Senate Finance – January 22, 2019

The Senate Finance Committee held its organizational hearing on January 22^nd and heard from Comptroller Glenn Hegar and the Legislative Budget Board.

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 Nelson

• Budget prioritizes key issues of session: education, health, human trafficking, Harvey expenditures
• SB 500 funds many critical issues including school safety, hospitals
• Comptroller will give overview of SB 1 and SB 500
• Member comments
  • Committee members introduce themselves and staff members in charge of finance
• Committee Rules
  • Same as last session
  • No objection, rules adopted
• Nelson – Highlights the amounts appropriated in the based budget bill and supplemental budget including FSP, teacher pay raises and RDF funding for Harvey
• Nelson – notes emphasis the word “base” in the filed base budget bill (appropriating approx. $112 billion in GR)

 

Comptroller Glenn Hegar

• $119.1B general purpose spending in next biennium – an increase of 8.1%
• Growth in sales taxes of over 10% in fiscal 2018
  • Growth will be closer to historic avg in next years
• BRE is conservative in its estimate
  • Economy has showed signs of slowing
• BRE based on continued but slowing expansion of the Texas economy
• Refers to details from the BRE (many are highlighted in this infographic)
  • Numbers include $6.3 million in transfer for SHF and ESF and $211 million to cover Texas Tomorrow fund but a bill filed may free up $211 million
• More uncertainty surrounding this estimate than in previous due to oil price volatility, uncertainty in global economy, etc. but remains cautiously optimistic
• Nelson – How confident are you in estimation of oil prices?
  • Based on several sources price will be between $25 -$113 long term, or range between $28-102 in this year
  • Every string of revenue has volatility in it but based on volume hopefully, oil has some string of revenue coming in but no certainty
• Hancock – Is there a point that your office tracks a slowdown in production of oil? Do you track production?
  • Equally important to the price is the volume of production – they do track but the information is complicated. The dynamic of oil has changed with new technologies. However, the Permian basin is different from everywhere else and it is hard to know what the breakeven point will be in the Permian. There will also be changes once new pipelines are opened in the next year and a half.
• Bettencourt – You have already lowered sales tax projections to below the historical avg. If there is upside from that it will be reflected in higher collections later. We are looking at 4.7 BB/day, could be 5.1BB or more with new pipelines. What is the production baseline you have? The Permian is the one place we have where cost of production could compete with Rus/ SDA, what is the baseline production we need?
  • Hegar – We do not know what the baseline production will be, it takes a while for new production to start up.
  • Bettencourt – Your estimates don’t improve production even though capacity is there?
  • Hegar – No, even if the capacity is there it doesn’t mean the production will get there, things take a while to start up
• Birdwell – What is the production % TX contributes to worldwide oil production
  • Hegar – Hesitated to offer number off hand

 

John McGeady, Asst. Dir. LBB

• Presenting high-level overview of budget recommendations
• Recommendations were offered before BRE came out, so they will be offering adjustments to reconcile the bill
• Compares budgets, GR for 20-21 is $112.2B, 3.4% increase from 18-19
  • 18-19 base has been adjusted for items like UB, federal funds from Harvey, estimate appropriations on actual revenues and certain supplemental funding
• Major driver of GR increase is $6B increase in funding for education
• FMAP increase also drove federal funds up by $3B
• Nelson – Why is HHS decreasing in funding?
  • A better FMAP (Federal Medicaid Asst Percentage) in terms of cost funding between feds and state
  • Nelson – SO the Feds are sending more money, so we can spend less money
  • McGeady – Yes that is correct. FMAP is a lagged indicator, so because we had a few slower years a few years ago we are now getting more $ from FMAP.
  • Whitmire – So we are not cutting services the mix of federal and state funding is just changing?
  • LBB staff– The most recent FMAP that has been finalized was for fiscal 2020, on per capita income and 2021 will be finalized in November of this year
• Birdwell – Just to clarify one thing, there is an increase in TSTC (in higher ed funding), but this is to live up to our promised formula funding, which we fell short of in the previous session
• Nelson – How much additional funding is going to FSP?
  • For FSP just current law would be $5.1B over 18-19 biennium, state and local combined
  • To components to add to that could include $3.7Bfor teacher pay, assuming it flows through FSP
  • Also points out $2.3B depends on how it works, if 100% property tax relief it would be an offset so state aid would go up and local would go down
  • Nelson -says basically talking about $8.8B
  • West – what portion of that is state? Out of the $5.1B?
  • McGeady – $5.1B is all local revenue increases and $3.7B would be new state dollars that would be added to the $5.1B
  • West – so we are putting more state dollars into education? And decrease the amount coming from local taxes, has that been quantified?
  • McGeady – Yes, amount for property tax relief identified is $2.3B
  • West – wants to know the percentage
  • Nelson – asked if this questioning can wait until they get to it
• Nelson – recessed the committee noting they will pick up discussion on page 4 of the Senate Finance overview tomorrow