The session began on Tuesday, January 8, and things are off to a busy start with the election of a new Speaker, Representative Dennis Bonnen of Angleton, the reveal of new biennial revenue estimate by Comptroller Glenn Hegar, and the debate over the rules that will govern the House this upcoming Session. I am looking forward to a productive Legislative Session on behalf of my constituents.
On Monday, January 7, Comptroller Hegar released the biennial revenue estimate for the state, $119 billion. This is $14 billion more than the $105 billion estimate prior to the 2017 Session. The biennial revenue estimate works as the ultimate cap on our state budget, because, thankfully, the Legislature is bound by the Texas Constitution to pass a balanced budget, meaning we can spend no more than we bring in. These numbers show healthy economic growth, but we can never take the good times for granted, as Texas learned the hard way during the oil bust of the 1980’s.
As responsible adults, there are certain guiding principles we are all bound by, such as making more than you spend or paying off high-interest debt before low-interest debt. Like any family, the state needs to work with what it has and get more creative in finding solutions. As a State Representative, but even more so as a taxpaying citizen, I want to see Texas make the best financial decisions possible to preserve a strong state economy and state government for the benefit of our children and grandchildren.
In 1988, voters approved a Constitutional Amendment creating the Economic Stabilization Fund, also known as the Rainy Day Fund. This fund is the state’s savings account. The Economic Stabilization Fund’s Cap is equal to 10% of the previous biennium’s general revenue deposits. Today that would be a cap of $16.9 billion. The Economic Stabilization Fund’s current balance is $12.5 billion. The primary source of funds for the Economic Stabilization Fund was 75% of oil and gas severance tax revenues above 1987 levels. However, in 2015 voters passed a Constitutional amendment to dedicate half of that revenue to the state highway fund for transportation needs.
I filed House Bill 690 which requires that the state prioritize the payment of outstanding debts if the state savings account, the Economic Stabilization Fund, reaches its Constitutional cap. Current law says that if this cap is reached, the excess funds would be returned to General Revenue for additional spending. HB 690 would instead require that excess funds be used to pay outstanding state debts. It does not specify which debts to prioritize. The Comptroller would have the ability to prioritize which debts to pay first: those with higher interest, those near the end of their payment term, or paying down debts with the highest principal amounts. We should not be advocating for additional spending with excess funds until our debt is addressed.
Over the previous interim you may have heard about Comptroller Hegar’s idea to invest a portion of the Economic Stabilization Fund and dedicate a portion of the resulting investment fund’s value to the payment of ongoing state expenses, such as pension obligations or maintenance on state buildings. I filed House Joint Resolution 42 to take the concept a step further and fully separate an endowment fund from the Economic Stabilization Fund. I believe both HJR 42 and Comptroller Hegar’s idea can work together to put Texas on stronger financial footing.
The Economic Stabilization Fund currently has a sufficient minimum balance of $7.5 billion. The sufficient minimum balance is determined before Session and acts as the minimum floor for the fund needed to keep positive credit ratings and address potential emergencies. In other words, with $12.5 billion currently in the Economic Stabilization Fund, it is presently $5 billion over what is minimally necessary. As long as the Legislature works to maintain a good sufficient minimum balance, Texas will still have plenty of money in the Economic Stabilization Fund to cover credit ratings and emergencies, while allowing the excess funds to work better for taxpayers.
Here are some of the comparisons between the two ideas. The Comptroller’s fund would be made up of the Economic Stabilization Fund in excess of the minimum balance prescribed by the Legislature to maintain our credit ratings and cover any foreseen expenses. The Comptroller’s fund would be maintained through continued investment of oil and gas severance tax revenues if the Economic Stabilization Fund is above its minimum balance. Every biennium the Comptroller would then take a portion of the 5 year average total value of the fund and distribute these funds to be used for certain dedicated purposes.
My legislation, HJR 42 by contrast would be a one time investment of $1 billion from the Economic Stabilization Fund. This amounts to only 0.4% of the total Texas Budget from the previous biennium. It’s growth mechanism would be maintained through continued self-reinvestment. Over time that reinvestment will be worked down to a 50% reinvestment threshold, which would be maintained from there to keep the fund growing. The other percentage of investment income, averaged out over five years, would be distributed to various state needs such as general revenue, some back to the Economic Stabilization Fund, investment in education, and payments to lower property taxes. Investments under HJR 42 would be governed by the reasonably prudent investor standard and at least 10% of the investments must be in Texas based companies. Investments under HJR 42 would be made conservatively and responsibly by the Comptroller with the goal of achieving returns that at least outpace the rate of inflation in order to maintain and increase the buying power of these dollars. These modest returns could make a big difference in available funds to the state when talking about an investment worth billions of dollars. Most states already have endowment funds. It is time for Texas to put its money to work for Texans.
I have had numerous conversations with the Comptroller’s office on this topic. I fully support his idea to address ongoing state expenses, and I believe his endowment fund concept and HJR 42 can work hand in hand without conflict to put our state on strong financial footing going forward. They have different funding mechanisms and different strategies but similar end goals to reduce the state government’s burden upon taxpayers.
I believe that prioritizing the payment of debts in HB 690 and the creation of a self-feeding endowment fund in HJR 42 are positive steps to continue to keep Texas the financial and economic envy of the United States. Moreover, we must strive to put the state in a position to be more financially responsible with taxpayer dollars and maximize the returns for those dollars.