AUSTIN — Comptroller Glenn Hegar on Monday issued a revised revenue estimate that gives lawmakers several billion more dollars to spend as they wrap up the next state budget this month.
Hegar cited improved performance of the state economy, as COVID-19 restrictions began to be lifted over the past two months and immunizations improved consumer confidence.
“There’s a lot of built-up [demand by] people that want to get out and engage in the economy, which is good, as we’ve seen our case counts go down and hospitalizations go down,” Hegar said during a virtual news conference, called to explain his update of his January revenue estimate.
The estimate sets the ceiling on what lawmakers can spend in the budget.
Under the state Constitution, the budget is the only bill the Legislature must pass before the session ends May 31. And a “pay as you go” provision, approved by voters in the 1940s, limits lawmakers to spending only those revenues forecast by the comptroller.
Hegar said that he sees an additional $3.1 billion in general-purpose revenue for the 2022-2023 cycle.
And for the first time since the pandemic began, his tallies put the current cycle’s budget in the black — a turnaround of nearly $1.7 billion since January, and more than $5 billion since July.
Together, those positive developments should allow lawmakers to continue the enhanced funding of teacher salaries and public schools that they began in 2019, and consider other steps, he said.
Both chambers already have passed budgets for the next cycle. However, the new revenue estimate could enable House-Senate budget negotiators, who have just begun to meet, to make late-hour spending increases for both the state workers’ pension fund and higher education, some analysts predicted.
For several years, Hegar has been encouraging lawmakers to improve the actuarial soundness of both the Teacher Retirement System and the Employees Retirement System. He says Wall Street bond-rating firms are closely watching.
“This announcement gives them the tools that they need to deal with, say, for example, ERS pensions,” Hegar said, referring to lawmakers.
He then made a pitch for Senate Bill 321, which would try to commit the state to a path that would pay down the state employee pension liability in 54 years.
In early March, ERS executive director Porter Wilson told House budget writers that without any increase from the state, the pension part of the fund would run out of money by 2061.
Hegar didn’t mention that the ERS bill by Houston GOP Sen. Joan Huffman also would create a new class of state employees, with no defined benefit pension plan. Those hired on or after Sept. 1, 2022, would instead receive a “cash balance retirement plan,” similar to defined-contribution plans that have become common in the private sector.
Hegar called the Senate-passed bill “extremely important for the overall credit rating of the state.”
In a letter Monday to Gov. Greg Abbott, Lt. Gov. Dan Patrick and Speaker Dade Phelan, Hegar said he is optimistic about economic growth because of the rollout of COVID-19 vaccinations in Texas and reopenings of businesses in the state and elsewhere in the U.S.
But in the letter and at his news conference, Hegar also sounded a note of caution.
“Some nations are experiencing their highest hospitalization and fatality rates of the entire pandemic,” he wrote the “Big 3” leaders. “Supply-chain bottlenecks remain a problem for many industries, and rising case counts in other nations could make it more difficult to resolve issues connected with trade.”
For the current budget cycle, Hegar reversed a $946 million shortfall in general-purpose revenue that he projected in January. The Republican comptroller said he expects an ending balance of $725 million when the cycle ends Aug. 31.
He also estimated the state will have $115.7 billion of discretionary funds available in the 2022-2023 cycle — an increase of $3.1 billion from January.
Bolstering Hegar as he upped his revenue estimates was April’s strong sales tax report. Last month, the sales tax, Texas’ revenue workhorse, spun off $3.4 billion, a single-month record. April’s collections, based on March transactions, soared 31.4% from the $2.58 billion collected a year earlier, at the height of the pandemic.
“Economic activity in the state — and across the country — has accelerated,” he said in a news release.
Including federal funds and interest on investments, Hegar said he now foresees $294 billion of “all funds” as available in the next cycle. Included in that estimate is some of the $11.2 billion in federal funds for education that the Big 3 leaders last week announced they would release to help students recover from the pandemic, he said.
Recent increases in oil prices — and a slight uptick in the number of rigs — have made Hegar more bullish about how much money the oil and natural gas severance taxes will spin off. He’s now forecasting West Texas Intermediate will fetch an average of $60 a barrel in fiscal 2022, and $62 a barrel the following year, he said.
In turn, that allowed Hegar to project nearly $5.9 billion of transfers of severance tax receipts next cycle to the highway fund and the rainy day fund, up by $1.1 billion from his January estimate. By August 2023, unless lawmakers spend more of it, the rainy day fund should have $12.12 billion, he said.