The state’s savings account should hold at least $7 billion for the next three years to maintain the state’s high credit ratings and ensure the state is ready for an unforeseen emergency, a group of lawmakers decided Thursday morning.
The Joint Select Committee to Study the Balance of the Economic Stabilization Fund made the 6-0 decision in a six-minute meeting with no debate and little discussion. But the decision will have far-reaching consequences, paving the way for the start of an extra $1.7 billion in roadwork around the state while also potentially impacting how much lawmakers choose to spend during next year’s legislative session.
“I think this is a very conservative, logical, common-sense thing to do,” said state Rep. Myra Crownover, a Denton Republican and co-chair of the committee.
Lawmakers created the committee in 2013 as part of an elaborate plan to divert billions in tax revenue rushing into state coffers from an ongoing drilling boom toward road funding without compromising the state’s healthy savings account, which is also known as the Rainy Day Fund.
Normally, most of the state’s oil and gas production taxes go to the Rainy Day Fund. Before 2007, the fund’s balance had never topped $1 billion. Because of a recent surge in drilling activity in South and West Texas, the fund’s balance has quickly taken in billions of dollars. The comptroller’s office has projected the fund’s balance will be $8 billion in 2015.
During a special session in 2013, lawmakers passed a measure asking voters to approve sending half of the oil and gas production taxes that would normally go to the Rainy Day Fund to the State Highway Fund instead. The Texas Department of Transportation has said it has a $5 billion annual budget shortfall. Last month, 80 percent of Texas voters approved the measure, called Proposition 1.
To address concerns by some Republican lawmakers that the measure could lead to the Rainy Day Fund’s balance falling too low, lawmakers also created a joint committee of House and Senate members to periodically set a floor for the Rainy Day Fund’s balance. If the fund’s balance falls below that number, transfers to the State Highway Fund must be reduced or stopped until the Rainy Day Fund’s balance is higher than the floor again.
State Sen. Jane Nelson, R-Flower Mound, a co-chair of the committee, said setting a $7 billion floor would ensure that the first transfer to the State Highway Fund under Proposition 1 would be $1.7 billion, the full half of the oil and gas production taxes received this year, while also ensuring that the state has maintained a sufficient savings cushion.
Last year, lawmakers debated what constitutes an appropriate balance for the Rainy Day Fund. Gov. Rick Perry and a handful of Republican lawmakers argued that the state’s high credit rating was at risk if the balance fell too low. Perry advocated for maintaining a balance of 7.5 percent of general revenue, a pot of money that normally makes up about half of the state budget. Under the current two-year budget, 7.5 percent of general revenue is $7.1 billion.
Rating agencies have said they look at various factors of a state’s economy in setting their ratings. Critics, including Comptroller Susan Combs, have expressed skepticism that there is any relation between the state’s credit rating and maintaining a minimum balance in its savings account.