The House Appropriations Subcommittee on Infrastructure, Resiliency, & Investments met on April 3 to take up a number of bills. This report focuses on HB 20 (Capriglione) relating to transfers to the Economic Stabilization Fund, the Texas Legacy Fund, and the State Highway Fund, as well as HB 274 (S. Davis) relating to the creation of the disaster reinvestment and infrastructure planning revolving fund.
This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing, 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.
HB 20 (Capriglione) – Relating to the allocation of certain constitutional transfers of money to the economic stabilization fund, the Texas legacy fund, and the state highway fun and to the management and investment of the economic stabilization fund, the Texas legacy fund, and the Texas legacy distribution fund.
HJR 10 (Capriglione | et al.) – Proposing a constitutional amendment providing for the creation of the Texas legacy fund and the Texas legacy distribution fund, dedicating earnings on the Texas legacy distribution fund to certain state infrastructure projects or the reduction of certain long-term obligations, and providing for the transfer of certain general revenues to the economic stabilization fund, the Texas legacy fund, and the state highway fund.
- Capriglione – HB 20 creates the Texas Legacy Fund TLF. This would be a permanent endowment for the state that seeds from the economic stabilization fund to get it started. HJR 10 allows for the investment proceeds to be put towards state debt service obligations, unfunded actuarial liabilities of the ERS, for state infrastructure, and other obligations of the state recognized by the legislature.
- Bell – Will this have an effect on our ability to access ESF funds during a natural disaster?
- There will always be a pool of very liquid investments that could be drawn down in the case of an emergency.
- Bell – So you have liquid funds under the TLF and the legislature than access those funds if they choose to do so?
- Toth – So the ESF will be maintained at 7% of GR?
- It would be 7% of the state’s GR.
- Toth – How much would go into it in the first year?
- I’m hoping for somewhere between $1 and $3 ½ billion.
- Toth – So is the goal to get it to the size of the ESF?
- The long-term goal is to create a permanent fund that will continue to grow and throw out more dividends. My goal is for it to be sufficient enough to replace the revenue coming in from severance taxes.
- Bell – The way this reads, half of the money goes into the legacy fund, half goes into TxDot. Is this a redirecting of funds or a new transfer of funds?
- Half of the money does not go to TxDOT. What this does is that it puts the stream that is already going into ESF into the legacy fund.
- Wu – Can you tell us about how the fund will be managed and how we are planning to avoid some of the issues that eat up the dividends.
- The Comptroller’s treasury would have overall management of how the funds are being allocated. There are statutes that talk about what the funds will be used for and what type of investments can be made.
- Toth – Would there be a cap on outside management fees?
- No there is no limit on what those outside fees can be.
Dale Craymer, Texas Taxpayers and Research Association
- For the bill.
Vance Ginn, Texas Public Policy Foundation
- Against the bill.
- Bill grows government through spending.
- Agrees with lowering cap to 7%.
- Believes that money that goes above the lower cap should be used for tax returns.
Steve Bailey, Pew Charitable Trusts
- For the bill.
- Most mineral rich states have set up funds like the legacy fund, only Oklahoma and Texas do not.
- Severance drawing investment funds create a lasting source of revenue for future generations.
- Schaefer – Rep. Capriglione, did we say what the ballot language would look like?
- Called up resource witness from the comptroller’s office.
Phillip Ashley, Comptroller’s Office
- Schaefer – What will the ballot language look like?
- 8 includes the ballot language.
- Wu – Mr. Bailey, this would not be groundbreaking in the nation, right?
- Bailey, Pew Charitable Trusts – That is correct, Texas would join eight other states in total who have these types of funds.
- Wu – How long have those states been operating their funds?
- NM since 1973, AK, WY, MT in the 70’s. WV, LA, ND and UT established it in the last 20 years.
- Toth – How many of those states also have an ESF?
- All of those states have a budget stabilization fund.
- Toth – Are they funded at the same level Texas is?
- That is correct.
- Toth – So there is a floor to make sure their ESF is funded before they put money into their legacy fund?
- More states have a direct deposit rule regardless of where their ESF is.
- Toth – What kind of investment vehicles are they using?
- Will get that information to the committee.
- Schaefer – Would the distributions from the funds count towards our constitutional spending limits?
- Ashley, Comptroller’s Office – They would not be subject to the constitutional spending limit.
- Schaefer – So the mechanism to determine whether it would go to infrastructure, long-term obligations, how is that decision made?
- The bill dedicates the fund to specific purposes. Ultimately it is a legislative decision on how to distribute those funds.
- Schaefer – before these distributions are made, does the legislature still have to provide course and speed for where these funds will go?
- Yes, the distribution would be subject to the legislature.
- Schaefer – Would we be constrained by the language in this bill that says, “certain state infrastructure projects and certain obligations”?
- Those are dedications so you would be constrained within those dedications.
- Schaefer – Are those constraints in HB 20?
- They are on section 3 of the HJR.
- Schaefer – So anything that we have a bond on?
- If it is debt that is supported by general revenue.
- Schaefer – So would the foundation school program be eligible?
- Those are longer-term obligations that go beyond the biennium.
- Schaefer – We do tuition revenue bonds every other session, it could go through something like that?
