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Wednesday, March 16, 2011

Governor Perry Agrees to Dip Into Rainy Day Fund

Fiscal conservatives in Texas were disappointed to read Tuesday afternoon that Gov. Perry, Speaker Straus, and Comptroller Combs have come to an agreement to tap up to $3.2 billion of the state’s Economic Stabilization Fund (the “rainy day fund”) to close the current year’s budget deficit.

In 1988, Texas voters approved a constitutional amendment creating the Economic Stabilization Fund (ESF)— commonly referred to as the “Rainy Day” fund—to help the Legislature cope with revenue shortfalls by collecting excess money in boom times and saving it for leaner days. The Fund draws its money from excess oil and natural
gas tax revenues and half of any unencumbered balance left in the General Revenue Fund at the end of each biennium. The Texas Constitution defines “excess” as 75
percent of revenues that exceeded the amount collected the year before the passage of the ESF amendment in 1987. Though Texas’ ESF was originally established to deal
only with revenue shortages, the Fund’s cash balance remained low during its first decade because the Legislature chose to spend the money as soon as it became
available, rather than saving it for later. In fact, it was not until FY 2002 and 2003 that the ESF’s balance approached anything of significance, about $1 billion.


The fund is said to have about $9.3 billion at the present time. As a policy expert recently said, "It may be raining now but it is about to be a downpour." It is good to note that Governor Perry pledged to not use any funds from the Rainy Day Fund towards the 2012-2013 budget. Texas will experience serious budget challenges by 2013 as Medicaid mandates gobble away revenues. A policy paper on this particular budget challenge explains what Texas faces in the near future and as Talmadge Heflin, Director of TPPF’s Center for Fiscal Policy states, “Those who seek to empty the fund because it is raining today have not checked the long-range weather forecast. Our recent report, Final Notice: Medicaid Crisis, projected that Texas’ Medicaid program would require between $10 billion and $15.6 billion in additional state funds in the 2014-2015 budget cycle, the low estimate representing the cost if ObamaCare is repealed. Thus we can reasonably predict that economic pressures on the Texas state budget will be even more severe in the next legislative session."

It is a bit odd that this agreement was made so early into the legislative session. Only about half way though, it was hoped that more cuts would be targeted and that funds for programs to be de-funded be used for the budget deficit. Speaker Straus pledged to continue working to find such savings. Let's hope he keeps his word.

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