Op-Ed: Texas and TRANs — Avoiding Short-Term Debt in 2016
By Glenn Hegar
Editor’s Note: This Op-Ed was written and submitted to Breitbart Texas by Texas Comptroller of Public Accounts Glenn Hegar.
If there’s an 18-year-old in your life — or if you’ve been 18 yourself, in the not-too distant past — you know that credit card invitations start clogging the mailbox right around that magic birthday. And whether you’re a “financial education” specialist or just your average parent, you know one of the first lessons an 18-year-old needs to learn is not to borrow when you don’t have to.
It’s good advice for anyone, really, especially for our government. That’s why I’m happy to report that Texas is in good enough financial shape right now to avoid what’s been an annual ritual for nearly three decades, the issuance of Tax and Revenue Anticipation Notes (TRANs).
TRANs are short-term debt instruments that must be paid off within a year. The Texas Government Code authorizes my office to issue these TRANs, with the approval of the state leadership, to manage temporary cash-flow problems that arise during the year. Texas has used them annually since 1986.
The biggest reason for these cash-flow bumps in the road is school finance. The state makes nearly half of its payments for its share of public school funding in the first three months of the state’s fiscal year (nearly $9.6 billion in the first quarter of fiscal 2015), before most of the year’s tax revenue has been collected. TRANs help us keep the state’s books in the black each year until more tax revenues flow in. For instance, we issued $5.4 billion in TRANs for fiscal 2015 and will pay them off by August 31 of this year.
But for 2016, we don’t need them. The 2015 Legislature produced a responsible budget that came in under projected revenues, even after cutting taxes and taking some important steps toward addressing long-term funding issues like transportation and state pensions. We can manage our finances for the year without adding to the state’s short-term debt.
Texas has other tools for managing cash flow. State law allows us to borrow from our own accounts for this purpose, rather than from the securities market. And right now, we’re fortunate to have more than $6 billion in general revenue and about $8.5 billion in the state’s Economic Stabilization Fund, more commonly known as the Rainy Day Fund. We can put this mountain of money to work for the taxpayers, avoid issuing debt, and repay any funds we borrow with state revenues as they’re received.
Texas’ credit ratings are among the nation’s highest. But just because we can borrow doesn’t mean that we should, not when we can manage our finances without sending interest payments out of state. It’s efficient. It’s fiscally responsible. It’s what Texas families and businesses do every day. And for those reasons, it’s what Texas will do this year.
It’s too early to say whether we’ll be able to avoid using TRANs for 2017. But my agency will be keeping an eye on the economy and our revenues throughout the year. And any time we can avoid adding to the state’s debt, we will.