- If there is current debt being supported by general revenue, that would generally fall under the dedication provided here.
- Toth – So funds sent would not be counted towards the spending cap, what if we spend some of the corpus down?
- The way the bill is structured today, the corpus is a permanent fund, so it is not subject to appropriation, just the distribution of.
- Toth – So statutorily, we cannot bind future legislatures, there is a means by which to spend that down, isn’t there?
- The state has a couple of permanent funds, a common feature of those funds is that they are not subject to appropriations.
- Toth – It would take another HJR to change that, right?
- Bell – In the event of a natural disaster, does this prevent access to those funds?
- This is a onetime appropriation from the ESF. There are no other changes to the ESF fund, and those will be available to the legislature.
- Bell – But is it not capped at what we believe to be a calculation that sets a minimum balance?
- The sufficient balance is not a floor, the legislature can spend the rainy-day fund below the sufficient balance. The purpose of the sufficient balance is to determine the allocation of the annual severance tax deposit. As long as there is enough money in the rainy-day fund to meet that sufficient balance requirement, there is a 50-50 revenue share between the highway fund and the rainy-day fund. What this would do is take the 50% going to the rainy-day fund and redirect it to Texas legacy fund instead.
- Schaefer – In the future, the corpus of this legacy fund grows, the amount of returns grow, and all of the spending does not count towards the spending limit. So at some point, this could become a very large sum of money that is outside of the spending limits.
- The money that is in the distribution fund that would be subject to spending are investment earnings.
- Schaefer – When you have new money to spend, you could be growing government. How can we have a fund that could become very large that is outside of our spending constrains?
- If your spending limit prevents you from tending to some of the long-term liabilities, at some point the state is affected.
- Wu – Has any other of the eight states that have done this lost money or not come ahead?
- Bailey – I do not know. A lot of the questions that the committee has asked today are questions that all of the other states have dealt with. I’m happy to share examples of this with the committee.
Rep. Capriglione closes
- Schaefer – On Pg. 7, Sec. 4, Sub. Sec. A, would you be willing to tighten that language?
- The flexibility is there so that we can use this money to pay for the obligations that are the most expensive.
- Schaefer – What you also see is that when you see a new source of revenue for the legislature, it relives pressure to reform some things, like Hazelwood.
- I think that is a political issue outside of the dollar part.
- Toth – Approximately how much money are we spending per biennium servicing debt currently?
- That is a question for the comptroller. The resource witness will talk to the representative at a later time.
- Toth – Would you be open to an amendment that would say that we could not use any of the disbursements towards interest, only principle?
- I’m happy to talk to you about any changes.
- Johnson – What is going to be the formula for how the money will be used?
- We would make the decisions as the legislature and it could change by session.
- Capriglione – Mentions that total debt payments in interest are 2-3% in GR.
- Toth – I think this is a great idea, it just needs some clarifications.
- Wu – So this is creating a savings account for the state, right?
- Yes, we would only have access to the interest.
- Wu – is there any provision that would restrict access to the funds until it reaches a certain size?
HB 274 (Davis) – Relating to the creation of the disaster reinvestment and infrastructure planning revolving fund and the permissible uses of that fund; making an appropriation.
HJR 145 (Davis) – Proposing a constitutional amendment authorizing the issuance of general obligation bonds to provide financial assistance to political subdivisions located in areas of the state affected by a disaster.
- CS for HB 274 laid out.
- Davis – HB 274 would create the Disaster Reinvestment and Infrastructure Planning (DRIP) fund to provide grants and loans to political subdivisions to rebuild infrastructure and mitigate from natural disaster. This is like SWIFT but for disasters. Bill also makes one-time appropriation of $1 billion from ESF. CS administratively attaches bill to the TWDB, it creates a board of 13 members appointed by the Gov., LT. Gov, & Speaker, and it contains details on how to grow the interest of the fund.
- Johnson – I introduced a similar bill in my first session and was told that the federal government would frown upon setting money aside because they would wait for the state funds to be used before they provide federal funds.
- I can say that, post-Harvey, the statements we were receiving from the federal government was, ‘when is the state going to put up their money?’. All the signals we are receiving is that there is going to be a shift in responsibility to the state.
- Johnson – I just want to make sure that we do not delay the funds that are coming from the federal government.
- There is legislation pending in congress that federal dollars would flow to revolving funds created by the states.
- Capriglione – As of today how much money from the ESF has been spent in response to Harvey?
- The only funds that I would say have been spent are immediate agency responses. We have not really had a chance to fund anything that is future-thinking.
- Capriglione – If we had this fund in place, would we have been able to use that?
- Schaefer – What funds does a smaller community have to respond to natural disasters?
- I don’t think there is much recourse for those communities. This bill would provide those funds.
Adrian Shelley, Public Citizen
- For the bill.
- Asked that the committee consider green infrastructure in discussions of infrastructure and disaster funding.
Kenneth Flipin, Self
- For the bill.
- Program having both loans and grants gives flexibility to communities.
- Bill provides a nice balance of what is happening with the FEMA funds by mitigating when the federal government does not step in.
- Green infrastructure should be included when discussing these issues.
CS withdrawn. HB 274 & HJR 145 left pending.