CORONAVIRUS
Texas comptroller records 9 percent drop in largest source of funding for state budget
Texas records its biggest sales tax revenue drop in a decade.
Sales tax revenue fell in April by just over nine percent, its biggest decline in a decade, the Texas comptroller said Friday.
The historic drop is an early glimpse into the financial impacts of the coronavirus pandemic, which forced Texans indoors and all but shuttered the economy. Sales tax is the largest source of funding for the Texas state budget.
Comptroller Glenn Hegar had warned of a steep decline, declaring last month that the state was entering a recession. April’s 9.3percent drop from the same month last year is likely just a preview of the damage to come, his office said Friday, since most of April’s totals are actually from sales made in March.
“The steepest declines in tax remittances were from businesses most quickly and dramatically affected by social distancing,” Hegar said in a statement. But he said those losses were “offset by increases from big-box retailers, grocery stores and online vendors.”
Revenue from other major taxes was also down, including a $164 million hit in motor vehicle sales and rental taxes. That is the largest it has fallen since 1983. Taxes on hotel occupancy and the sale of alcohol were down, as were taxes for oil and gas production, which has slumped amid a global oil glut.
The dual blow from the pandemic and the oil slump have crippled spending and travel. Unemployment claims have skyrocketed, hotels have been empty and most local businesses have been forced to close under a statewide lockdown that was partially lifted Friday.
“It’s hitting everybody hard,” said Bennett Sandlin, head of the Texas Municipal League. He said mayors are predicting bigger drops next month and are plan
ning for a more prolonged slowdown than originally predicted.
Going into this fiscal year, officials had been planning for a 5 percent increase in sales tax revenue. Eva DeLuna Castro, a budget expert at the left-leaning Center for Public Policy Priorities, said the numbers so far show the state will likely come in about $1 billion under that projection.
A fuller picture is expected this summer, when Hegar has said he will lower revenue forecasts.
The drop in April was the largest since January 2010, when the nation’s financial crisis hit Texas hardest. Hegar said the effects from this slowdown are more immediate and will likely drag down sales tax revenue for “many months.”
Sales tax revenue makes up about 57 percent of all tax collections, typically bringing in just under $3 billion monthly. In April it brought in $2.6 billion.
“Sales tax is still the most important way we pay for public education, for higher education and health care,” DeLuna Castro said.
Hegar has said he can use the state’s rainy day fund to plug temporary shortfalls until lawmakers return to Austin next January. It has about $8.5 billion available.
The state also has $3 billion in unallocated funds and has received about $8 billion in federal relief funding for the pandemic.
House Speaker Dennis Bonnen, R-Angleton, called last month for five percent cuts to all state agencies in order to stave off larger cuts going into the next two-year budget cycle.
“Taking action now could significantly reduce the need for more draconian cuts a year from now,” he wrote in a letter to lawmakers.
The biggest shortfalls to sales tax revenue came from restaurants, movie and performance theaters, theme parks, fitness centers and boutique retail shops, Hegar said. It will be a few months before the state has the exact breakdowns.
Some of those businesses were allowed to begin reopening Friday, at reduced capacity. Gyms and theme parks, as well as hair salons and other hands-on businesses, are still closed under an emergency order from Gov. Greg Abbott.