The Rainy Day Fund seems like weather word play waiting to happen. It can plug holes in the budget, defend against an economic perfect storm and keep the deficit clouds at bay.
That’s certainly how some frame the fund when looking at the next biennium's projected budget shortfalls. Stimulus dollars saved legislators from having to decide what to do about the shortfalls last session. As they ponder their options for balancing the next budget, many eyes are on the fund: currently $7.6 billion, accrued from savings and a percentage of oil and natural gas tax revenue.
It probably can’t save Texas, but it might be what the state needs to stay afloat.
Using the fund itself isn’t particularly easy. If the comptroller says that revenue will decrease between legislative sessions or if a budget deficit unexpectedly develops, it requires a three-fifths vote to transfer money away from the fund.
Of course, if members want to use the money for any other situation — like say, a budget shortfall — then they’ll need to reach two-thirds of their colleagues, an even higher threshold.
There are reasons for caution. The fund came into existence after the state’s economic collapse in the late '80s. As oil prices kept falling, then-chair of Ways and Means Stan Schlueter offered the fund, by way of a constitutional amendment, as a possible safeguard against similar future situations.
If the economy went to hell after the Legislature wrote its budget, the fund would offer an escape from deficit. They could rely on it to fill in budget holes.
But when the fund first came into being, few believed it would ever generate much money.
"There was never really much in it," says Billy Hamilton, former deputy comptroller. "There hasn’t been or there wasn’t much until really into the 2000s, when oil prices — and natural gas prices in particular — went up."
Now the comptroller estimates the fund will reach $8.2 billion, down from January estimates of $9.1 billion, but substantial nonetheless.
The money comes from several sources, but natural gas and oil tax revenues have been the driving factor in the fund’s growth. For instance, if the state collected $1,000 of oil revenue in 1987 and this year collected $3,000, the first thousand is subtracted and the rainy day fund would get 75 percent of $2000 (which would be $1500). The rest of the money simply goes back into general revenue, the pot the Legislature uses to pay for almost everything.
The fund is capped at ten percent of the total general revenue budget. But even if the fund grows quickly, it won’t reach the cap any time soon.
It’s hardly a surprise then that many have called on the Legislature to draw on the fund. Last session, the stimulus dollars came to the rescue, but few are counting on another rush of federal funds. After all, they say, the fund was meant for years like these, without the money to cover the budget.
Well, not quite.
“The way the fund was originally envisioned was to pay for existing needs as opposed to pay for new programs,” says Dale Craymer, who worked with Schlueter at the time and is now the president of Texas Taxpayers and Research Association.
He says the fund was intended to be “a cushion as opposed to an additional financing tool.”
Still, Craymer readily acknowledges that the two-thirds voting option was meant to give the Legislature some flexibility in using the fund. Since there isn’t a deficit, the legislature will need to meet that threshold in order to draw on the fund.
Hamilton believes the legislators would do almost anything to avoid raising taxes.
“If the choice is between raising taxes and draining the rainy day fund, I think they’ll drain the rainy day fund,” he said.
But even the entirety of the fund may not be enough to cover the gaps in the budget, which TTARA estimates at $12.7 billion.
And while the political will may exist, Craymer points to the potential political obstacles that may stand in the way of teamwork, particularly the tensions of redrawing electoral districts which the houses will have to do next session.
“If the legislature is at some sort of loggerheads over what are basically political questions,” Craymer said, referring to redistricting, “the use of the rainy day fund would be one of the last things that they would do to help balance the budget.”