Comptroller Glenn Hegar may have given the House a new weapon in the fight over tax cuts by reminding the state leadership that there are obligations that, if not adequately addressed, might harm Texas’ bond rating. One of those items is the rapid growth of state debt service, which has increased by 54 percent over the past decade and now requires $5 billion in expenditures. Some in the House leadership have told me they would like to forego tax cuts in favor of spending the money on reducing the state debt load.
Hegar’s May 4 letter was neutral on the House sales tax cut proposal and the Senate’s property tax cut. But he warned Governor Greg Abbott, Lieutenant Governor Dan Patrick and Speaker Joe Straus that final budget negotiations should not just focus on cutting taxes.
As Comptroller, I want to emphasize that in addition to tax cuts, it is also important to consider the longterm challenges affecting the state’s balance sheet and credit ratings. Although these issues are long-term in nature and extend beyond the upcoming two year budget horizon, they must be addressed to ensure the state’s continued good financial health and condition. Bear in mind that the state currently enjoys the highest credit ratings from the major rating agencies, which translates into lower borrowing rates for state issued obligations and less costs to taxpayers.
Items on Hegar’s list include:
- A need for $5 billion in highway funding for bridge and roadway maintenance. At present negotiations are under way for the final version of legislation to dedicate half the motor vehicle sales tax revenue to highways.
- Unfunded liabilities in the retirement funds for teachers and state employees. HB 9 by Dan Flynn is meant to put the employee retirement system on the path to solvency. Currently, it has passed the House and is pending in the Senate State Affairs Committee. House budget writers have promised to fully fund $758 million in the teacher system’s health care program.
- Texas general obligation debt has grown from $7 billion to $15.09 billion over the past decade, Hegar wrote.
- The Texas Tomorrow fund guaranteed college tuition program has an unfunded liability of $568 million and will start seeing shortfalls in 2019. Because the fund has the full faith and credit of the state through the Constitution, any shortfalls will become an automatic draw on state general revenue.
- Deferred maintenance of state facilities with a cost as high as $1.5 billion.
The House and Senate budget plans will leave almost $19 billion on the table because of an unwillingness to bust the spending cap. But these are one-time expenditures that would go a long way toward investing in the future of the state. They also are the responsible adult thing to do.
UPDATE: Statement from Straus: “The House has worked to address our long-term obligations throughout this session. We have addressed shortfalls in retired teachers’ health care and the long-term solvency of the state employee pension system, and we’ve also voted to put more resources into transportation and deferred maintenance. In addition, the House has approved a constitutional amendment that would allow the state to retire debt more quickly. The House’s record this session reflects our commitment to a disciplined, transparent budget that invests in key priorities.”