Texas' economic rebound boosts state revenue

By Dave Montgomery

AUSTIN - The 83rd Texas Legislature today opens its 140-day biennial session on better-than-expected financial footing after Texas Comptroller Susan Combs reported that a "very strong rebound" from the recession means lawmakers will have $101.4 billion in state general purpose revenue over the next two years.

The surprisingly robust estimate by the state's chief financial officer lays the groundwork for the legislature's most fundamental task - writing a budget to provide state services over the next two years. But while the revenue projection marks a reversal from the deep hole that confronted lawmakers in 2011, some experts reacted cautiously and warned against a spending spree by lawmakers.

Others said the windfall is still insufficient in helping lawmakers overcome deep cuts in services imposed two years ago.

Much of opening day will be devoted to ceremony, though an element of political friction awaits House members as they elect their speaker for the next two years. Incumbent Republican Speaker Joe Straus of San Antonio is heavily favored to win re-election to a third term, but faces a conservative challenge from Rep. David Simpson, R-Longview.

Simpson has drawn strong support from Rep. Bill Zedler, R-Arlington, who is calling "for a change in the way the House conducts business." Zedler was one of 15 House members - and the only lawmaker from Tarrant County - to vote against Straus in 2011.

Simpson spokesman Ryan Mauldin dismissed speculation that his boss might withdraw from the contest. "That is not the plan," Mauldin said late Monday afternoon. "He is still in the race."

The Senate is expected to take up rules that govern operations in the Republican-dominated chamber, amid speculation that there may be efforts to curtail Democrats' abilities to block legislation. There was also pre-opening talk that the rules debate may be postponed.

Combs' revenue estimate and assessment of the Texas economy drew a positive reaction from the state's Republican leadership. "Today's revenue estimate from Comptroller Combs proves that our Texas model of low spending and repeated tax cuts works," said Lt. Gov. David Dewhurst, the Senate's presiding officer. "By sticking to conservative, pro-growth principles, Texas continues to outshine and outperform the rest of the nation."

The Texas budget is made up of both state and federal funds. Combs said Texas will have a total revenue package of $208.2 billion for the 2014-15 fiscal biennium that starts Sept. 1, including $76.4 billion in federal revenue and $34.9 billion in fees, interest and other income.

Combs said net state revenue available for general purpose spending will total $92.6 billion after a $3.6 billion transfer to the State's rainy day fund.

Coupled with an $8.8 billion ending balance from the current biennium, lawmakers will have an estimated $101.4 billion in state revenue for general purpose spending for the next biennium, Combs said.

"Texas experienced a very strong rebound from a severe recession," Combs said in predicting continued economic expansion with moderate sustained growth.

Nevertheless, the Republican official also injected a cautionary note. "While the Texas economy is doing well, we must be mindful of factors that cast a shadow over our economy," the comptroller said, warning of an uncertain economic outlook in Europe and China and a potential backlash on Texas from congressional gridlock in Washington.

The assessment that Combs offered Monday was dramatically brighter than her revenue estimate just before the start of the 2011 Legislature, which met in the aftermath of the recession and ultimately cut spending by $15 billion.

The current 2012-13 budget totals about $173 billion from state and federal revenue, an 8 percent decrease from the previous biennium. Lawmakers jettisoned thousands of state jobs and cut more than $4 billion in state education assistance.

Combs attributed the growth in revenue to a surge in the economy over the past two years. Sales taxes, which provide the biggest source of revenue, are expected to generate $54.9 billion in 2014-15, a 9.4 increase from the current biennium.

Combs also reported that the state's economic stabilization fund - better known as the rainy day fund - will be $8.1 billion at the end of the current biennium and $11.8 billion at the end of 2014-15, unless lawmakers choose to spend some of it.

The fund will likely be at the center of another tug-of-war between those who want to use the money to offset spending cuts and others calling for restraint in tapping into the reserve pool of money.

Talmadge Heflin of the Texas Public Policy Foundation, a free-market think tank in Austin, said the size of Combs' projection was "very surprising" and could give lawmakers additional breathing room as they write a budget. But he called on lawmakers to respond "in a very positive way and not go on a spending binge."

Eva Luna Castro of the Center for Public Policy Priorities, which advocates for low-income Texans, predicted that the revenue will be "eaten up pretty quickly" as lawmakers pay for a $4.7 billion Medicaid shortfall in the current biennium and try to restore cuts in programs. "Staying at the current level is not working for the vast majority of people in Texas," she said.

Democrats were quick to call for more funds to restore cuts in education spending in particular.

Combs said the Texas economy, when adjusted for inflation, is expected to increase by 3.4 percent through the remainder of fiscal 2013 and will grow by 3.4 percent in 2014 and 3.9 percent in 2015. The unemployment rate, which reached 8.2 percent during the recession, will continue to drop, averaging 6 percent during 2015, she said.

Taxes from energy production show differing patterns, reflecting both robust oil production and sluggish natural gas production. Oil taxes will bring in about $4.6 billion in 2014-15, a 3.9 percent increase from the current biennium, while the natural gas production tax will fall about 4 percent to $2.5 billion, she predicted.

Dave Montgomery is the Star-Telegram's Austin bureau chief, 512-739-4471.

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