Updated at 6:05 p.m.: to include numbers on declining oil rigs, consumer spending, restaurant reservations and hotel room bookings.
AUSTIN — The coronavirus outbreak is creating a budget crisis for Texas of historic proportions, as sales tax collections for the lock-down month of April slumped by the biggest percentage – 13.2 – seen in a decade and smaller sources of revenue such as hotel occupancy and booze taxes racked up their steepest declines on record.
On Monday, Comptroller Glenn Hegar released monthly tax-collection data that for the first time captured the fiscal carnage caused by the COVID-19 pandemic. The picture was grim.
As expected, sales tax, the state’s revenue workhorse, got clobbered.
Hegar said the worst loss of sales-tax revenue came in the oil and gas sector, and the separate state taxes on production of oil and natural gas saw revenue declines, respectively, of 75% and 76%.
Motor vehicle sales and rental taxes, which together with general sales tax generate nearly two-thirds of all state tax collections, yielded $265 million last month, a decline of 38% from May 2019.
Gov. Greg Abbott’s lifting of stay at home orders should lead to a slow recovery by the sectors of the Texas economy most badly battered by the outbreak of the novel coronavirus, such as restaurants, recreation services and bricks-and-mortar retailers, Hegar said in a written statement
“But operations resuming at reduced capacity will result in continued reductions in employment, income and activity subject to sales tax for months to come,” said Hegar, the state’s chief tax collector and revenue estimator.
The majority of May sales tax revenue is based on sales made in April and remitted to Hegar’s office in May. Widespread social distancing requirements were in place across much of the state throughout April.
April sales and the subsequent collection of the state’s 6-1/4% sales tax on them would have had to decline year-by-year by about 15% to have been an all-time record drop.
The actual decline was sobering, though.
In May 2019, the state took in $3.01 billion of sales tax but last month the haul shrank to $2.61 billion – a 13.2% decrease. It was the steepest year-over-year decline since January 2010, amid the Great Recession. Then, the state took in $1.65 billion of monthly sales tax, a 14.2% drop from the $1.93 billion collected in January 2009.
“Significant declines in sales tax receipts were evident in all major economic sectors, with the exception of telecommunications services,” Hegar said, waving at a bright spot – expanded internet coverage and cellphone service as students and families worked from home.
“The steepest decline was in collections from oil and gas mining, as energy companies cut well drilling and completion spending following the crash in oil prices,” he said.
In addition to the COVID-19 outbreak, which has reduced driving and other use of fossil fuels, a recent feud between Russia and Saudi Arabia over whether to curtail oil production to put a floor under falling prices help send the price per barrel to $20, and even lower, from about $60 a barrel at the start of the year.
As of Friday, the number of rigs in Texas was 127, down by 11 from the previous week, according to Houston-based oilfield service firm Baker Hughes.
And although Texas accounts for 42% of the U.S.’s 301 active rigs, its latest weekly rig count is the lowest Hegar’s researchers have been able to identify in data going back to 1968.
Throughout April, businesses beyond the Texas oilpatch suffered.
“The business closures and restrictions and stay-at-home orders due to the COVID-19 pandemic spurred deep drops in collections from restaurants, amusement and recreation services, and physical retail stores,” Hegar said.
“These declines were offset in part by increases from big box retailers and grocery stores that remained open as essential businesses, online retailers and restaurants that could readily pivot to takeout and delivery service,” he said.
From late March through April 15, consumer spending in Texas was down by 30% compared with early January, according to Harvard researchers with Opportunity Insights. But then people began receiving stimulus checks from the federal government, and by the end of April, the decline in Texans’ purchases shrank to 20% or less from the start of the year.
At Texas restaurants, the pandemic was disastrous. By March 21, OpenTable.com, which handles online reservations for many restaurants, there was a 100% decline in reservations in Texas. That persisted until May 1. As of May 22, reservations in Dallas still were down by 68% compared with a year earlier.U.S. hotel occupancy was only 21% for the week ending April 11, a record low, according to STR.com, which tracks the hospitality industry.
U.S. hotel occupancy was only 21% for the week ending April 11, a record low, according to STR.com, which tracks the hospitality industry.
Hegar released these dismal numbers on other May tax collections, based on April activity:
· Motor fuel taxes, $221 million, down 30% from May 2019 and the steepest drop since 1989.
· Hotel occupancy tax, $8 million, down 86% from May 2019 and the steepest drop on record in data going back to 1982.
· Alcoholic beverage taxes, $28 million, a 76% decrease from a year earlier and the steepest drop on record in data going back to 1980.
· Oil production tax, $90 million, the lowest amount since July 2010. The 75% decline from May 2019 is the most precipitous since a 77% decline in March 1988, amid the Texas oil and real estate bust of the 1980s.
· Natural gas production tax, $31 million, a decline of 76% from a year earlier.
Figures were not available for the business-franchise tax, or “margins tax,” because Hegar earlier extended the filing deadline to July 15, from May 15, he noted.
While total state tax collections for May decreased by 50% from last year, much of that was because most businesses usually pay their franchise-tax bill in May. If margins tax receipts had held steady to May 2019 levels, the dip in overall tax collections last month would’ve been about 15%.
The state’s emergency or rainy day fund has a balance of about $10 billion. In addition, the state has received federal aid from coronavirus bills passed by Congress – and could receive more in coming months.
But state GOP leaders have asked state agencies to submit proposals for how to trim current spending by 5%. Leaders are struggling to preserve boosts in state funding of public schools that the Legislature approved last year. Even when they were okayed, as part of a school finance overhaul, critics warned that lawmakers had not provided new sources of revenue to keep giving schools more in future years.
The pandemic will make it hard to keep the commitment, though Abbott, Lt. Gov. Dan Patrick and Speaker Dennis Bonnen exempted school funding from their recent request for lists of spending cuts.
