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The Senate Finance Committee held its organizational hearing on February 8 and heard from the Comptroller on the revenue and budget estimates, as well as the Legislative Budget Board for a high-level discussion of SB 1’s allocation of funds. This hearing is a starting point of discussions on the budget, which will continue through March as each Article is reviewed. The dates for upcoming Senate Finance hearings can be found here.

 

A HillCo report of the February 8 Senate Finance hearing can be found below.

 

 

 

Senate Finance Committee

February 8, 2021

 

The Senate Finance Committee held its organizational hearing on February 8th and heard from the Comptroller on the revenue and budget estimates, as well as the Legislative Budget Board (LBB) for a high-level discussion of SB 1’s allocation of funds. This hearing is a starting point of discussions on the budget, which will continue through March as each Article is reviewed. A video of the hearing can be found here.

 

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.

 

Opening Remarks

Chair Jane Nelson

  • Comptroller and LBB will provide updates on budget and SB 1
  • Housekeeping matters; have posted hearings of all articles of the budget
  • Will have meetings Monday-Thursday, Fridays are overflow, may even run into the weekend
    • 10 am meetings on Monday, and 9 am every other day
  • Strict adherence to Senate COVID rules; will require testing and social distancing
  • Messengers will not distribute written testimony; all testimony will be submitted the following day; are in “uncharted territory” and may need to make adjustments
  • Vice Chair Lucio – Notes complications posed by the COVID pandemic and major issues the committee will address
  • Members introduce their staff; hold discussion on, and approve, committee rules
  • Whitmire – Discussion of possibility of allowing virtual witnesses/testimony before the committee
  • Huffman and Nelson discuss how overall Senate rules prevent virtual testimony except for redistricting
  • West – Need to support for those without medical coverage to “keep the Texas miracle going”
  • $3.5 billion in Federal Funds to supplant GR to contribute towards healthcare salaries/benefits
  • Appears that 2021 ending balance will be positive
  • SB 1 as filed contains the Senate’s introduced budget for FY 2022-23 and fully funds HB 3
    • Provides resources for beating COVID and invests in economic recovery
    • Meets vulnerable Texans’ obligations
    • Assumes 5% savings for agencies will take place now
    • Eliminates one-time expenditures
    • Includes approximately $180 billion in All Funds, over $200 billion in Federal Funds
    • Funds SB 12
    • Funds projected caseloads for cases
    • Over $30 billion for state transportation
  • Are many unknowns right now; as vaccine rolls out, will be watching economy and revenue
    • Do not know how much federal aid is coming and what strings will be attached
  • Have the tools to make the budget work, and this is a “starting point” budget
  • Committee will break into subgroups during each hearing concerning the different articles and agencies

 

