Politics

How COVID-19, Oil Market Crash Are Hurting Texas State Finances

Tom Currah, chief revenue estimator in the Texas Comptroller’s Office, say that the downturn has wiped out what had been a projected $3 billion surplus in state funds.

Texas State Capitol

The Texas economy is taking a beating these days — not only from COVID-19, but also from a drop in the price of oil.

To find out how that's hurting the state's finances, Houston Public Media spoke with Tom Currah, chief revenue estimator with the Texas Comptroller's Office. The interview has been edited for length and clarity.

How big are the revenue shortfalls in the state compared to where we were in June of last year?

In Texas, sales tax is our largest source of revenue. It's about 57% of all of our tax revenue. And it was down 6.5% in June this year compared to June of last year. That's a little bit of improvement over the last two months. In April, we were down about 9.3% and in May about 13.2%, but we're still down pretty sharply from a year ago. Sales tax revenue in particular is being buoyed online sales. A lot of retail purchases have moved online, so that's helping keep these up a little bit. Probably some of the support that the federal government provided to individuals and businesses also helped keep those from dropping more than they would have. Now, some of our other tax revenues have been more directly impacted by COVID-19 (such as alcohol and motor fuel taxes), but then we're also getting hit in our severance taxes by the steep declines in oil prices, and now we're seeing some declines in production associated with that.

So, collectively then, how much is the state down in terms of total revenues?

We don't really have a good handle yet on how things are going to compare this fiscal year compared to last fiscal year, because our major business tax, the franchise tax, payments are typically due on May 15, but that due date was pushed to July 15. Tax revenues, year to date, are down about 8.9% compared to a year ago, but again, that wouldn't be quite so steep if we had collected our franchise tax as we normally do.

How does that compare to previous downturns?

The drops we've seen in some of our revenue sources, those are bigger drops than we've ever seen, at least on a month-to-month basis.

We're about half a year out now from the beginning of the next legislative session. How is this likely to affect the budget process for the 2021 session?

That's something we're actually working on right now. We provide the Legislature with an estimate of how much money they'll have to spend for each budget. We do that before the Legislature convenes. We did that before they met back in 2019. And then we update that revenue estimate in the fall after a legislative session. So, our most recent estimate was back in October. We are currently working on a revision to that. That update will be released later this month, and so that will give us an idea of at least what we're thinking right now is going to be available for this biennium.

When we issued our estimate back in October, we were projecting just a little under $3 billion surplus. In other words, they spent less general revenue than we had available by about $3 billion. We think when we do the update later this month, that will be wiped out, and we'll have a projected shortfall for this biennium. So, the first thing the Legislature's going to have to do is probably fill in the shortfall they have to get through the rest of this biennium. Everybody anticipates the next legislative session is going to be a difficult budget session, maybe on par with the 2011 session.

During that 2011 budget session, what wound up getting cut in order to balance the budget?

The Legislature asked all agencies to make cuts to their budgets. You know, they've already done that this cycle. They've asked agencies to submit 5% cuts of the total biennium appropriations to the agencies, general revenue appropriations. And those apply to most agencies. Now, they exempt some things like our Foundation School Program and Medicaid, which has got federal rules requiring us to spend money to get federal match, but, yeah, I think everything's going to be on the table.

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Andrew Schneider

Andrew Schneider

Politics and Government Reporter

Andrew heads Houston Public Media’s coverage of national, state, and local elections. He also reports on major policy issues before the Texas Legislature and county and city governments across Greater Houston. Before taking up his current post, Andrew spent five years as Houston Public Media’s business reporter, covering the oil...

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