A rebounding oil market and a blistering economy led the state’s chief accountant on Wednesday to increase his revenue estimate for Texas’ current two-year budget cycle by $2.8 billion.
The upshot is that, within certain bounds, lawmakers will have more money to play with as they make spending decisions after returning to Austin in January.
In a letter Wednesday to other state leaders, state Comptroller Glenn Hegar said Texas will have $110.2 billion for general purpose spending for 2018-19.
That’s up from a $107.3 billion projection Hegar had issued in October.
With unemployment at historic lows — Texas added more than 350,000 new jobs in the 12 months ending in May 2018 — more Texans were buying goods and paying sales taxes.
Through June, sales tax collections, Texas’ largest source of state tax revenue, are up 10 percent from June of last year, according to the comptroller’s office.
Meanwhile, oil and gas prices have shot up, with production taxes further spilling into state coffers.
“An economic expansion exceeding our expectations from last year has resulted in revenue collections this fiscal year outpacing (revenue) projections,” Hegar said.
Some of the money is already locked up: One chunk of revenue will go to the rainy day fund and another to the state highway fund.
To the extent the new revenues give lawmakers flexibility, their decisions are sure to have a political flavor.
Talmadge Heflin, director of the Center for Fiscal Policy at the Texas Public Policy Foundation, said he wants lawmakers to cut taxes on businesses.
“With more money coming in, one of the things we hope they look at seriously is tax relief,” he said.
Eva DeLuna Castro, director of the Invest in Texas Team at the Center for Public Policy Priorities, said the money could be used to pay for programs — from used tire recycling to parks maintenance — whose funds are now used to help balance the budget.
“What’s the point of having a life jacket on board if the boat goes down with the passengers?” Castro said.
Addressing the needs of coastal areas hit hard by Hurricane Harvey, which struck after the last legislative session ended, is sure to loom over appropriations decisions.
Lawmakers could spend as much as $2 billion from the rainy day fund to subsidize school districts who saw their property appraisals and resulting tax revenues devastated by the damage wrought by Hurricane Harvey.
The revised revenue estimate “is welcome news,” said state Sen. Jane Nelson, R-Flower Mound, who helms the state Senate Finance Committee, “and another sign that our efforts to spur economic growth are working. Between Harvey and other supplemental needs, the upcoming budget will be a challenge — but this additional revenue will make a big difference.”
Lt. Gov. Dan Patrick said Wednesday that the revenue uptick was a “direct result of the ingenuity, innovation and hard work of Texas business which thrives because of the sound conservative policies we have put in place.”
In June, the Federal Reserve Bank of Dallas estimated that the number of Texas jobs would grow by 3.3 percent this year. The Dallas Fed also reported last month that oil and gas production rose for the seventh quarter in a row and that many oil and gas firms said they are increasing wages and benefits to recruit and retain employees.
But Hegar sounded a cautionary note about future economic performance.
“While it may be true that economic expansions do not die of old age, it’s virtually certain that we will eventually face an economic contraction that puts pressure on state revenue collections,” he wrote.
Changes in federal law — the state, for example, will be prohibited from collecting sales tax on internet services starting in 2020 — Trump administration policies; and the fate of the oil market could affect budget numbers, he wrote.
“The Texas economy benefits from international trade, particularly in North America. Federal policy affecting such trade, including a withdrawal from the North American Free Trade Agreement, would directly harm the state’s economic growth,” he wrote. “Escalating tariffs also pose a potential threat to trade and the Texas economy and could harm some of our state’s leading industries while slowing our economic growth.
“Our economy — and state revenues — also can be affected by sudden swings in the price of oil. In fact, climbing oil prices and production are a primary contributor to this fiscal year’s remarkably strong revenue growth. A downturn in those prices could result in fiscal 2019 revenue collections falling short of this updated forecast.”