For several weeks, State Comptroller Glenn Hegar has been sounding the alarm on a looming state budget shortfall.
The state’s general revenue that lawmakers use to fund state services and agencies every two years has taken a serious hit amid the pandemic-induced recession.
More than half of that general revenue is funded by the state’s sales taxes.
When the outbreak hit Texas in March, things were still going swimmingly for the state’s finances. Texas sales tax revenue totaled $2.7 billion in March, up 2.9 percent from the same time last year. In April, as social distancing measures closed businesses and unemployment skyrocketed, the state began feeling the crunch and saw state sales tax revenue drop by 9.3 percent compared to the previous year, the steepest decline since January 2010.
This week, Gov. Greg Abbott offered a solution: budget cuts for the vast majority of state agencies.
In a letter, Abbott ordered state agencies to begin preparing for a 5 percent budget reduction. Several state agencies were exempt from the cuts, including the Texas Division of Emergency Management, the Texas Department of State Health Services, the Texas Workforce Commission, the Texas Military Department, and the Texas Department of Public Safety.
Eva DeLuna Castro, the lead fiscal and budget policy analyst at the Center for Public Priorities, told the Signal the exempt agencies amount to about 75 percent of Texas’ general revenue budget.
“That leaves the other 25 percent, which is still a lot of very important things,” Castro said.
Among the exempt agencies are public universities, multiple regulatory agencies, the Texas Commission on Environmental Quality and Texas Parks and Wildlife Department.
Out of Texas’ 175 state agencies, Castro estimated only around a dozen won’t be impacted by the budget cuts.
Ultimately, it will be up to the respective state agencies to decide where the cuts go to, and it’s possible some won’t see layoffs. But many colleges, like the University of Texas at Austin for example, have already made budget cuts and are preparing more that will likely see workers furloughed.
Castro said that when looking at the budget of agencies that are not exempt, collectively, they’re facing $1.5 billion worth of cuts.
Across the U.S., other states are also facing revenue shortfalls and have been forced to either make budget cuts or borrow money.
Fortunately Texas is no stranger to sudden economic downturns due to wild fluctuations in its most valuable commodity, oil, and came prepared for a moment like this.
In 1988, when Texas began emerging from a massive oil bust that rocked the Texas economy that decade, state lawmakers created the Economic Stabilization Fund, better known as the Rainy Day Fund.
A piggy bank for tough times, the rainy day fund is the largest of its kind in the nation and boasts a budget of $8.5 billion.
That’s more than enough to avoid the $1.5 billion budget cuts that state agencies and universities are facing. To draw from the fund, Texas lawmakers would have to vote as a supermajority. Curiously, the Rainy Day Fund has been tapped into during more mild economic downturns, like those seen in 2001 and 2008.
“Our economic stabilization fund is called ‘the economic stabilization fund’ for a reason,” Castro said. “It’s supposed to stabilize the economy when there is no state general revenue.”
“They’ve gotten into the habit of thinking that it’s only for natural disasters,” Castro said of state leadership. “The first time it was actually used for a disaster was pretty recently, and it was wildfires. But prior to that it has been used when revenue tanks during a recession or temporary economic downturn.”
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