COVID-19 clouds Texas revenue forecast as lawmakers begin legislative session
Texas Lawmakers will have $112.5 billion available for general purpose when crafting the state budget during the legislative session.
Texas Comptroller Glenn Hegar announced his biennial revenue estimate on Monday as lawmakers, including those from Tarrant County, prepare to head to Austin for the first day of the legislative session Tuesday. The estimate for the 2022-23 biennium is a 0.4% decrease from funds available for the 2020-21 biennium.
““The forecast, however, remains clouded with uncertainty,” Hegar said during a virtual presentation of the estimate. “The ultimate path of the pandemic and the behavior of consumers and businesses during a resurgence is difficult to gauge. It’s also unclear how they’ll respond once the pandemic is fully under control.”
Hegar projected that the current biennium will end with a $946 million deficit as a result of COVID-19’s impact on revenue collections — a rosier outlook than that of this past summer.
Hegar in July gave a dreary forecast when he projected Texas will end its two-year budget with $11.57 billion less in general revenue funds than previously estimated, creating a $4.58 billion shortfall. In November, he said the outlook for Texas two-year budget isn’t as dire as initially thought.
“All told, revenue collections have outperformed what we expected when we released our revised estimate in July,” Hegar told the Legislative Budget Board on Nov. 30. “Nonetheless, revenues remain down significantly relative to a year ago, and well below what we expected to collect when the Legislature wrapped up your work on the budget in 2019.”
Hegar said the nearly $1 billion shortfall estimated for the current biennium does not account for 5% budget cuts to state agencies and higher education institutions requested by Gov. Greg Abbott, Lt. Gov. Dan Patrick and House Speaker Dennis Bonnen in May. Several agencies and government functions, including the five handling much of the state’s COVID-19 response, were exempt from the reductions. The deficit also doesn’t account for federal funds for pandemic relief used for general revenue related expenses.
These savings could “substantially improve the projected ending shortfall for this biennium, possibly turning it into a surplus,” Hegar said. Hegar attributed the reduction in the projected shortfall to better than anticipated sales tax collections.
Lawmakers could tap the Economic Stabilization Fund, better known as the “Rainy Day Fund.” There’s roughly $10.5 billion in the fund, which is estimated to contain $11.6 billion by the end of the 2022-23 biennium.
“It’s on the table,” Hegar said. “However, the fact is, it doesn’t look like they’ll have to use a substantial portion of the ESF during this cycle. But again, those are the decisions that they’re going to be making here in the upcoming months.”
Hegar said the recent spike of positive COVID-19 cases and hospitalizations could lead to a reversal in recent positive trends related to the economy.
“The recent resurgence of infections is almost certainly a drag on economic growth and recovery,” he said. “However, we do not expect a repeat of the contraction that we saw in the spring of 2020.”
Abbott, during a visit to an Arlington vaccination site, predicted that as vaccine distribution continues the state’s economy will improve.
“I think that we have tools and strategies to deal with budgetary challenges as a result of 2020, but for the next two year cycle, we should be looking to be in great shape,” Abbott said.
Sen. Jane Nelson, a Flower Mound Republican who chairs the Senate Finance Committee, said the revenue estimate “highlights the resiliency of our Texas economy.”
“Tough decisions remain, but I am confident we can pass a budget that meets our essential needs, maintains our commitment to education and follows the principles of fiscal responsibility that put us in a stronger position than other states to withstand this unprecedented pandemic,” Nelson said in a statement.
Patrick called the revenue estimate “welcome news” in a statement. He said lawmakers will work to mitigate the pandemic’s impact while bolstering the economy and maintain education funding increases from last session, including teacher pay raises.
“We believe that with a continuing healthy economy, a growing Economic Stabilization Fund and federal COVID-19 relief, we will be able to move forward on our budget priorities this session and balance the budget by session’s end, as required by the Constitution,” Patrick said.
Presumptive House Speaker Dade Phelan, R-Beaumont, told The Texas Tribune in a video interview that lawmakers have a challenging budget cycle ahead of them.
Asked if any areas of the budget that are off the table for cuts, Phelan said “we have to look at everything.” Phelan added that he expects public education and higher education to remain a priority. He also said he doesn’t see new taxes or fees being acceptable revenue sources.
“We have less to work with,” Phelan said. “That’s unfortunate, but the state of Texas is still the best place to do business. It’s still, to me, the strongest economy in the entire country. So we will emerge from this COVID-19 fog, if you want to call it that, better than any state, quicker than any state.
This story was originally published January 11, 2021 at 10:50 AM.
