Texas facing $4.6B shortfall
Coronavirus slowdown, oil glut combine into grim estimate looming over the state budget
Texas Comptroller Glenn Hegar on Monday predicted a $4.6 billion shortfall by the end of the state’s two-year budget cycle as the economy struggles to emerge from the coronavirus pandemic and recent volatility in the oil market.
The grim but unsurprising budget estimate comes after months of limited activity, even as state leaders eased social distancing measures meant to slow the spread of the virus. Hegar said the state can stay afloat through next year, but from there, it’s hard to know.
“I do think we are going to be able to manage through this current biennium,” he told members of the Legislative Budget Board in an update. “But the big question is: How long will the pandemic continue and how are businesses and people going to respond?”
The estimate sets up a looming debate among lawmakers over whether to tap into the state’s substantial savings, known as the rainy day fund, and by how much.
Texas has one of the healthiest reserve funds in the country, according to the Tax Foundation, and the state will have about $8.7 billion available when lawmakers reconvene in Austin next spring. Republicans have begun calling for budget cuts.
The state was expecting to bring in $122 billion in revenues for the biennium. Texas’ current budget is $251 billion, including state and
“The big question is: How long will the pandemic continue and how are businesses and people going to respond?”
Texas Comptroller Glenn Hegar
federal expenses.
“We’ve been prudent with our spending. We do have significant reserves. But would you agree that we will have to tighten our belts next session?” said Sen. Jane Nelson, R-Flower Mound.
Hegar, a Katy Republican, said he agreed.
Federal aid a question mark
Hegar’s outlook includes several large caveats. It does not factor in cuts to several state agencies, which Republican leaders have called for and are currently under review. It also does not include much of the federal stimulus funding that the state has received or any potential future infusions.
The comptroller’s office expects more federal dollars, but there is uncertainty about how much; federal lawmakers are debating another coronavirus relief package. It’s also unclear how much flexibility the state will have in spending the $6 billion that already came in to fill budget gaps.
Perhaps most importantly, though, it assumes that the state can take control of the pandemic in the coming months and avoid overwhelming the health care system. Many regions are buckling under current outbreaks, with state and federal resources pouring in to keep hospital beds staffed and COVID-19 testing in place.
Hegar’s estimate also assumes that business restrictions will be further lifted by the end of the year, with activity picking up short of pre-pandemic levels by next fall, when the current biennium ends.
Should infections continue rising and economic activity fails to rebound, Hegar said, revenue collected this biennium could be much lower.
“In the coming months, some economic indicators will establish new records for rates of growth, but those records will be on the back of this year’s unprecedented declines,” Hegar said in a statement. “The rebound will leave many measures of economic health below pre-pandemic levels. Consumers and businesses must be confident the virus is controlled before economic output, employment and revenues return to prepandemic levels.”
Before the pandemic hit, Hegar had been predicting a nearly $3 billion surplus by the end of the next fiscal year.
Hegar told the budget board that oil revenue to the state plunged in March and April but has partially recovered. Production, meanwhile, has dropped by 30 percent since the spring, he said.
Cuts proposed
Earlier this month, the state Health and Human Services Commission proposed more than $130 million in cuts in response to calls from Gov. Greg Abbott and other top Republicans. The cuts would include funding to critical programs such as women’s health, family violence, indigent health care, and oversight and administration of food stamps and Medicaid.
Health advocates have urged the lawmakers to block the cuts.
“This would be about the worst time imaginable for state budget writers to make things harder on Texas kids and families,” Stephanie Rubin, head of Texans Care for Children, said in a statement.
“State leaders should use the Rainy Day Fund and push Congress to boost funding to states during this crisis,” she said. “In particular, Congress should quickly provide additional health funding to states by increasing the federal share of Medicaid costs.”
Last week, 37 Texas organizations urged federal lawmakers to boost the amount of Medicaid funding they send to states as a way to maintain state services for Texans in the midst of the state’s revenue shortfall.