Hegar: Revenue Estimate "Based on Expectations of Moderate Expansion"

_{*Correction appended}

Amid concerns that tumbling oil prices could push the Texas economy into a recession, Comptroller Glenn Hegar offered a cautiously optimistic tone on the future of the Texas economy Monday, announcing that lawmakers will have $113 billion to haggle over in crafting the next two-year budget.

“Our projections are based on expectations of a moderate expansion in the Texas economy and reflect uncertainties in oil prices and the possibilities of a slowing global economy,” Hegar said.

The biennial revenue estimate sets a limit on the state’s general fund, the portion of the budget that lawmakers have the most control over. The general fund typically makes up nearly half of the state’s total budget.

Hegar predicted that Texas will take in $110.4 billion in revenue from taxes, fees and other income during the 2015-16 biennium. Hegar's $113 billion projection also includes money expected to come from leftover funds in the current biennium. With the addition of federal funds and other revenue sources, lawmakers should have a total of $220.9 billion for the 2016-17 budget.  

The state’s Rainy Day Fund is also projected to grow to $11.1 billion by the end of the next biennium if lawmakers choose not to use any money in the fund.

The state will end the current biennium, which ends Aug. 31, with $7.5 billion in leftover funds, Hegar said. 

In a statement, Lt. Gov.-elect Dan Patrick said that Hegar's forecast "allows lawmakers adequate revenue to
secure our border, provide property and business tax relief while focusing on education and infrastructure."

Two years ago, Comptroller Susan Combs estimated that the Legislature would have $208 billion for its budget, including $101.4 billion in general revenue and $11.8 billion in the Rainy Day Fund. Lawmakers ultimately passed a $200 billion budget.

Lawmakers start their first legislative session in a decade with a new governor and lieutenant governor in Greg Abbott and Dan Patrick. Both Republicans have offered ambitious, potentially expensive proposals that include cutting taxes and boosting the state’s investment in transportation.

In recent weeks, financial analysts have debated the impact of plummeting oil prices on the Texas economy. The price of a barrel of West Texas crude has dropped by more than 50 percent in the last six months, to $46.17 as of Monday morning. Hegar said his estimate was based on an expectation that a taxable value of a barrel of oil will average between $65 and $75 during the next biennium. (The taxable price is typically a few dollars below the market price, an official with the comptroller’s office said.)

Oil and mineral-related revenue makes up 10 percent of the state’s total tax collections but less than 5 percent of the Texas budget, according to state records.

"This decline in oil prices and its implications for the Texas economy comes at a time when the national economy appears to be picking up steam," Hegar said. "Strength in the broader economy, such as in construction and professional and business sector services, should help counterbalance a marked slowdown in the Texas energy sector." 

Revenue estimates became the dominant issue in last year’s comptroller’s race in light of Combs’ 2011 estimate, which ended up underestimating Texas’ cash flow by $11.3 billion, a 14 percent miss that ranks it among the worst estimate in the last 40 years. Hegar, along with every other candidate in the race, promised to improve upon Combs’ performance.

"We will update our projections as necessary to ensure that the Legislature and the governor has the absolute best information available to them," Hegar said Monday.

The size of the surplus will almost certainly shrink as lawmakers typically add funding to the current budget during the session. This year’s supplemental budget is expected to include a large payment to cover a Medicaid shortfall in the current budget.

The liberal Center for Public Policy Priorities has estimated that lawmakers will need to increase general spending from the current $95 billion to $101 billion to maintain the state’s current level of services. More than half of that $6 billion spike comes from Health and Human Services, where an increase in medical costs and Medicaid cases in particular has grown.

_{*Editor's note: An earlier version of this story incorrectly described how the comptroller's office expects $7.5 billion in surplus revenue to be allocated. The surplus money goes toward general revenue.}