$1.6 billion surplus projected for Texas

Posted Tuesday, Dec. 13, 2011

By Dave Montgomery

AUSTIN -- After a long run of tough times brought on by a sour economy, Texas lawmakers got some good news Monday as the state's chief fiscal officer projected a $1.6 billion surplus that could provide a much-needed financial cushion for the next session of the Legislature.

The windfall available for the fiscal biennium that started Sept. 1 was generated by better-than-expected state revenue. It could enable lawmakers to partly offset a $4.8 billion shortfall in Medicaid and soften some other cuts enacted during the 2011 Legislature, analysts said.

The new projections by Comptroller Susan Combs will make things easier for budget-writers at the outset of the next legislative session in 2013, although lawmakers will still face a host of financial challenges.

Combs projected available revenue of $82.7 billion by the time the biennium ends on Aug. 31, 2013, which would give the state a $1.6 billion balance over the $81.1 billion in the two-year budget approved by this year's Legislature.

Lawmakers entered the 2011 session facing one of the biggest shortfalls in years.

They ultimately enacted an austere budget that cut spending by $15.2 billion over the previous biennium and reduced state aid to public education by $4 billion.

In fulfilling her obligation to certify available revenue used to balance the current budget, Combs attributed the upturn in revenue from taxes and other sources to Texas' continued economic recovery, although she said both the state and the nation continue to face the effects of economic dislocations.

"While the threat of another recession does exist," she said, "the most likely scenario continues to be one of slow, steady recovery from the worst recession in our state since World War II."

Increased oil and natural gas production, buoyed by higher market prices and improving technology, has helped drive the recovery, Combs said.

She predicted that Texas' economy will grow by 2.2 percent annually in 2012 and 2013, slightly exceeding the nation's expected annual growth of 1.9 percent.

Through October, she said, Texas has recovered 94 percent of the jobs lost during the recession. Nationwide, just 27 percent of the jobs lost in the recession have been recovered, she said.

Combs' estimates reflect revenue collections through Aug. 31, the end of fiscal 2011, and the collective impact of legislation passed this year.

"Revenue collections in fiscal 2011 were stronger than expected, coinciding with the Texas economy moving more fully into recovery and significant job growth in the state," she said.

Sales taxes, which contributed more than half of the state's revenue, grew by 9.4 percent over the previous year, she said.

Dale Craymer, president of the business-supported Texas Taxpayers and Research Association, said Combs' report offers good news for lawmakers. In passing the $172.3 billion budget, lawmakers left Medicaid underfunded by $4.8 billion and expected to tamp down the shortfall by drawing from the state rainy-day fund in 2013. Craymer said lawmakers can use the surplus to partly meet the Medicaid obligation.

Combs projected that the rainy-day fund will reach $7.3 billion by the end of 2013.

Eva DeLuna Castro, an analyst for the Center for Public Policy Priorities, which advocates for programs for low-income Texans, said the surplus means that lawmakers "will have a little left over" to deal with Medicaid and restore $250 million in general revenue cuts. But she said the amount is not big enough to deal with broader financial issues, including state policies that critics say have created a permanent "structural" deficit. She called Combs' projection "mediocre at best."

Outpacing the nation

Although segments of the economy continue to struggle, Combs said Texas "outpaces the nation," an assessment that supports one of Gov. Rick Perry's fundamental claims as a presidential candidate. Texas added more jobs than any other state during fiscal 2011, had the highest job growth rate among the 10 most populous states and had a faster growth rate than all but four states, she said.

"The relatively attractive economic picture in Texas, in the face of the weak national recovery, has encouraged a continuing influx of people into Texas," she said.

The state's unemployment rate is 8.4 percent, compared with the nation's 9.1 percent, and is expected to ease to 8.3 percent in 2012 and 8.1 percent in fiscal 2013, Combs said.

Still, the current rate is considerably higher than the 4.3 percent in early 2007 and shows no indication of "receding rapidly," she said. Because of out-of-state migration and an increase of younger workers, the state's labor force is growing faster than the supply of jobs, she said.

The state's best-performing industry was mining and logging, propelled by increased oil and natural gas exploration. Job growth in the sector amounted to a robust 17.3 percent in 2011, compared with 1.9 percent for remaining industries.

Conversely, government employment in Texas declined by 35,500 jobs, 1.9 percent, during fiscal 2011.

A number of factors were cited, including budget cuts by school districts and the Postal Service and the loss of temporary workers hired to conduct the 2010 Census. Total government jobs in Texas -- state, federal and local -- are expected to decrease by 64,800 throughout the current biennium, Combs said.

Dave Montgomery is the Star-Telegram's Austin bureau chief. 512-476-4294

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