Opinion Columns & Blogs - INACTIVE

Drawing from flush ‘Rainy Day Fund’ could reduce state’s debt

Comptroller Glenn Hegar has rosy projections for the state’s Rainy Day Fund savings account over the next two years.
Comptroller Glenn Hegar has rosy projections for the state’s Rainy Day Fund savings account over the next two years. AP

Texas is stacking up money in its savings account commonly called the Rainy Day Fund.

Comptroller Glenn Hegar predicts the account (formally named the Economic Stabilization Fund), created by Texas voters in 1988 in response to two major economic shocks and drastic revenue shortfalls, will reach $7.5 billion by the end of the current fiscal year and $11.1 billion by 2017.

Hegar produced those estimates in January, saying they are conservative and take into account a drop in oil prices and a resulting slowdown in the state’s economic growth.

We’ll see. He might back off some if the slowdown is worse than he expected.

Still, it’s clear that for now the state is flush with funds.

If the money flow matches Hegar’s predictions and the head budget writer in the House has his way, Texas will steer more of it toward paying down its $38.6 billion in debt.

State Rep. John Otto, R-Dayton, a 10-year House veteran and chairman of the Appropriations Committee, is pushing two bills that would combine to target debt reduction.

Both of Otto’s proposals cleared the Appropriations Subcommittee on Budget Transparency and Reform on Thursday.

The first, House Bill 8, is a budget wonk’s delight, but its result is understandable.

By removing federal funds from the wonky formula that sets a cap on the amount of money stored in the Rainy Day Fund, HB 8 would reduce that cap and make it more likely that there would be money available for spending rather than saving.

The Legislative Budget Board calculates that this change could make $537.9 million available in the 2016-17 budget, because Rainy Day Fund revenues are expected to exceed Otto’s proposed lower cap by that much.

Otto’s second bill, House Joint Resolution 8, would require money that’s freed up in this way be used to reduce the state’s debt. If the resolution is approved by two thirds of the members of both the House and Senate, it would go to voters in a November constitutional amendment election.

Legislators have been reluctant to tamper with the Rainy Day Fund, especially since conservative Republicans took charge of both chambers in 2003.

They’ve spent money from it when needed, but only seven times since 1990, the LBB says. The largest amounts over the years have gone to education ($3.5 billion), general budget shortfalls ($3.2 billion) and economic development ($2.4 billion).

Still, the money keeps coming in. Most of it comes from oil and gas tax revenue, and those sources took a sharp upswing beginning in 2007.

Oil and gas are boom-and-bust businesses, and the Rainy Day Fund wears both a belt and suspenders to shore it up against uncertainty.

It has a specified minimum, currently $7 billion, and a maximum, which is the cap that Otto wants to fiddle with.

Under current law, any money over the cap shifts to the General Fund for almost any kind of spending.

Otto says you don’t want to build that kind of money into the budget, because it could be here one year and gone the next. But he says it’s ideal for paying down debt.

The state’s debt picture is not as ugly as the $38.6 billion total might seem. Most of it, $33.8 billion, is “self-supporting” debt that is connected to a revenue stream that’s expected to pay it off over time.

But the rest, $4.8 billion, is “not self-supporting,” meaning we taxpayers have to find a way to pay it back.

In the rosiest of pictures, LBB says Otto’s proposals could make almost $4 billion of debt reduction money available between now and 2020.

Finally, Otto isn’t the only one who wants some Rainy Day Fund changes.

Rep. Giovanni Capriglione, R-Southlake, has proposed taking prudent chances in investing part of the fund in ways that would bring greater returns.

Capriglione’s House Bill 903 would keep 30 percent of the fund’s maximum amount in reserve, relying on standard interest income for its earnings. But he would invest the rest according to the state’s specified “prudent investor” standard.

The LBB says his approach could bring in an extra $40 million over the next two years.

Capriglione’s bill also got a favorable reception from the Subcommittee on Budget Transparency and Reform on Thursday.

Mike Norman is editorial director of the Star-Telegram. 817-390-7830

Twitter: @mnorman9