More Bad News for Texas
The Texas State Capitol in Austin. Ricardo Garza / Shutterstock.com
The Lone Star State’s oil boom is on track for a major bust. What does that mean for the state budget?
The big headline in Friday’s Dallas Morning News should send shivers down the spines of any state budget planner: “Texas oil boom heading for bust in a hurry; downturn may be prolonged.”
High-growth Texas, which escaped the worst of the Great Recession thanks in part to its strong energy sector, is already feeling the pain from the steep downturn in global oil prices.
While the News notes that the “full brunt of the price collapse has not hit the Texas fields,” layoff announcements are “flowing fast.” Oil-sector hiring is at a standstill. There’s been a 45 percent decline in drilling permits filed with state regulators since March.
Just as state lawmakers have returned to Austin for the biennial legislative session, the state comptroller, Glenn Hegar, released revenue projections predicting a 14.3 percent drop in revenue from oil production and energy regulatory taxes.
“The significant drop in oil prices in recent months will likely lead to a marked slowdown in oil exploration and production. This slowdown will dampen overall economic growth in Texas,” Hegar said in a statement.
While Hegar delivered sobering numbers, his statement also painted a glass-half-full scenario—the Star-Telegram described the comptroller’s revenue assessment as “guardedly optimistic.”
“However, in addition to the economic boost felt by Texas motorists as a result of lower gasoline prices, there are industries in Texas’ diverse economy such as transportation and some manufacturing that will benefit from lower energy prices,” Hegar said in his statement. “This, coupled with continued strength in construction, professional services and other sectors of the broader economy, should somewhat counterbalance a slowdown in the energy sector.”
It’s hard, however, to count on the comptroller’s predictions.
“[D]on’t bet the ranch on Hegar's forecast,” according to The Texas Tribune. “It is almost certainly wrong. No matter how hard state officials try to foresee swings in the oil market, its predictions are often inaccurate—sometimes wildly.
While major job losses in the energy sector will certainly hurt Texas, the state has a diversified economy. And compared to most states, Texas has a generous cushion of fiscal reserves, $10.3 billion for fiscal 2014, according to a new Pew Charitable Trusts assessment. That would allow the Lone Star State to run its government for nearly 80 days on reserve funds.
Now it’s up to the Republican-dominated state government to craft a two-year budget.
“I am confident that will be able to craft a budget that prioritizes education, border security, jobs and transportation funding without growing faster than the growth of population plus inflation,” Gov. Greg Abbott said, according to the Star-Telegram.
The largest source of revenue for the Texas state government comes from the sales tax, which makes up nearly half of the state’s general revenue. Hegar’s office predicts that that the sales tax will generate $61.2 billion for state coffers in the 2016-17 biennium.
Texas House Speaker Joe Straus has released his $202.4 billion budget plan for the two-year biennium, which increases spending by 0.2 percent.
“This plan proves that the Texas House remains serious about fiscal discipline,” the San Antonio lawmaker said in a statement. “We are able to hold spending in check while addressing some very important challenges related to our rapid growth.”
(Image by Ricardo Garza / Shutterstock.com)
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