Comptroller Presentation of Biennial Revenue Estimate

Comptroller Glenn Hegar

  • Currently projecting $112.53 billion available in GR; is a slight decrease, but not due to a drop in projected revenue collections
  • Expect revenue collections to grow in the next biennium; estimates a GR tax collection increase of $6.5 billion
  • Total GRR collections projected to grow $7.1 billion from this biennium to the next; available GRR drops can be seen due to an approximately $900 million deficit next biennium
  • Must set aside revenue for shortfalls in guaranteed programs and funds including the Texas Tomorrow Fund; expects a $271 million shortfall
  • Biennial Revenue Estimate does not include the savings that would result from the 5% agency cuts; could substantially reduce shortfall, but new GR spending could increase the deficit
  • Assumptions are based on continuous economic growth; vaccines provide hope, but holiday surge abated that growth
    • New surges lead to economic slowing, but does not expect another sharp decline
    • There may be capacity for surge in consumer spending once the pandemic recedes
  • Texas is positioned to recover from COVID and return to economic growth, but forecast remains cloudy and uncertain; is a wide range of possible outcomes for state revenue
  • Nelson – What changed between July and January BRE?
    • July and January assumptions were very different; Texas has seen sales tax revenue holding up better or half as bad as we expected
    • Expenses on Foundation School Program was less than expected and saved money
    • Even though revenue is better than we expected, some tax revenue still remains negative
  • Nelson – How much would we have on the table without Wayfair?
    • Would have lost $1.7 billion; taxing online purchases have been very important
    • Locals would not have received approximately $500 million
    • Will likely have available funds to completely fund education
  • Perry – When you project forward, are you considering the pint-up demand? Is the $1.7 billion influenced by the pandemic?
    • We undershot the mark here; and there could be a slight contraction
  • Bettencourt – Clearly a bifurcated economy where the virtual is humming, but brick and mortar is struggling; is the revenue projection ready to make a systemic change in long-term forecast, because the online economy trend is continuing?
    • Virtual economy and sales are definitely continuing in that trend
    • Pandemic has substantially driven virtual sales and we are taking these into account now
  • West – Biden proposes a $1.9 trillion COVID package, is Comptroller’s Office doing analysis? How much would Texas get?
    • Hesitant to say specifically, but with any stimulus, Texas will get a better economic position due to infusion
    • Closely monitoring, but those funds are not included in our modeling
    • Are only included once the bill is signed into law and dollars are distributed
  • West – In terms of Congressional process, as committees consider the bill, will you be able to make estimates based on bill progress? Which committees are in focus?
    • We can make estimates, but we are still looking at this; will provide updates
  • Schwertner – Transportation Motor Fuels Tax is concerning due to increase in EVs, have you looked at that in detail and could you provide information?
    • Have had a lot of questions about this issue; have published several fiscal note articles on this topic
    • 5-8 years out will see more EVs, the sooner you address it the further ahead of the curve
  • Kolkhorst – Discusses the Obama stimulus; need to look at plugging the holes versus one-time investments, will your office help us in determining that?
    • Yes, we will be helping guide through allocation of one-time federal funds and put them to good use
    • Advocating for maximum flexibility for states and conscientiousness on use of dollars
  • Kolkhorst – How much did we have left from the December bill?
    • Does not know, will get it later for you
    • For accounting, if dollars do not flow through state treasury there is not a good accounting of the use of those funds
  • Huffman – There could be money coming from the government, you are saying that money could come to local government and the State would have no accounting for?
    • Yes, we try to monitor those dollars, but it is a less transparent process
    • Can calculate funds based on total, but we can try and extrapolate back based on total
  • Huffman – Are entities receiving money from both the fed and state governments? Important for fair distribution of funds
    • Unsure, will need to check back
  • Whitmire – Is there a running tally of what the Governor has done with the total funds that have come to the State?
    • Yes, there is an accounting; will provide data to the Committee
    • Office keeps a running tally to know how much is coming in, being spent, and how much is left to be spent
    • Nelson – We have kept close tabs on the money and what it has been spent on, we can get you the numbers and data
  • Nichols – On the EV issue, the fairness issue, is it an issue that they do not pay the road use?
    • Yes, do not pay gas tax which stands in for road use
    • Apparent that I need to bring it to your attention; similar to Wayfair, but less significant gap
  • Perry – In PPP arrangement, statement about other relief being subtracted from total federal relief
  • Hancock – As PPP was mentioned, your office brought to attention the issue with it; thanks Hegar on the behalf of business owners
  • Nelson – Will we have enough revenue to trigger prop 7 transfers?
    • Yes, revenue transfers will still continue in current fiscal year
  • Nelson – SB 1 appropriates for Texas Tomorrow Fund, have you assumed that for BRE?
    • Yes, assumed the money is taken out; if your act funds it, as long as it is in the final version, it will add back $271 million in available GRR
    • Right now, absent from the BRE due to constitutional obligation
  • Nelson – What are expectations for oil production, prices, etc. over next biennium?
    • Price standpoint – Up in mid $50s per barrel right now, range for $40s in FY; up to $50-55 next FY and year after
    • Will wait for couple of months to see what OPEC and producers do; could be a slow increase, rather than quick ratchet
    • 95% certainty that oil will be between $20-80; will be somewhere in the middle

 

