tax compression element. Is Texas on track to be able to pay for that in the future? Are there other revenue streams available?
- Hegar – Question is the trajectory of the economy; most volatile is severance taxes and should not be used for public education
- Hegar – Texas is projected to outpace the national economy in the next upcoming year
Q: Are we expecting the Texas Tomorrow fund to be a continuing expense each session?
- Hegar – Will be a continued expense for the next decade or more; over time, the numbers will continue to decrease and become much more manageable