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House leaders push for withdrawing $1 billion more from state savings account

The proposal from state Rep. John Zerwas would withdraw about $2.4 billion from the Rainy Day Fund.

State Rep. John Zerwas, chair of House Appropriations, at the Austin Club before speaking with Evan Smith Feb. 23, 2017

While Senate leaders have been wary of any calls to tap the state's savings account, known as the Rainy Day Fund, Texas House leaders on Thursday proposed withdrawing an additional $1 billion on top of their earlier proposal to pay for the needs of a growing state during a tight budget year.

The proposal from state Rep. John Zerwas, a Richmond Republican and the House’s chief budget writer, would withdraw about $2.4 billion from the Rainy Day Fund as part of a supplemental budget to pay bills coming due for programs like Medicaid, the federal-state insurance program for the poor and disabled, and to pay for repairs to state-run institutions including mental hospitals and the School for the Deaf.

Previously, Zerwas advocated spending about $1.4 billion from the fund, which holds about $10 billion currently. He updated his proposal at Thursday's meeting of the House Appropriations Committee, saying that without making a “modest withdrawal” from the savings fund, budget writers would be forced to make draconian cuts to public programs.

Entities that face budget cuts absent a cash infusion include the state’s public education system, pensions for retired teachers, and the Texas child welfare and foster care system charged with protecting vulnerable children from abuse and neglect, Zerwas said.

“Some members of our body have said publicly that our situation isn’t really that bad,” he said. “I can’t disagree more with that.” 

Most legislative sessions, the Texas Legislature does not fully fund the cost of state programs, so lawmakers must typically pass a supplemental bill to cover the rest. Zerwas’ proposal would net some matching federal dollars, bringing the total value of the bill to $5.2 billion, officials said. About $3 billion would plug funding holes left by lawmakers in 2015, mostly in Medicaid and in a health care program for the state prison system. 

The rest would go toward current needs, such as “deferred maintenance” costs at state-run institutions including mental hospitals, many of which are in disrepair.

State lawmakers have less money at their discretion this year when crafting the next two-year budget. By cutting taxes in 2015, the Legislature reduced state revenue available to them by about $4 billion. Lawmakers also backed dedicating nearly $5 billion that year to highways — a move that voters later approved in a statewide election — which left fewer dollars for priorities like health care and education.

In addition, a moderately sluggish economy slowed revenue growth, leaving the state's coffers emptier than state officials had projected.

But a push to use the Rainy Day Fund to shore up the state’s finances is likely to be controversial. Some conservative groups have argued that the fund should be used only sparingly and for one-time expenses, not to fill out supplemental budgets.

Zerwas said his proposal would avoid that. Payments for the Medicaid shortfall, for example, would come from leftover state dollars remaining from 2015, he said. And even after withdrawing nearly $2.5 billion from the fund, Zerwas said the state comptroller’s office had assured him that there would be a large enough balance remaining to have no negative effects on the state’s credit rating. Texas currently has the largest Economic Stabilization Fund of any state. 

In addition, officials said Zerwas' proposal would offer $38 million for the state's oil and gas regulators to plug abandoned oil wells, $500 million for health care costs at the Teacher Retirement System, $269 million for the Texas Education Agency, and $15 million for an initiative spearheaded by Gov. Greg Abbott that seeks to attract top-tier professors to the state's public universities.

On the other side of the Capitol on Thursday, budget writers in the Texas Senate also met to discuss their plans for the tight-fisted session. The Rainy Day Fund emerged as a topic of consideration there, too, when senators debated spending for health and human services programs.

State Sen. John Whitmire, D-Houston, said the upper chamber should also consider using the Rainy Day Fund to pay for “critical needs” like improvements to state hospitals.

“I agree that we need to have that conversation,” state Sen. Jane Nelson, a Republican from Flower Mound and the Senate’s chief budget writer, said in response. Nelson has said she would consider using the Rainy Day Fund this session, but she has not offered specifics about any such proposal.

Speaking to reporters after the committee hearing, Nelson said she did not know when the upper chamber would have its own version of a supplemental budget ready. Nelson recently filed a preliminary proposal, but she has called it a “shell bill” that will evolve over time. Currently, Nelson’s proposal allocates only about $52 million, and it does not cover shortfalls in Medicaid or other programs with bills coming due that the state is required to pay for. 

Asked about the difference between her supplemental budget and Zerwas’s, Nelson said she was still “working on it.”

“The press likes to create differences between House and Senate leaders,” she said. “We’ll work together to get the job done. And I love the House; I’ve got great friends in the House.”

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