Texas Comptroller Susan Combs 2014-2015 Biennial Revenue Estimate
Jan. 7, 2013
Pursuant to my Constitutional duty under Article III, Section 49a, I am delivering my estimate for the available revenue for the 2014-15 biennium to the Legislature and Governor today.
Let me begin with a brief overview.
When you add the numbers, the general revenue available for certification in 2014-2015 is $101.4 billion.
Let me tell you how we got there: All projected General Revenue collections expected in 2014-15 comes to $96.2B.
Less the amount required to be set aside for future transfers to the Rainy Day Fund which is $3.6 Billion—that gives us Net General Revenue of $92.6B.
Added to that is the estimated Net revenue collections is an $8.8B beginning balance in GR for the 2014-15— which is the general revenue ending balance of the current 2012-13 biennium.
Altogether then, this gives the Legislature the estimated $101.4B for general purpose spending in the upcoming 2014-15 biennium.
Just as we experienced a sharp drop in state revenue several years ago—and a resulting budget deficit to be dealt with at the start of the last legislative session—robust revenue collections, driven forward strongly by a recovering Texas economy and led by sales taxes, will result in a budget surplus at the end of the current 2012-2013 biennium.
In addition to the taxes and fees which are deposited in the state’s General Revenue Fund, I might add that there will be also over $112.0Billion in federal & other receipts, and the total of all revenue collections to the state should be $208.2 Billion in the coming biennium.
I’d like to briefly step back and note that the general revenue collections in 2008-09 – leading into the recession- totaled 79.6 billion. In 2010-11 – as we hit bottom and begin climbing out – revenues were $4.5 billion less. The current biennium – 2012-13 – will see collections of 92.2 billion as the Texas economy rebounded strongly from a severe recession and revenue responded vigorously.
So we’d all do well to remember the dramatic drop in revenues that occurred during the recession just as we recognize the dramatic sharp increase that has happened recently.
What about the economy?
As measured by the effect on employment, the recession’s impact began about six months later in Texas, which was the summer of 2008, than the U.S. and ended at approximately the same time—right about the beginning of calendar year 2010.
Texas employment, you see right here, Texas employment, after falling by 428,000 payroll jobs from the peak of summer 08, regained all those jobs by December 2011 and has added an additional 258,000 beyond the pre-recession peak.
By contrast, the U.S., mirroring the sluggish national recovery, has recovered only about one-half of the 8.8 million jobs lost.
What about housing?
The housing sector—which was one of the hardest hit sectors of the Texas economy during the recession—has turned the corner. That’s not to say that it’s back in the most robust of health … just up off the bottom and showing improvement. You can see sort of this map here that shows that.
Single family building permits for 2012 should hit about 75,000 statewide. That’s up from 62,000 the previous year. But put this into perspective, 75,000 permits is what Texas was seeing in the mid-to-late 1990s. Again, up off the bottom and improving, but not back to where we once were.
Similarly, sales of existing homes are much improved and MLS sales should top 230,000 in 2012. About where we were a decade ago and far short of the mid-2000s when annual levels approaching 300,000 were seen.
Oil and Natural Gas.
Crude oil prices, after hitting a low, which you remember, of under $40 per barrel in the spring of 2009, have been in the mid $80s and to the mid $90 dollar range for many months. Market prices are expected to be in the mid to upper $80s range throughout the 2014-15 biennium.
Natural gas prices, which are currently low due to abundant supply, are expected to rise only very slightly to the $3.75 to $4.50 market price range during the upcoming biennium.
It is now becoming clear that shale formation technology, exploration, and production in Texas, as well as in other states, constitutes an extraordinarily important economic driver. Although the low price currently seen for “dry” natural gas has slowed drilling … the historically high price of oil has spurred shale production for oil and related liquid petroleum products.
In fact, five years ago we had about 900 rigs operating in the state. Similar to what we got today. But five years ago 700 of those rigs were drilling for gas and only 200 for oil. It has now flipped. It’s 700 rigs drilling for oil and about 200 for gas.
