A stalled oil drilling boom is forcing the state to revise its income predictions — but not enough to force any cuts in the state budget, Texas Comptroller Glenn Hegar said Tuesday.
Hegar lowered his estimate of state revenues in the overall state budget by $2.6 billion, which still leaves plenty of breathing room. If spending goes as the Legislature planned it and revenues stay with Hegar's prediction, the state government will end this two-year cycle with $4.22 billion in the bank.
In his first certified revenue estimate as comptroller, Hegar predicted the state economy would grow more slowly than in it has in years. The biennial estimate released Tuesday updates the revenue estimate the comptroller offered at the start of the session.
Hegar told lawmakers in January that they would have $113 billion in state funds to haggle over in crafting Texas' next two-year budget. On Tuesday, Hegar lowered that number to $110.4 billion, still well above the $106.2 billion in general revenue lawmakers ultimately spent as part of a budget that totals $209.4 billion.
“Recent declines in oil and natural gas prices, with no significant recovery expected in the biennium, will result in slower economic growth than the state experienced in recent years,” Hegar wrote in a cover letter to his new estimate. “Economic growth in Texas likely will track more closely to the national rate of growth, in contrast to more robust growth in recent years.”
The Rainy Day Fund, which is fed largely by oil production taxes, is now expected to end the biennium with a $10.4 billion balance. That will still be the highest balance the fund has ever held since its creation in 1988, but it's lower than the $11.1 billion Hegar predicted in January.
Hegar said in an interview Tuesday morning that he believes his office made the best estimate given the data available in January.
“I think we read the tea leaves that we were given at the time,” Hegar said. “The numbers are the numbers, and that was the data that we had at the time, and this is the data we had as of Thursday.”
Two years ago, then-Comptroller Susan Combs found a Texas oil drilling boom bringing in state revenue far faster than expected. In his first year in office, Hegar has faced the opposite problem, trying to predict how far drilling and production — and with it, state revenue — will fall due to the plummeting price of oil.
On the January morning that Hegar presented his original estimate, the price of a barrel of West Texas crude was just over $46, a price drop of more than 50 percent over the previous six months. Against that backdrop, Hegar said that he was cautiously optimistic about the Texas economy and produced his estimate based on an expectation that a taxable value of a barrel of oil would 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.)
The comptroller is now predicting the taxable value of a barrel of oil will average $44.53 in the first year of the biennium and $50.87 in the second year.
Lawmakers spent much of the session speculating whether Hegar would revise his estimate downward. Hegar said he had been prepared to make such a revision if needed but that sales tax revenue for the first half of the year continued to show impressive growth.
“I personally think the real headline is that it’s amazing that despite the lower revenues coming in from oil, and those numbers, this economy continues to tick along,” Hegar said. “It may not be off the charts [like] the last two and four and six years, but it’s positive.”
House Speaker Joe Straus said Hegar's revision proves that lawmakers were smart to leave billions of dollars unspent while crafting the current budget.
"The Legislature wrote a conservative budget this year so that Texas would be prepared for changing economic conditions and forecasts," Straus said. "Because we kept spending in check, we remain on sound fiscal footing, and we will continue to exercise prudence as the next legislative session nears."