Analysis: For Legislators, an Extra Incentive to Finish State Budget

If state budget writers can't get a deal on the budget during the regular session, they'll have to come back to finish. And with the state economy slowing down, going into overtime could mean less money for tax breaks and state programs.

Texas Comptroller Glenn Hegar

Suppose state lawmakers can’t agree on a budget before regular legislative session concludes June 1.

That would force them to return for a special session — passing a two-year budget is all they really have to do when they’re in Austin. And such a session would have to start quickly, because the state’s school districts need to know what’s in the state budget for public education when they write their own budgets and set their tax rates for the next school year. Not to mention the state itself, which ends its current budget at the end of August.

If all of that is not incentive enough to finish the budget this month, maybe the economy will spur lawmakers to action. The state comptroller would start a special session with a new forecast of the state’s economy, and the Texas Miracle is starting to fray around the edges. State Comptroller Glenn Hegar could eventually be inclined to lower his estimate of how much money the state will have available over the next two years.

The state’s economy hasn’t really soured, but increases in sales taxes are starting to flag. Talk all you want about other sources of state money — there are many and they are important — sales taxes are the biggest source of state revenue. They are also a pretty good live measure of the state’s economy. People are happy, sales are good, taxes are fine. The inverse: Unhappy, bad, not fine.

At the beginning of the legislative session, Hegar published a “biennial revenue estimate” forecasting the state’s economy through August 2017 in general, and specifically forecasting the amount of taxes and fees and other revenue the state government will bring in over that period. It’s the official document that tells budget writers how much money they have to spend.

Hegar said early on that he wouldn’t be bashful if and when it’s time to revise his numbers — for the better or worse — but he hasn’t seen anything yet that would prompt him to make a change.

“I’m not the type who’s going to do a revenue estimate on one-day snapshots,” Hegar said.

He and his experts do watch closely, however. If his numbers are high, the state could be caught spending money it doesn’t have. When a comptroller’s forecasts are low, lawmakers can be forced to make spending cuts they’d rather not make — and find out later they had the money all along.

Economists have been watching oil prices for a while and express what you might call an optimistic form of pessimism. Things might be worse, they say. “Amid the oil price collapse, some fear that Texas may experience a deep recession like the one in the mid-1980s. This is unlikely,” economists from the Federal Reserve Bank of Dallas wrote in their April Economic Letter. They added this: “Nevertheless, the Texas economic outlook has weakened over the past six months.” The Dallas Fed’s Regional Economic Update, published last week, rang that bell again: “Texas economic growth decelerated in the first quarter...”

The budget ought to be relatively easy to write this year. The state has plenty of money — enough to keep government programs operating more or less like they operate now. The courts have not announced any final decisions on potentially expensive litigation, such as public school finance. The hitch in the get-along this time is unique in recent state history: Lawmakers in the Senate want to cut property taxes by increasing the size of homestead exemptions, while lawmakers in the House would rather lower the sales tax by three-tenths of a cent.

You have to know the answer to that tax question to know which numbers to plug into the budget; they can’t finish the budget until they resolve the gnarliest argument in Austin. And if they can’t resolve that during the regular session, they’ll be back.

Maybe they’d have the same amount of money available they have now. Things are good at the moment, and the comptroller has no reason right now to change his estimate of how the state’s economy will perform for the next 27 or 28 months. He’ll have more information in a couple of months. Maybe that will change his forecast, and maybe it will not.

“Is it slowing? Yes,” Hegar said. But he remains positive. “It’s still growth. It’s still positive. You’re still in the black.”