Let me talk about sort of major issue here which is sales tax, annual percent change, which is this chart to my left. Sales tax, I think as most of you know, accounts for about 60% of all TAX revenue in General Revenue and about 50% of ALL revenue itself going into GR. And it is exhibited quite a bit of volatility over the last decade or so as you see on this chart … going from recession … to recovery … to boom … the recession again … and then up to recovery (brief if at all) and boom. SO, SUMMING UP, If you look at this period of 2000 to 2012, what you have is two recessions, pretty sharp drops, two recessions and two recoveries within the span of just slightly over a decade.
Now construction, manufacturing, and oil and gas have been sectors that remit strongly in “up” periods and then of course their sales taxes are sharply “down” in off periods.
What is so of interesting to note is that retail stores and eating and drinking establishments which, although strong now and in the mid-2000s and certainly were down during the recession, they’re either up or down by only single digits and did not display the great volatility of construction, manufacturing, and oil & gas. The ups-and-downs in the consumer sectors are primarily related to fluctuations in employment levels and income. And by the way, this is sort of a general comment, not addressing any one particular item, consumer price inflation has been fairly tame for some years now.
Let’s go to chart number 4.
That’s, I want to talk a little bit about motor vehicles and our state oil and natural gas production taxes—which is severance taxes. What you have here these two categories of taxes—motor vehicles on the top & then the severance taxes below —they actually generate similar amounts of revenue. They each expected to bring in about $7 billion during the current 2012-13 biennium.
The volatility that we just discussed over here with sales tax, you can see even more so with motor vehicle taxes. In fact looking here at the top, motor vehicle sales taxes declined by over 22% in fiscal 2009—as we moved into recession. Then, following the downturn, the tax increased by over 12% in fiscal 2011 and then up another 20% in fiscal 2012.
Severance taxes are historically more volatile than many other revenue sources, generally due to the somewhat unpredictable price ranges in oil and natural gas prices. This pattern was certainly true in the 2000 thru 2012 period. Looking, you can see it in the chart there, showing strength in the early to mid-2000s primarily associated with natural gas and then later in the decade, and on through 2012, associated with higher oil prices & increased production—even as the price of natural gas declined.
Now last is the Economic Stabilization Fund otherwise known as the Rainy Day fund.
As I’ve talked before, the higher that you have your oil and natural gas prices are—and the more production we have—the more money goes into the Rainy Day Fund as well as the General Revenue Fund. Now at the end of this biennium, which ends August 31, 2013, the Rainy Day Fund should have about $8.1billion in it, which is the fourth blue bar, absent any appropriations that might be made by the 83rd Legislature.
Now of course, over the course of the next biennium, there will be two more transfers associated with oil and natural gas taxes. And we believe that the Fund would have approximately $11.8 billion in its balance at the end of the 2014-15 bienniuem —which will be August 31, 2015, absent any appropriations.
By way of history, from 1990 through 2011, money has been appropriated out of the fund in excess of $100 million in only 7 fiscal years—most recently in fiscal 2011, which is the last session to address a shortfall caused by the recession.
I want to stress that the Rainy Day Fund is not a reliable ONGOING source of additional funding for the state’s needs. One time uses, yes.
The state’s economy has exited recession and moved through recovery. The outlook that I am releasing today, for both state revenue and the economic picture, is for continuing expansion as the fast-growth period typical of an economic recovery gives way to a moderate, sustained growth.
Now while the Texas economic picture is certainly much different today than when I addressed you here two years ago, that doesn’t mean there are no clouds on the horizon. The economic and financial troubles dogging Europe drag on; the powerful Chinese economy has slowed; troubles in the Middle East continue to periodically arise, many without clear resolution. And the federal government remains gridlocked across a number of issues with the result being continuing uncertainty and delaying of purchasing decisions by businesses and households, and that also includes some possibility of increased taxation.