January 9th, 2017
You are one of the first people to know.
As you read this I am performing one of the most important functions of my office. As Texas Comptroller of Public Accounts it is my constitutional duty to provide to the Legislature, legislative leadership, the Governor and the people of Texas, my Biennial Revenue Estimate or BRE.
The BRE is essential to the budgeting process and provides legislators with a look at the current state of the Texas economy and more importantly, the amount of revenue available to the Legislature as it begins the process of setting the budget for the coming 2018-2019 fiscal biennium.
While far from an exact science, the Comptroller’s Office uses the best available economic data, consults with experts and business leaders across a wide range of industries, and utilizes in-house analysts and modeling to arrive at the most accurate estimate possible given the information we have.
For the 2018-2019 fiscal biennium, the state can expect to have $104.9 billion in funds available for general purpose spending, a 2.7 percent decrease from the corresponding amount of funds available for the current (2016-2017) biennium. It is important to note that this decline in available revenue is NOT due to a projected drop in total revenue collections.
My office expects continued moderate expansion in the Texas economy and renewed growth in state revenue collections as the state benefits from the recovery of oil and gas prices. This growth, however, is offset by two key factors affecting AVAILABLE revenue:
- The beginning balance for 2018-2019 will be approximately $1.5 billion, well below the nearly $7.3 billion in available revenue at the beginning of the 2016-2017 biennium. This is primarily due to the aforementioned period of low prices in the energy market.
- In November 2015, voters approved Proposition 7, which dedicates up to $5 billion in sales tax collections to the State Highway Fund beginning in fiscal 2018.
The passage of Prop. 7 was an important, needed step in meeting our state’s infrastructure needs. Infrastructure funding is one of the key elements affecting Texas’ credit ratings and is essential for ongoing economic growth. And all of us who drive Texas roads see the need for more highway investment.
But this new dedication of revenues coupled with lower beginning balances means the growth we are projecting in revenue collections will not be available to the Legislature for general purpose spending.
Additionally, I would like to point out that a projected recovery in the oil and gas sector means that funds will continue to flow into Texas’ already robust Rainy Day Fund. In fact, absent any appropriations by the Legislature, the balance of the Rainy Day Fund is expected to grow from approximately $10 billion to nearly $12 billion by the end of the 2018-2019 biennium.
While state revenues were down in 2016 and budget writers will face some difficult choices in the coming months, it is important to note that Texas remains economically well positioned and in healthy fiscal shape. Despite the downturn in the energy sector, our state has continued to grow and add jobs, and our diverse economy has allowed us to weather the storm while other energy producing states have seen job losses and steep budget shortfalls.
And finally, recent months have brought some positive indicators:
- Job growth has accelerated.
- After falling to a low of just over $25 per barrel, oil prices have stabilized above $50 per barrel.
- As of last week, 49% of all active rigs in the US are operating in Texas.
- And our December sales tax revenues were up 4.9 percent from a year ago. That’s the best monthly performance since May of 2015.
There are challenges ahead of us, but Texas remains in a solid economic position. And it has never been more important for us to stand together, united in the knowledge that the conservative principles and sound fiscal management that have allowed us to navigate through this current period of slower growth, will lead us to even greater prosperity.
Thank you for your time and God Bless.
Yours in service,