Legislative Budget Board Presentation on SB 1

Director of LBB Staff, Jerry McGinty

  • Provides a walkthrough of SB 1 as introduced (link)
  • Provides a comparison of the methods of finance; 2021 base was established by agency LARs in the fall, but there have been a lot of changes and federal funds since that submission
  • Base has around $8 billion in COVID funds, but new money brings it up to $25 billion
  • All Funds see $13.6 billion decline and see a GR increase in $4.7 billion
  • Decrease in GR dedicated related to one-time expenditures, including TERP
  • Federal funds reduced due to uncertainty of what funds will be available in upcoming years
  • Nelson – Walk us through federal COVID funds allocated to date, and what is included for FY 21, and FY 22-23
    • Within $99 billion of Federal funds, in September, $8 billion of that was COVID fund. Expect now that $25 billion will be available in COVID funds
    • $11 billion given to state total in fed funds so far
    • Broken up among local governments, medical, direct assistance, and state funding
    • Numbers as of September 2020
  • West – How much is not accounted for?
    • $15 billion is not accounted for as of yet
    • As we update the number, the total of $99 billion right now will increase, reducing the deficit
  • West – Would that erase the deficit?
    • Yes
  • West – Will the biennial change be as great?
    • If new money is coming in for following years no, but if they are one-time funds then the change will be greater; depends on how funds will be spent
  • West – Any conditions on whether we can supplant?
    • Still reviewing that and will update committee as we learn more
  • West – Are these one-time funds?
    • In some cases, yes; $3.5 billion to replace GR was a decision of one-time use
    • Replaces public health and safety salary costs and builds balance back for the state
  • Nelson – West, 2021 funds paid for additional agency costs; COVID imposed high costs on those agencies, and not all funds were flexible and will not totally replace GR
  • West – Article 3, about $1 billion was sitting at the TEA and districts wanted to use it; expound?
    • Yes, around $1.1-1.2 billion available; conditions allowed for replacement of GR
    • Continued the hold harmless due to a lack of reduction to GR; supplanted it, returning those funds to the Treasury for other use/saving, rather than spent on the program
  • Bettencourt – Follow up on West’s question; is there any current issue to make the federal funds a direct revenue replacement?
    • We want to see the text of the bill, but we do not know yet
  • Whitmire – They replace $3.5 billion in public safety funds? What was the big expense for policing/prisons? Governor made that decision?
    • Yes, the Governor made the decision in coordination with Lt. Gov and Finance
    • Agencies will probably speak best to expenses
    • We know that PS/PH had an impact either directly or indirectly impacted by COVID; deemed appropriated expense
  • Whitmire – taken back by $3.5 billion and does not know if DPS played a major role during COVID; would like to know more about it
    • We can get you a breakdown for that
  • Nelson – I think this is also concerning public health institutions, not just public safety agencies
  • Schwertner – Follow up on Whitmire, issue of CARES funds and spending, will LBB outline the funds and where they went specifically?
    • Yes, we will provide a specific breakdown of all the funding sources passed to date
  • Provides funding breakdown; will fully fund education (HB 3), but are some reductions to Article 5
  • Decline in Article 8 revenue, but due to the shift between Dept. of Insurance
  • LBB staff will be testifying about major funding items later in the process
  • Increase in funding for enrollment growth and other education funding; discusses SB 12 funding
  • Small decrease for HHSC and has been challenging due to federal funds; approved FMAP by 6.1% an additional $500 million per quarter in GR funds available
    • Continues through calendar 2021
  • Transportation reduction related to federal fund offset
  • Higher ed formulas are maintained at previous levels
  • Reduction in adult corrections has to do with facility closures and one-time funding available
  • Nichols – Transportation funding loss due to Federal Highway reimbursement? We are trying to project out, don’t really know what the feds will do; why this?
    • Will furnish more information on that issue
  • Nichols – Statutory changes to how TERP flows; did that impact transport funding?
    • It did but we are still looking at the impact, but will see that reduction soon and provide a workup
  • Kolkhorst – On decrease in Article 2, could you explain where that is going?
    • COVID expenses due to enhanced FMAP; when funding ends through FMAP cases will drop and reduction will be included
    • Lot of moving parts here; will be continual coverage for all on Medicaid during COVID as it cannot drop off
  • Kolkhorst – When will this end?
    • Expect through calendar 2021
  • Constitutional limitations upon the Committee during the budget process; spending limit and pay as you go; Does not account for supplemental appropriations
  • 5% reductions and COVID-19 relief revenue will show up in supplements; -$7.2 billion will turn into something closer to -$2 or -$3 billion
  • Lucio – Can we pass a budget that has expenditures that surpass the PAYGO limit?
    • Not constitutionally; must find a way to account for the over spend limit
    • Either through reductions, Rainy Day Fund ($11 billion), additional federal funds, etc.
  • Perry – Mentions data breaches and robocalls – do you have how much by agency they receive in passing out Taxpayer data? What is the fiscal impact for selling this data? And selling it to people not credible?
    • Will definitely put something together for the committee with the Comptroller’s office
  • Perry – Unemployment fraud is rampant; somewhere in those databanks, vendors are not securing data
  • Nichols – Major concern of mine as well as the DMV has released a shocking amount of data at request of statute; would like to see it fixed and would like co-sponsors on a bill addressing that issue
  • Nelson – Sign me up for those bills as citizens’ information is being sold without their permission, would like to see where it shows up in the budget/finances, but we need a bill that prevents sale of personal information without permission
  • Nelson – What has not been captured by the report?
    • Things like the 5% reduction, supplemental appropriations, and some federal funds; will show up later
    • Largest supplemental shortfall is going to be operational healthcare needs at DOJ and facilities
  • Nelson – Is this information available online?
    • Yes, available on the LBB website
  • Kolkhorst – Can you confirm the $230 million for correctional managed healthcare?
    • Yes, combined total shortfall ($80 million for officer overtime and $150 million above the base for correctional health care), will be in supplemental budget
    • More to increase base to appropriate level; has been underfunded previously
  • West – If we put elderly residents on Medicaid would it decrease the cost?
    • Yes, it would drive the cost down
  • Huffman – Issue we confront every session; subjects had more flexibility on Medicaid dollars, if we could use Medicaid for incarcerated individuals, so it is challenging
  • West – I am not discussing release, but putting in a situation we can leverage Medicaid for those individuals
  • Discussion of resources available from LBB, including discussion of breakdown of programs and costs for important programs, listed by order of importance
  • Criminal Justice reports will be completed in the next several weeks
  • Nelson – Additional assignment for you since so many questions about federal funds; could you spend the first 10-15 minutes on Tuesday to answer questions on the latest info on the federal funds?
    • Yes

 

Closing Remarks

Chair Nelson

  • 4 personal goals:
    • Top priority was maintaining commitments for education among every senator on the committee
    • Provide resources to defeat COVID, keep Texans healthy
    • Reignite economy
    • Strengthen public safety
  • Hopes the committee and legislature will share those goals
  • Recess until 9am Tuesday, 2/9