Texas’ financial picture brightens, though lawmakers warned they’ll face tough budget in 2021

AUSTIN — Fears that the coronavirus outbreak would tank Texas and its finances were overwrought, at least for the short haul, state Comptroller Glenn Hegar said Monday.

Still, legislators next year probably will have to write a budget with billions less to play with than they had last session, he said.

“Crafting the 2022-23 budget will be a difficult exercise,” Hegar told the Legislative Budget Board.

The group of 10 powerful legislators — eight Republicans and two Democrats — monitors spending when the Legislature is not in session.

On Monday, the board met to hear a report from Hegar on state finances and adopt a constitutionally required cap on state spending in the coming two-year cycle, which begins Sept. 1, 2021.

In July, Hegar said the coronavirus pandemic and an oil slump likely would erase a $2.9 billion surplus expected for the current two-year budget cycle, producing instead a $4.6 billion revenue shortfall.

At the time, when he downsized his 2019 estimates of how much revenue the state would have, COVID-19 infections were surging in Texas.

Cases once again are spiraling. That has burdened hospitals in at least half the state and created fiscal question marks. At Monday’s board meeting, leaders acknowledged that in two ways:

· “We’ve taken great precautions for this in-person meeting today,” said Speaker Dennis Bonnen, a co-chairman of the board, noting that all 10 lawmakers had taken tests for the virus before the meeting. The results were all negative, he said. Though members still were seated close to one another, Bonnen pointed to plexiglass dividers installed on the dais of the House Appropriations Committee’s meeting room. The dividers are about 4 feet tall.

· Hegar, though providing some good news, had a caution. “There remains a great deal of uncertainty about the future economic outlook here in Texas, the United States and obviously worldwide,” he said.

In late July, Hegar slashed 9.5%, or $11.6 billion, from his earlier forecast that Texas would have $121.8 billion of general-purpose revenue in the 2020-2021 cycle.

Factored in were a $1.2 billion hoarding of federal coronavirus aid, aimed at schools but which state leaders used to reduce this cycle’s state education obligations, and more than $2.2 billion of property-tax developments favorable to the state.

On Monday, though, Hegar said the current cycle’s shortfall “should be much more manageable.”

He credited the Texas consumer. Sales tax receipts may have dipped in some sectors of the economy, such as oil and gas production, Hegar acknowledged. But they’ve soared in retail, and “are outpacing expectations,” even if those admittedly were lowered because of mass layoffs in the spring, he said.

From March through August, sales tax receipts decreased by 4.8% from a year earlier, Hegar noted.

“For comparison, our hotel occupancy tax, alcoholic beverage taxes and severance taxes were all down by more than 40% in the second half of fiscal 2020,” he said.

Online retailers, from whom Texas only for the past year has been fully collecting sales tax, and home improvement and building supply stores, sporting goods stores and groceries have spun off more sales tax than in the past, he said.

While the outlook “is not nearly as dire as we feared in July,” budget writers won’t have a nearly $5 billion General Fund balance to start with, as they did last time, Hegar said.

On the spending cap, board members unanimously chose 7.06% as the maximum growth for spending of state tax dollars in 2022-23 that have not been constitutionally dedicated to a specific purpose.

Board director Jerry McGinty, who leads a staff that helps lawmakers write the budget, said nearly $99 billion of current spending is subject to the cap.

The 7.06% growth factor – an estimate by Hegar’s office of state population growth and inflation – would allow about $7 billion more in the next two years, he said.

That would only be possible, though, if Hegar in January issues a more rosy two-year revenue estimate.

Texas voters approved the spending cap in 1978, in an era of raging inflation.

Only rarely, though, does it have much relevance to the budget debate in Austin, said Eva DeLuna Castro of the liberal group Every Texan.

“Our tax system is outmoded, it gets at goods, not at services,” she said. “It doesn’t grow with the economy.”