Rainy Day Fund takes center stage at first House budget hearing

Faced with a bleak fiscal forecast and the burgeoning needs of a growing state, Texas House budget writers on Monday spent much of their first meeting of the 85th Texas Legislature asking questions about the state’s savings account set aside for times of revenue shortfall.

“I think most of you are aware of the challenges we have going into this budget period,” said state Rep. John Zerwas, R-Richmond, the committee’s newly appointed chairman.

“We do have a daunting task” in allocating state money, said state Rep. Oscar Longoria, D-Mission, the committee’s vice chairman. “I’m confident we can roll out a budget that we can all be proud of.”

Budget writers have a lot less money this legislative session — almost 3 percent less than in 2015 — at their discretion when crafting the budget. That’s because a relatively sluggish economy and tax cuts from 2015 sliced into the revenue flowing into the state’s coffers, and a 2015 maneuver dedicating money to the state highway fund has left the state with about $5 billion that would be difficult to redirect to other needs.

The House’s base budget recommends spending $109 billion in state revenue, about $4 billion more cash than Comptroller Glenn Hegar recently predicted the state would have to haggle over. The House’s budget is about $5 billion larger than the Senate’s in terms of state revenue.

House leaders have called the Senate’s budget projections unrealistic, noting they do not cover many of the state’s health care costs and will probably require hefty cuts to programs. Senate leaders, including Lt. Gov. Dan Patrick, have said the House’s budget would be impossible to implement without raising taxes.

Members of the House Appropriations Committee focused many of their inquiries on the possibility of making up some of the difference by tapping into the Economic Stabilization Fund, more commonly known as the Rainy Day Fund. State Rep. Donna Howard, D-Austin, suggested the Rainy Day Fund could “cover some of the areas that we’re not able to do right now.”

State lawmakers will need to pass a supplemental budget this session to cover some of the carryover costs of the current budget, something they must typically do each session. State Rep. Armando Walle, D-Houston, characterized the state’s conundrum this session, with less money available because of the highway spending, as having “less revenue and more responsibilities moving forward.”

Phillip Ashley, a high-ranking official at the Texas comptroller’s office, told the committee it was up to the Legislature to decide if it wants to tap the Rainy Day Fund to help shore up its finances. But he said his boss, Hegar, would not dissuade them from doing so.

“I think he’s made the point that, in his opinion, it would not be inconsistent with the purpose of the fund to bridge the downturn,” Ashley said.

Some Republican lawmakers expressed hesitancy about tapping the fund. “It’s not free money, because it’s all an appropriation,” said state Rep. Ron Simmons, R-Carrollton.

Fiscal hawks have sometimes argued against using the fund on the grounds that it could hurt the state’s credit ratings. But officials told lawmakers on Monday that those concerns were probably unfounded this year.

Even if the state were to spend money from the Rainy Day Fund,“that’s not necessarily considered a negative in a credit rating agency’s view of things,” said Tom Currah, the comptroller’s chief revenue estimator. He said credit rating agencies might look favorably at the state’s infrastructure investments, for example.

As 2017 shapes up to be a tight-fisted legislative session, reconciling budget differences is expected to be lawmakers’ most contentious task. But the chambers are likely to favor different tactics. At a separate budget hearing on Monday, Senate lawmakers questioned whether there might be some wiggle room in the $5 billion highway fund payment.

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