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This report covers the responses House Appropriations received for their RFI on Charge #7, relating to identifying potential structural changes to the Economic Stabilization Fund. The RFI for this charge can be found here and a complete list of responses can be found here.

The HillCo report below is a summary of information intended to give you an overview and highlight of the various topics included in the responses. This report does not cover the entirety of each response, but aims to provide an overview of the testimony submitted.

 

The Office of Comptroller Glenn Hegar (pages 2-3)

  • HB 903 authorized the comptroller to invest a portion of ESF balance exceeding sufficient balance; fund actively managed to earn a higher return in relation to the treasury pool
  • Objectives with this initiative are to maintain purchasing power and deliver returns in excess of short-term cash equivalents
  • SB 69 directed comptroller to invest 75% of ESF for higher return; must ensure 25% of fund remains fully liquid
  • Could be untapped potential in the form of a sovereign wealth fund
  • Legislature could enact new standard for and set the amount to 7% of GR for that biennium
  • When the balance in the ESF is at 7%, severance tax funds could alternatively be deposited in the sovereign wealth fund
  • The above process could eliminate the constitutional cap on the ESF; the 7% of GR appropriations now serves as the limiter on excess growth of the fund
  • If balance of ESF fell below 7%, severance taxes would go towards ESF
  • Earnings from the sovereign fund could go towards mitigating the liabilities of pensions and infrastructure

 

Texas Conservative Coalition Research Institute (pages 4-8)

  • ESF subject to constitutional cap of 10% of GR each biennium; had never reached the cap
  • ERS, TRS, Texas Tomorrow Fund, and deferred maintenance have potential to minimize spending potential and harm credit rating
  • Proposed TLF to pay for long term endowment; fund would receive severance tax if ESF has enough
  • HJR 10 and HB 20 would have created TLF but failed to receive a vote in the senate
  • Portion of funding of TLF would have gone to TDLF to make appropriations
  • HB set the sufficient balance of the ESF at 7%
  • Under HB 10, appropriations could have been made under ERS and TRS
  • Suggests pursuing TLF; should be short-term obligations rather than public employee pensions and there should be a limit to which this resource can fund the ERS and TRS
  • Recommends requiring state to make greater contribution to ERS and TRs than they already do delays crucial reform
  • Suggest switch from DB to DC for ERS and TRS
  • Points out that money from DB is not based on performance of investments in that plan and therefore must estimate rate of return; poses risk to taxpayers
  • Points towards increased amortization period of the TRS when they shifted their projected return from 8 to 7.25%
  • Believes 10% cap on contribution to ERS and TRS should persist
  • Warns against snowball effect of allowing these unfunded liabilities to continue

 

Texas Public Policy Foundation (pages 9-10)

  • Believes money from the ESF should be used to cover tax receipt shortfalls and uphold a high credit rating from surrounding agencies
  • Only 27.4 percent of the ESF has worked towards general deficit reduction
  • Ongoing expenditures and drop in deposits leave the rainy-day fund at 8.9 billion (less than the 16.9 billion cap)
  • Research shows that Texas could have a biennial cap of 7 percent rather than 10 percent to cover the most severe fiscal downturns
  • Advises against collecting money rather than using it to increase revenue
  • On the other hand, if this money is spent each session, the fund could dwindle and put the state’s credit rating at risk
  • One-time funds that pay for ongoing expenditures delays decisions for use of GR funds and siphons money away from tax receipt shortfalls, emergencies, or relief
  • Recommends lowering the constitutional cap from 10 to 7 percent
  • Recommends using excess tax receipts to give tax refunds rather than spending or making risky investments
  • Recommends increase for the threshold to use money in the fund “at any time and for any purpose” from the current two-thirds of members present to four-fifths of all members in each chamber
  • Recommends structural reforms to pensions and state debts themselves before investing money to cover unfunded pension liability

 

Texas Pension Coalition (pages 11-16)

  • Recommend convening prior to January as a result of the current financial circumstances
  • Recommend TLF be established; considered this a missed opportunity
  • Asserts that TLF wouldn’t have put ESF at risk
  • By separately reinvesting that money and allocating it for legislative purposes, it would have freed up the rainy-day fund
  • Recommend separation of a portion of the ESF fund to be placed in a separate investment corpus to be used for ERS and TRS
  • Recommend some of the EF money be used for ERS and TRs if TLF cannot be created