Texas Has An Unexpected 8.8 Billion Surplus

Of course, that could reflect poorly on the state’s budgeting process.
Tue January 8, 2013 4:30 am
AP Images | Eric Gay

Looks like Texas is rich again. On January 7th, Comptroller Susan Combs projected that the state would have $101.4 billion available for general spending in the 2014-2015 biennium. That’s higher than expected,  a huge jump from previous biennial revenue estimate—more on that later—and includes an $8.8 billion surplus left over from the last cycle. 

A turnaround, in other words. The jump is so dramatic that it’s bound to revive debates over the harsh budget cuts of the last legislative session. It might even draw new attention to Texas’s idiosyncratic budgeting process. But first, what happened? Let’s break down the figure, keeping in mind that all of these figures are projections, and some of them don’t add up due to rounding. 

The bulk of the state’s general revenue money, as usual, will come from taxes and various fees; the comptroller projects that Texas will collect $96.2 billion over the 2014-2015 biennium. Of that, approximately $85.6 billion is tax revenue. The remainder, some $10.6 billion, is a grab bag—licenses, payments, penalties, lottery proceeds, and so on. 

Of the total general revenues, $3.6 billion will be transferred to the “rainy day” fund, or, as it’s formally known, the Economic Stabilization Fund, leaving Texas with $92.6 billion in net revenue. However, the state still has $8.8 billion left over from the current biennium (which covers fiscal years rather than calendar years and therefore ends on August 31st). That puts the total into the triple digits—the $101.4 billion.   

Texas’s coffers are flush because tax collections are up in most categories, which is a sign that the overall economy is in recovery. The previous projection came at a time when the entire country was grappling with a prolonged economic downturn. Texas’s economy was stronger than most throughout that period, but 2008, 2009, and 2010 were nonetheless relatively lean years. Consumer spending was down, car sales were slow, oil and gas prices had faltered, and housing starts were in the doldrums. 

By January 2011, the last time Combs gave a biennial revenue estimate, it was apparent that Texas would end the 2010-2011 biennium in the red; the previous budget had been overly optimistic. For 2012-2013, the comptroller projected further lean times. Tax collections would still be relatively low, and the state was going to have to pay for the looming shortfall, which was going to be more than $4 billion dollars. 

As it turned out, tax receipts were higher than expected. That’s why the projections for the next biennium have rebounded. The projected tax revenue for 2014-2015, the $85.6 billion figure mentioned before, is nearly $20 billion greater than the original 2012-2013 estimate . Sales taxes in 2014-2015 are projected to be $54.9 billion; the 2012-2013 projection was $42.9 billion.

The new estimate means that when the 83rd regular session of the Texas Legislature begins, tomorrow, both Republicans and Democrats are going to be talking about what happened last session, when Republicans (who control both houses of the Lege) were determined to respond to the skimpy projections with extreme fiscal discipline. They eventually took several billion dollars out of the rainy day fund, but they whittled state spending in most areas, and decided not to pony up the expected amount of money for Texas’s growing public schools—a gap of about $5 billion, or several billion dollars less than the $8.8 surplus the comptroller just announced.

Rick Perry and David Dewhurst, the governor and lieutenant governor respectively, quickly released statements saying that the new estimate proves tightening the belt was the right approach; the state got through the worst of the recession, and is in a stronger position now. Democrats, however, will see it differently. Mike Villareal, a state representative from San Antonio, was among the first to pounce. “The report is further proof the legislature didn’t have to cut education, push schools to crowd more kids into full classrooms, and make college more expensive,” he said in a statement. 

Combs, at a press conference announcing the estimate, said that the state’s economic indicators over the past few years tell a story of “inherent financial strength,” but also volatility, as in the jagged graph of the annual percent change in the sales tax. Consumer spending, she said, is solid, although people are still holding off on big purchases like cars.  Businesses, however, are still spending tentatively, for any number of reasons: gloom and doom in Europe, gridlock in Washington, regulatory uncertainty, and so on.  

Some uncertainty, though, comes from Texas’s budgeting process itself. Texas is one of the few states where the legislature doesn’t meet every year. Texas is also one of the few states without a personal income tax, which is why more than 60% of its tax revenues come from the sales tax. In other words, Texas legislators have to write a budget that covers two years, takes effect months after the regular session ends, and is based on projections about an unpredictable revenue stream. The 2012-2013 biennial revenue estimate proved how difficult that can be. Combs’ original projection, in January 2011, was that the state would have $72.2 billion available for general revenue spending. In May 2011, the comptroller’s office revised the figure upward, by $1.2 billion. The projections were still way off: the new biennial revenue estimate, the one that was just released, says that the state ended up collecting $90.2 billion that could have been used for general purpose spending.  

Even if the abstemious original estimate helps explain why Texas now has a $8.8 billion surplus, that’s troubling. This is how Dianne Delisi, a Republican and former state representative from Temple, put it in 2011:  “It’s not policy that drives the budget, it’s the budget that drives policy.” If so, it would help to know what the budget is. Several legislators have called for a change, so that the lege could at least meet for a budget session in off years. Richard Peña Raymond, a Democrat from Laredo, has already filed a bill to that effect. At least this time

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