Analysis: A fast drop for the Texas economy — and for the state budget

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Early in every economic crisis, the people in charge turn to their financial folks to ask whether things are as bad as they seem.

Answering a question like that is tricky business. You don’t want to overstate things — to cause an economy to shudder just by saying there’s a big chill in the air. And you don’t want to understate the severity of a real problem, prompting people to take it less seriously or to simply ignore it.

But weeks into an economic dive spurred by the new coronavirus, Texas Comptroller Glenn Hegar is now saying the words he and others were hedging at first: “I know that we are unfortunately in a recession. I just don’t know how deep or wide it’s going to be.”

That’s how economists describe deep doo-doo.

It’s the end of an economic rise that has lasted a decade, a side effect of the pandemic that presents its own dangers for residents, companies, and the state and local governments that serve, in part, as the safety net for those people and businesses.

Hegar’s analysis is the starting point for the state government. His estimates of how much money is coming, and from where, let lawmakers know what they can spend. Almost a year ago, the Legislature finished a two-year budget that was built on Hegar’s numbers — numbers that are now shrinking because of the pandemic and, to a lesser extent, plummeting oil and gas prices.

Before lawmakers can decide what needs to be done, they have to know how much money they’re working with.

Short answer: It’s too early to tell, Hegar said Tuesday in an interview with The Texas Tribune. He also said he will have a revised revenue estimate for the current budget, which runs through August 2021 — an update on what he forecasted in 2019 — sometime in July.

Hegar is a former state legislator, but he’s staying out of the policy questions about what ought to be cut and by how much, which taxes ought to be deferred or raised or lowered, whether the whole state budget needs to be rewritten.

The basics:

First, this is a recession. He (and others) are now using the word.

Second, the experts don’t know how deep the recession is or how long it will last.

Third, this means that at the same time some government programs and services come into high demand, the tax revenues that support government are dropping, or will drop soon.

“It’s probably going to be a revised downward adjustment of several billion dollars,” Hegar said Tuesday.

State budget writers can’t make serious cuts to state government in Texas without hitting public education and health and human services, the two biggest spending items in the state budget.

Those cuts are always fiscally and politically difficult, and lawmakers want to get it right. Inaccurate revenue estimates from Hegar’s predecessor before the 2011 legislative session led to deep cuts in public education and other programs. Actual state revenue was billions of dollars higher than Comptroller Susan Combs had forecast; lawmakers might have cut spending anyway, but it wouldn’t have been because they didn’t have the money.

Hegar doesn’t make policy, but his numbers are the backstop for policy. Right now, he’s not sure how this will go. March sales tax returns are expected to be far below what they were a year ago, but Texas companies won’t submit those to the state for two more weeks. Even those figures will present an incomplete picture because the social distancing and closed business directives from the pandemic didn’t cover the early part of the month.

Expect bad news on that front this month and worse news in May. A couple of months after that, Hegar will give lawmakers new numbers. Those lawmakers are supposed to be back in Austin in January for a regular legislative session, writing a new two-year budget. For now, Hegar doesn’t think they’ll need to meet before then; state agencies can slow their spending without legislative action.

And the soothsayer-in-chief will have another revenue estimate as that session begins — and legislators rewrite the current budget and draft the next one.

They don’t know what the numbers will be. But they are getting, from Hegar, a picture of the economic environment ahead.

Texas is heading into a rough patch.