Budget Agreement Leaves About $8 Billion in Fund

As another legislative session draws to a close, Texas’ savings account is poised to remain more flush than Democrats and many Republicans in the Legislature had preferred at the beginning of the session.

After debating the issue for months, lawmakers moved forward with a budget deal Wednesday evening that includes tapping the Rainy Day Fund for $3.9 billion. That should leave the fund with about $8 billion under current projections.

That’s about $1 billion more than what Gov. Rick Perry has said the fund needs.

“The money’s there and it’s meant to be spent on things that we need to restore or replace or invest in,” said state Rep. Donna Howard, D-Austin. “There’s no reason for us not to be using it.”

The money in the fund, officially called the Economic Stabilization Fund, comes almost entirely from taxes paid on oil and gas production.

Every session, lawmakers view the amount in the fund based on how much the comptroller projects will be in it at the end of the next biennium. This session, that number was $11.8 billion.

Earlier in the session, budget leaders spoke about spending as much as $7 billion from the fund, mostly focused on infrastructure spending. In April, the Senate unanimously passed a measure that would have asked voters to approve $5.7 billion from the fund, mostly for road and water infrastructure projects, with $800 million for public education. The plan was dead on arrival in the House.

The supplemental spending bill the Texas Senate approved Wednesday includes tapping the Rainy Day Fund for $2 billion for water infrastructure projects and $185 million to cover costs related to wildfires in 2011. The bill, House Bill 1025, also takes $1.75 billion from the fund to undo an accounting gimmick lawmakers approved last session in which lawmakers delayed a payment to public schools by one month so it would be pushed into the next budget cycle.

When asked by another senator on Wednesday how much the deal would leave in the fund, Senate Finance Chairman Tommy Williams, R-The Woodlands, said: “I believe when we come back we’ll have about $8 billion in the Rainy Day Fund under current projects. I think it could be higher. Those numbers may be low.”

Indeed, the comptroller’s projection of the fund’s balance is rarely on target. Comptroller Susan Combs has said it’s difficult to accurately predict oil and gas activity two years out, making estimates of the fund’s future balance tricky.

Perry has said he believes the fund needs to maintain a balance that equals 7.5 percent of a portion of the state budget called general revenue, which typically makes up about half of the full budget.  That’s how much Perry and his staff has said the state needs in savings to maintain its strong credit ratings that allow it to borrow money cheaply. Ratings agencies have said they have no specific savings threshold for states.

Dick Lavine, a budget analyst with the liberal Center for Public Policy Priorities, noted that the state has had good credit ratings for years even though the Rainy Day Fund only recently grew large enough that it could satisfy Perry’s metric, thanks to an oil and gas drilling boom.

“We spent it down to near zero several times, and our bond rating stayed unchanged,” Lavine said.

Under Perry’s metric, lawmakers could spend $4.9 billion from the fund, leaving a $6.9 billion balance.

While the budget deal comes in $1 billion smaller than Perry wanted and even further off from what budget leaders in both the House and Senate have previously discussed, some conservative lawmakers and groups believe the $3.9 billion lawmakers are planning to spend is still too much.

“There is simply no excuse for lawmakers to tap the state’s savings account for water infrastructure projects when there is ample general revenue funds in the budget to pay for the state’s needs,” said Talmadge Heflin, a former legislator and budget analyst with the conservative Texas Public Policy Foundation. “The Legislature is simply failing to prioritize.”

Others argue that the state is being stingy and could hamper economic growth if it allows critical infrastructure needs to lag.

In an email to supporters Tuesday, Williams suggested that he has not given up on finding more funding for the Texas Department of Transportation in the session’s final days. The agency has said it is billions of dollars short in being able to meet the transportation needs of the fast-growing state.

“I am still trying to reach agreement with the House in the coming days to put more money in the budget for transportation,” Williams said. “As it stands now, we would run out of money for new highway construction after [fiscal year 2015] — and we can't allow that to happen.”