Texas Fund Driven by Oil Rally May Reach $12 Billion by 2013, Senator Says

Texas’s reserve fund may climb to 28 percent more than officially forecast by 2013 as energy prices rally, a gain that might help the second-most populous state avoid some spending cuts, a key senator said.

The fund, fed by energy taxes and forecast by the state comptroller to reach $9.4 billion by the end of August 2013, may gain much more by then, Senate Finance Committee Chairman Steve Ogden, a Bryan Republican, said yesterday.

“That fund could easily rise to $12 billion,” Ogden said at a committee hearing. He based his estimate on revenue increases from taxes on oil and natural-gas production in the state as energy prices climb.

Crude oil futures have jumped 34 percent in the past year, touching $113.46 in New York on April 11, the highest level since September 2008. Ogden said he favors using $3 billion from the reserve to help cover general-fund spending to avoid some cuts in education and health-care services. The state faces a projected deficit of at least $15 billion in the budget for the fiscal biennium that begins in September.

Ogden’s estimate of the so-called rainy-day fund’s growth was supported by John O’Brien, executive director of the Legislative Budget Board. The nonpartisan research unit advises lawmakers on fiscal issues.

“It doesn’t take a whole lot of speculation that if prices stay high, it might be $12 billion,” O’Brien said at the hearing. Natural-gas futures have risen 8.6 percent in the past year in New York trading.

Industry Executive

Ogden is president of Ogden Resources in Bryan and has worked in oil and gas exploration for more than 20 years. He holds a master of business administration degree from Texas A&M University in College Station and graduated from the U.S. Naval Academy in Annapolis, Maryland.

Governor Rick Perry, a Republican, has said he won’t sign a 2012-2013 budget that relies on reserve funds. Conservative groups have pressed state legislators to cut spending rather than use the fund, since it may be needed in the future.

“Governor Perry understands the situation and is letting the Senate do its job,” Ogden said. Comptroller Susan Combs said in January that the reserve fund held $8.2 billion and projected a 15 percent gain by the end of the next biennium.

Texas’s House of Representatives has approved spending the $3 billion from the rainy-day fund to fill a budget gap in the current fiscal year. The Senate is likely to support that plan, Ogden said.

Greater demand for oil and natural gas from an improving global economy and increased production in Texas from oil shale is building confidence that the state can count on a much larger reserve fund, Ogden said in an interview.

Rising Output

“Oil production is increasing in Texas,” Ogden said. Crude output, which hasn’t risen in the state since 1972, climbed almost 3.6 percent last year, according to figures from the state Railroad Commission.

Natural-gas demand is also likely to rise as development of nuclear power slows because of the crisis in Japan, where four reactors damaged in the March 11 earthquake and tsunami have leaked radiation into the environment, Ogden said.

Even if it uses the reserve, Texas’s Senate will probably approve a 2012-2013 biennial budget that spends about $10 billion less than in the current period, Ogden said. Failure to use the rainy-day fund would “crater” public education, he said.

To contact the reporter on this story: David Mildenberg in Austin, Texas, at dmildenberg@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.