The Legislative Budget Board met to hear testimony from the office of the Comptroller of Public Accounts regarding the financial condition of this state. The committee discussed new numbers released in the Comptroller’s revised Certification Revenue Estimate on July 11.
This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. This report is not a verbatim transcript of the hearing; it 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.
Glenn Hegar, Texas Comptroller of Public Accounts
- Provided Certification Revenue Estimate (CRE)
- Released official revision of CRE earlier today
- $110.17 billion in General Revenue-Related (GR-R) funds available for general-purpose spending for the 2018-19 biennium
- projected fiscal 2019 ending balance of $2.67 billion
- Economic growth has exceeded expectations
- State has added 350,000 new jobs in last 12 months, projection last year was 234,000
- ~$2.7 billion ending balance is reached when counting expected costs against revenues
- Economic & job performance has led to uptick in estimates
- Expecting continued economic expansion into 2019 @~2.5%, sales tax collections are better than expected @$2.5 billion
- Estimate reduces State Highway Fund (SHF) deferral in FY2020
- Sales tax and severance tax deferrals are higher than expected, severance taxes @$1.370 billion to both Economic Stabilization Fund (ESF) and SHF
- Expecting another $1.6 billion to each fund in 2020
- Ending balance of $2.7 billion does not include any supplemental appropriations needed, Medicaid/Harvey/etc. will cost heavily
- 2020-21 biennial revenue estimate is 6 mos. away, some items will reduce revenue available, incl. diversions to SHF/ESF
- Will also no longer collect sales tax on internet services, expecting reduction of $400 million, will need $230 million to cover Texas Guaranteed Tuition Plan shortfall, Motor Vehicle Sales Tax to SHF transfer goes into effect in 2020 @$25 million
- Some potential downsides, trade war or revisions to NAFTA could reduce growth, estimates are based on high oil prices & oil price volatility could impact available revenue
- Nelson – Welcome news, optimistic that growth will continue due to good policies in place
- Nelson – You estimated that supplemental need might be ~$4 billion, do you have updates for that?
- $2.3 billion internally used for Medicaid shortfall, $560 million+ for TRS-Care etc., internal number used for Hurricane Harvey is ~$1 billion
- $2.7 billion will cover almost everything aside from Hurricane cost
- Nelson – Should highlight the supplemental needs outstanding, happy but cautious
- We are in the second longest economic recovery that the nation has had, uncertain when the next downturn will occur
- Nelson – Our budget assumed a $1.8 billion transfer to SHF, original CRE adjusted this to $1.58 billion based on sales tax collections
- Now down to $250 million under this current estimate due to recent higher sales tax collections
- Nelson – Asks after Harvey cost & for more detail
- Quickest summary is that $.5 billion based on costs from governmental entities involved
- Some of the school finance portion is a policy question for the legislature
- Comptroller uses $1 billion as a placeholder
- Nelson – When do you expect a solid figure for Harvey cost for this biennium?
- Working with other agencies, agencies expecting around October/November for more accurate costs
- Nelson – My notes tell me $2.2 billion All Funds spent already, and another ~$4.6 billion in All Funds
- Darby – On the $11.85 billion in the ESF, does this account for all of the money appropriated last session?
- Yes, some of it may not be entirely spent and will be calculated
- Darby – You’ve been promoting the Legacy Program for the ESF, could you explain how this would work with a balance that size?
- Bulk of ESF is essentially put into treasury pool, we don’t even cover inflation on it
- Question is how we put this money to work better
- Safekeeping Trust Company is investing money in a model similar to my proposal; if you had $10 billion, invest $7 billion to cover inflation, $3 billion more aggressively invested
- Distributions would be $112 million/year, out to year 12 the $3 billion initial investment could pay out $1 billion/year
- Suggests that this could be used to pay down long-term liability to improve bond rating
- Could generate another $22 billion in the future
- TX is the only state left without an investment concept applying to revenue savings account; not a novel approach, but a best practice
- Darby – Do you have any info regarding growth in local property tax value?
- Assumptions in the GAA were 13.7% statewide, higher than what we’ve seen previously
- Shows partially that Texas is being pressured by incoming residents and job growth
- Darby – Can you report progress on the Tax Amnesty Program?
- Yes, ended recently; estimated $40 million target,
- Tom Currah, Comptroller’s Office – No final accounting yet, but getting close to a final number that is above $40 million
- Darby – Do you see threats to port capacity and O&G?
- Hegar, Comptroller – This is a bottleneck, 50% of all rigs in NA operate in TX, volume is massive and TX does not have the infrastructure to get it out
- Capacity is being built along the coast, but there is a logistical issue related to continued production
- Neslon – Back to the ESF, how do you get to $22 billion, how long would that take?
- We started with $10 billion, calculated amount needed to retain for sufficient balance/transfers/emergency, etc., set to $7 billion and could be used to cover inflation
- Remaining $3 billion would be invested like an endowments
- Estimating ROR of >6%, by year 12 the payout would be $1 billion
- Nelson – But it is going to be awhile to get to that $22 billion number?
- Correct, but need to start somewhere
- Could invest and grow fund to ensure state financial security in the future
- Totality of returns by year 20 is $22 billion that could have been used for something
- Gov. Patrick – You don’t get to $22 billion in 20 years by increasing 3%/year on $3 billion; takes 24 years to double, >70 years to get to $22 billion year-to-year
- This also includes an assumption that more dollars are being added every year, ESF has dollars added to it through transfers
- If this money is put into the investment bucket
- Gov. Patrick – You can’t double the current $10 billion mathematically in 20 years; currently there is a lot of pressure to spend the balance
- Gov. Patrick – It would take a lot of discipline to grow, wise to think down this road, but the $22 billion in 20 years math doesn’t work
- Assumes you have some money put into year to year
- Hancock – How long has statement been in the budget regarding property value growth & what it means
- It has been in for a very long time
- This is one assumption in the GAA, currently looking at how accurate our assumptions have been
- Hancock – Apparently the wording has been confusing to some individuals in the counties, would be good to explain
- Have been working with the Commission on Public School Finance