Lawmakers Hope to Tap Rainy Day Fund, Duck Spending Cap

Two top goals of many Texas lawmakers this legislative session — passing a budget they can call fiscally responsible and tapping billions of dollars sitting in the state’s Rainy Day Fund — may be tougher than they previously thought.

Blame the state’s spending limit, a convoluted rule written in the state constitution that usually has little impact on the budget. This year, lawmakers risk bumping up against that limit, a situation that has prompted hopes that outlays from the Rainy Day Fund will not be subject to the limit.

“The concern will be the treatment of one-time money that comes out of the Rainy Day Fund,” Lt. Gov. David Dewhurst told The Texas Tribune’s Evan Smith Thursday morning during a TribLive event. “We’re talking with our lawyers right now on how that will count toward the spending cap.”

According to the state constitution, certain kinds of state spending cannot grow faster than the state’s economy. Lawmakers have long used estimates of growth in Texans’ personal income as a proxy for the growth in the state’s economy to determine the limit. That growth rate is typically high enough that the portion of state spending subject to the limit in a biennium is routinely billions of dollars below the limit.

This year is different because of the unusual budget situation facing lawmakers — a comfortable amount in the state's reserves following a session where lawmakers enacted large cuts. A diverse group of lawmakers have signaled an interest in spending more than the spending limit might allow.

The constitutional spending limit applies to state spending that comes from tax revenue that is not dedicated by the state constitution. The legal debate over the Rainy Day Fund is based on the definition of “dedicated.”

Most of the money in the fund comes from a portion of oil and natural gas production taxes that are dedicated to it by the Texas Constitution. That’s not the kind of “dedicated” that exempts spending from the spending limit, Ursula Parks, director of the Legislative Budget Board, told the Senate Finance Committee on Wednesday.

“Revenue in the Rainy Day Fund is subject to the spending limit,” Parks said.

She explained that the dedication of tax money to the Rainy Day Fund is essentially a transfer from one state account to another. The “dedication” exemption in the state’s spending limit applies to tax revenue that the constitution says must be spent a certain way, she said. The Constitution doesn’t say how the Rainy Day Fund must be spent.

“The transfer is directed but nothing of the transfer is dedicated by the constitution,” Parks said.

Some remain unconvinced. Dewhurst said Thursday he was hopeful that the spending limit would not apply to some large expenditures out of the Rainy Day Fund, such as funding the state’s water plan or transportation. Those two items are near the top of a list of proposals lawmakers are considering this session regarding the Rainy Day Fund.

Technically, busting the spending cap is easier than tapping the Rainy Day Fund. The former requires support of a simple majority of lawmakers in each chamber. The latter takes a vote of as much as two-thirds of both chambers, depending on how the money will be used.

Yet politically, many lawmakers may be more wary of how a vote in favor of busting the spending cap will be used against them in the next election than of one allowing the use of money in the Rainy Day Fund. 

Dale Craymer, president of the Texas Taxpayers and Research Association, said using the Rainy Day Fund for tax relief might be the most politically viable proposal, as certain kinds of tax relief are not subject to the spending limit.

On Wednesday, state Rep. Donna Howard, D-Austin, filed a bill that would exempt the Rainy Day Fund from the state’s spending limit. She said the bill clarifies how the Legislature originally intended for the fund to be used.

“We find ourselves in a position of exceptional economic growth, coming on the heels of massive cuts,” Howard wrote of the bill on Facebook. “We need the flexibility to bring services back to where they need to be, and my bill seeks to give us more room within which we can do our job to represent the best interests of our state and citizens.”