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COVID-19 Recession in Texas

Watch: Texas Comptroller Glenn Hegar discusses the state’s $4.6 billion deficit and the next budget cycle

We sat down for an interview with Hegar to discuss the impact of COVID-19 on Texas' economy and the challenges the Legislature will face when setting the two-year budget.

Texas is facing a deficit of nearly $4.6 billion due to the COVID-19 pandemic, according to Comptroller Glenn Hegar’s revised revenue estimate that he shared Monday. Hegar sat down (virtually) with Texas Tribune Executive Editor Ross Ramsey Wednesday morning to discuss the estimate and the state of Texas’ economy.

The amount of general revenue available for the state’s current two-year budget is projected to be roughly $11.5 billion less than originally projected. Hegar previously estimated in October that Texas would have over $121 billion to spend on its current budget and would end the biennium with a surplus of nearly $2.9 billion.

“COVID is not disappearing. It's not going away during the summertime — it's here to stay,” Hegar said. “We're going to have to learn how to have a balance between our daily lives, trying to keep people safe, but also making sure that we keep the economy slowly opening up.”

“That's going to make us do things that you know we're normally not used to, whether it's face masks or others. We have a new norm,” he added.

Here are some highlights of the conversation.

Ramsey: When creating this revenue estimate, what assumptions are you operating on?

Hegar cited a few baseline assumptions: that the pandemic will continue through the fall, that there will not be additional government-mandated shutdowns and that this will not be a quick recovery.

“Because this contraction was so fast and so steep, that it's going to take until really the end of 2021 to reach pre pandemic levels on GDP output,” he said.

Texans’ economic activity has changed and not only because of the shutdowns, he said.

"A lot of the data that we've seen is that individual behavior and business behavior during this contraction is as much to do out of concern and/or fear, than it is to do with the government shutdown,” he said.

Will setting the next budget be more difficult?

“The fact is, obviously, this one is going to be a much more difficult budget cycle — that is a given. Now the question is, how much more difficult,” he said. “We need another quarter or a little more, just to see how these trend line assumptions go.”

There are lots of variables that affect how difficult budget planning will be as the legislation session approaches, he said.

Is it more useful for the federal government to send money designated as for COVID-19 expenses, or leave it more open ended?

“Normally, I think that having a little bit more guidance is really important,” he said. “But in a situation like this when we're dealing with literally a global pandemic, I think the more flexibility that we have is extremely critical.”

Having to document each cost as a COVID-19 expense can delay getting the money to where it needs to go, he said.

“It takes a lot of time,” he said. “Having less strings is really critical to be able to get the money out the door.”

If you were a policy maker, what would your approach be?

It’s important to start thinking about options for the upcoming budget but not to fixate, he said. The Legislature needs to manage expectations that agencies will need to to reduce expenditures.

“We can't really start worrying too much about what's going to be five or six months ahead when we have a lot of work to do today,” he said. “The more we worry about the future, we're distracted from the work — and we have a lot of work to do today.”

How much of the public policy debate factors into figuring out how much the state's going to bring in?

One of Hegar’s greatest concerns is the debate over complete shutdowns related to the pandemic, he said. A complete shutdown would be detrimental to many people and have long-term ripple effects from lack of rent payments to declining revenue for businesses.

“We're going to have to continue to learn how to live with the pandemic and be able to keep the economy open,” he said.

Could this be a time that the state looks into a state income tax?

“I don't see that ever happening. I mean that's going to have to be two thirds of the Texas House, two thirds of the State Senate, and then you and I and the voters are going to have to prove it,” he said, pointing out that last year voters passed Proposition 4, which eliminates the possibility of Texas imposing an income tax unless the state changes its Constitution.

He said looking at California and New Jersey, which have state income taxes, shows that it doesn’t make revenues more stable.

“An income tax actually can be extremely volatile as well, and it doesn't help equal out that volatility,” he said.

Do you think Texas would consider legalizing marijuana and taxing it?

“I don't see that happening here in Texas,” he said. “I'm not the policy maker — that's up to members — but reading the tea leaves, or the marijuana leaves, I just don't think that's going to happen.”

In your estimate, what are you forecasting is going to happen with oil and gas?

It’s going to take a while for it to bounce back, Hegar said.

“Most people really focus on price, but an equally important component is what is production volume,” he said. “Texas has lost a large number of rigs.”

The state typically makes up 50% of all the rigs in North America, but that has dropped to 40%, the lowest number recorded since the data first began to be tracked in the 1960s, he said.

What are you expecting to happen at the end of July when Texas shifts off some of the Paycheck Protection Program money for employees and the unemployment benefits change?

“As that [Paycheck Protection Program] money rolls off, you will probably see unemployment numbers tick up slightly, possibly, not just here but around the United States,” he said. “There’s still going to be some ripple effects that we're going to feel.”

Texas went from a 3.4% unemployment level to over 13%, and now it’s ticked back down to 8.7%, he said.

However, the unknowns — whether additional federal dollars are coming, the confidence that business owners and consumers have in the economy — will also impact the numbers, he said.

“Those are things that unfortunately nobody really knows right now,” he said.

Hegar said that currently there is not a significant disruption to state revenues because there is still a lot of economic activity, so sales tax is still being collected.

“My concern is how much is that continuing to be damaged, for lack of better words, in the long term,” he said. “Will our activity that we have in the economy be more suppressed? And I think that's more psychological than anything else, I really do.”

The conversation series is presented by AT&T and Walmart. This event is supported by Blackridge, Blue Cross and Blue Shield of Texas, CAMMACK & STRONG, P. C. and TEXAS 2036.

Tribune events are also supported through contributions from our founding investors and members. Though donors and corporate sponsors underwrite Texas Tribune events, they play no role in determining the content, panelists or line of questioning.

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