Roads Funding Plan Draws Debate on State's Piggy Bank

Wednesday's hearing at the Capitol was supposed to be about increasing funds for the Texas Department of Transportation, but it veered into a debate over whether Texas is saving enough for the future.

The Senate Finance Committee hearing was focused on one bill, Senate Joint Resolution 2, from Senate Transportation Committee Chairman Robert Nichols, R-Jacksonville. The measure would split in half the portion of severance taxes levied on oil and gas production that currently goes into the state’s savings account, the Rainy Day Fund. If Nichols’ plan passes, that revenue would be split between the Rainy Day Fund and the highway fund. Implementing the change would require amending the state’s Constitution, which would require voter approval.

TxDOT could see close to $1 billion in additional revenue each year if lawmakers and voters ultimately back the measure. Earlier this year, the agency told the Legislature that it needed $4 billion annually in additional revenue to maintain current congestion levels. But the budget deal legislators passed last month only gave the agency an extra $400 million for the 2014-15 biennium.

Senate Finance Committee Chairman Tommy Williams, R-The Woodlands, has been rallying support for SJR 2 and publicly urged Gov. Rick Perry to add transportation funding to the special session agenda. Perry did that on Monday.

Williams said he hopes the committee will approve the resolution on Friday so that the full Senate can consider it early next week.

Nichols said the measure would get the state closer to a pay-as-you-go system on road construction and maintenance. He stressed that it would not deplete the Rainy Day Fund’s balance, just slow its growth. Under the proposal, the Rainy Day Fund would have an estimated balance of about $7 billion in 2015, instead of the $11.8 billion currently projected.

“The spigot that pours into that wouldn’t be pouring in quite as fast,” Nichols said.

Several senators on the committee expressed guarded support, even though the proposal would not completely address TxDOT’s funding issues.

“I think this is a great idea,” state Sen. Robert Duncan, R-Lubbock, said. “I’m just trying to understand how to explain it when I go back home.”

State Sen. Craig Estes, R-Wichita Falls, asked what amount lawmakers should aim to keep in the Rainy Day Fund.

In recent years, the Rainy Day Fund’s balance has soared during the state's oil and gas drilling boom. Some Republican lawmakers, including Perry and state Rep. Van Taylor, R-Plano, have argued that lawmakers need to maintain a minimum balance in the fund to protect the state’s credit ratings. Comptroller Susan Combs, among others, has noted that rating agencies consider a state’s overall financial situation and that none have ever publicly said states should retain a specific level of savings.

Williams argued that Nichols’ measure would allow the Rainy Day Fund to maintain a “healthy balance" and would not jeopardize the state’s credit ratings.

Referring to Taylor, Williams said, “There’s a House member, one House member from Plano in particular, who’s opined on this a lot, and I tell you I don’t think he knows what he’s talking about.”

State Sen. Dan Patrick, R-Houston, said he liked Nichols measure but planned to try to amend it to require that tax revenue currently slated for the Rainy Day Fund would only be diverted to the highway fund if the fund’s balance had reached a certain level. Without that proviso, Patrick warned voters may not approve the measure, or another one set for the November ballot to create a fund for water projects.

“If we don’t suggest to the public that we’re going to have a certain reserve in our bank, I think it could impact all these issues on a ballot,” Patrick said.

Williams said Patrick’s amendment could hurt the state’s credit rating if rating agencies believe the policy could block lawmakers from tapping the fund for critical priorities. Patrick said his amendment would not tie lawmakers’ hands and would only affect how oil and gas tax revenue is split between the Rainy Day Fund and the state’s highway fund.

Nichols said a discussion of what the minimum balance in the state’s savings account should look like is too complex to have in the remaining days of the special session.