A proposal to dramatically reshape the state’s Rainy Day Fund, the state’s savings account for tough economic times, has effectively died in the final days of the legislative session.
The fund, which is largely fed by taxes on oil and gas production and is projected to reach $12 billion by 2019 if left untouched, has been at the center of debates this legislative session over whether to tap it to help stave off budget cuts.
But a separate debate has unfolded over the fund's future. Throughout most of its 28-year history, the Rainy Day Fund functioned largely as a stockpile of cash, which would slowly lose value over time due to inflation unless the state put more money in. A since-stalled oil and gas boom poured in billions of dollars in recent years, but the comptroller could do little to boost returns on those investments.
Earlier this month, House lawmakers unanimously approved state Rep. Giovanni Capriglione’s House Bill 855 — loudly pushed by Texas Comptroller Glenn Hegar — that would have allowed Texas to embark on a new investment strategy, creating an endowment within the Rainy Day Fund that supporters believed would grow state savings by billions over the decades and potentially give lawmakers extra money each session for often-neglected items.
But Senate lawmakers have removed language creating the endowment, which would have been called the Texas Legacy Fund.
“We’re just too late in session to do that,” Sen. Van Taylor, R-Plano, told members of the Senate Finance Committee Friday. The 140-day session ends on May 29.
Taylor’s version of the legislation would make smaller changes to the Rainy Day Fund, officially called the Economic Stabilization Fund. It would increase the amount of dollars — from $3 billion to $4 billion — that Hegar’s office could place into higher-yielding investments.
And that bill lacked enough votes Friday to clear the Senate Finance Committee, which had several absent members.
Hegar, a Republican, originally drew up the endowment idea and began pushing it just last month. Capriglione, a Republican from Southlake, incorporated it into his legislation, which originally resembled Taylor’s latest Senate version.
"While I’m extremely disappointed that the status quo will remain for another two years, I realize that significant progress has been made over the last few months to highlight why Texas must implement a more fiscally responsible and financially prudent policy in managing the [Rainy Day Fund]," Hegar said in a statement.
Ahead of next session, Hegar added, he will release a report highlighting the need for an overhaul to "hedge against long term balance sheet issues that will ultimately deteriorate Texas’ AAA credit rating.”
Hegar wants Texas to modernize an investment strategy that until recently, he has suggested, was like “burying the money in a hole on the Capitol lawn.”
By allowing the comptroller to invest a portion of Rainy Day Fund money in higher-risk, higher-yield long-term options, proponents say, Texas would bolster its defenses against the next downturn.
In a scenario the comptroller’s office mapped out, a $2 billion initial Texas Legacy Fund investment would grow to about $14.8 billion in a decade and $69.5 billion in two decades, assuming a 10-year median return of 6.5 percent.
Legislation passed in 2015 allowed Hegar’s office to put some rainy day funds in slightly higher-yielding investments, allowing the money to at least keep pace with the dollar’s changing value. But Hegar, Capriglione and others have said that didn’t do enough to modernize the state’s investment strategy.
Read more Tribune coverage:
- Texas Comptroller Glenn Hegar wants to reshape the state's Rainy Day Fund, aiming to get more bang for those stowed-away bucks.
- The Senate doesn't like the House's hit on the Rainy Day Fund. The House doesn't like the Senate's delay of a deposit into the state's highway fund. Neither wants to raise taxes. But all is not yet lost — unless they want to fight about it.