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Texas Starts Budget Debate Flush With Energy Boom Cash

Photographer: Eddie Seal/Bloomberg

Wind turbine blades wait to be shipped out by rail at the Port of Corpus Christi in Corpus Christi, Texas. Close

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Photographer: Eddie Seal/Bloomberg

Wind turbine blades wait to be shipped out by rail at the Port of Corpus Christi in Corpus Christi, Texas.

Legislators in Texas, the biggest energy producer among U.S. states, will begin deliberating its next two-year budget with a surplus forecast today to match an $8.8 billion record set in 2007.

The Texas economy has topped budget projections over the past 15 months, as booming energy output fueled job growth and an 11 percent fiscal first-quarter gain in sales-tax receipts, the biggest source of general-fund revenue. Even after paying off $7 billion in health and school bills, Comptroller Susan Combs said today that the state will be flush heading into 2014.

Lawmakers, who convene tomorrow for a five-month session, in 2011 put off about $4.7 billion in future Medicaid costs and $2 billion for public schools under the current budget, and now must pay those bills. With Combs projecting an $8.8 billion surplus by Aug. 31 and a 12 percent jump in general-purpose receipts for the next two years, Democrats sense an opening.

“Given that we’re seeing an increase in revenue, let’s use this opportunity to fix those things that those in control of the budget have broken,” said state Senator Kirk Watson, an Austin Democrat. “Some people clearly want to starve the necessities of our people, things like schools, health care and transportation.”

Past Excess

Republicans hold all statewide elective offices and run the Legislature. Party leaders don’t want Texas to revert to a pattern that prevailed from 1990 to 2010, when spending rose at twice the pace of population and per-capita income growth, said Talmadge Heflin, a fiscal policy analyst for the Texas Public Policy Foundation, a nonprofit group that promotes limited government.

Governor Rick Perry, a Republican who has held the office since December 2000, wants to tighten limits on spending growth, and opposes new levies or tax increases, according to a “budget compact” he released in April. Disciplined spending policies have helped Texas retain top credit grades from Moody’s Investors Service and Fitch Ratings.

“Today’s revenue estimate is more evidence that we made the right decisions two years ago by budgeting carefully to meet the challenges of the national recession,” Perry said in a statement.

Employment Gains

As the taxable value of oil produced in Texas surged to $39.1 billion in 2011 from $18.4 billion in 2009, the state led the nation in employment gains, adding about 700,000 jobs, according to data compiled by Bloomberg. The state unemployment rate has tumbled to a four-year low of 6.2 percent. Oil and natural-gas drilling rigs more than doubled by mid-2012 compared with two years earlier, and the industry’s workforce climbed 9.2 percent, Combs said.

Combs, a Republican, estimated that the state will have $101.4 billion available for general-purpose spending over the next two years, or 12 percent more than was forecast for the current biennial budget. The forecast sets a cap on how much money lawmakers can use in the new spending plan.

Sales-tax receipts have risen at “an amazing trajectory” since touching a low in 2010, Combs said at a briefing. The pace will slow to 2.4 percent in 2014 and then rebound to 5.9 percent in 2015, she said. She cautioned that single-family housing permits are increasing modestly, while businesses may cut spending because of gridlock in Congress over the federal debt.

$14 Billion Miss

The January 2011 forecast from Combs will wind up off by more than $14 billion on the low side for the two-year budget, according to Stuart Greenfield, a former comptroller’s office analyst who teaches at Austin Community College. In December 2011, she raised her forecast and projected a $1.6 billion surplus by the Aug. 31 end of fiscal 2013.

The initial forecast set the stage for spending cuts, including $5.4 billion from public schools, said Eva DeLuna Castro, a senior budget analyst at the Center for Public Policy Priorities, an Austin-based nonprofit group that advocates for issues affecting low- and middle-income citizens.

“In the last session, legislators left town saying they’d fully funded Texas’s needs and the leadership said they had made tough choices,” Castro said. “But when you cut $11 billion out of current services and you face six lawsuits over our school- finance system, you can’t say there is no connection.”

Texas limits its part-time legislature to a 140-day regular session every two years, and has statutory caps on some types of spending.

Court Test

A trial that began three months ago in Austin pits groups representing a majority of school districts against the state and its method of financing public education. The result probably will be appealed no matter which side wins, ultimately putting the issues before the state Supreme Court, said Clay Robison, a Texas State Teachers Association spokesman.

The economic advances in Texas are also reflected in its expanding reserve, or “rainy day” fund, which stood at $8 billion in November and may climb to $11.8 billion by August 2015, Combs said. The fund relies on levies from oil and gas production.

While Perry has urged legislators to preserve the fund, Lieutenant Governor David Dewhurst, a Republican who leads the Senate, wants to use $1 billion of it for water projects in drought-stricken areas.

The Texas economy is outpacing other U.S. states because it has the financial strength of Germany and the cost competitiveness of China, said Steve LeBlanc, co-founder of CapRidge Partners LLC in Austin and a former senior managing director at the state’s $110 billion Teacher Retirement System pension fund. “It’s more than just an energy boom,” 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: Stephen Merelman at smerelman@bloomberg.net.

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