Oil and gas downturn has only minor impact on Texas tax revenues

Texas tax revenues sufficient to meet conservative budget, according to comptroller

The bad news is that Texas tax revenues from the oil and gas industry will fall $4.1 billion over the next two years, according to Comptroller Glenn Hegar.

The good news is that state tax revenue should be more than ample because the Legislature recently passed a conservative budget capped at $106.2 billion.

“Despite the significant retrenchment in the oil and gas sector we witnessed in fiscal 2015, revenues remained in line with the estimates we made in January,” said Hegar in a press release.

“That said, we anticipate that prolonged weakness in oil and gas markets will continue to slow our economy. While the CRE still predicts moderate growth for the state, current economic conditions dictate slightly lower revenue projections than those we released in January.”

Heger now expects revenue available for general spending in 2016 and 2017 to total about $110.4 billion, versus the Biennial Revenue Estimate (BRE) estimate of about $113 billion.

A larger-than-expected beginning balance, coupled with conservative budgeting from the 2015 Legislature, will provide an ample cushion for the state to absorb the 2.3 per cent reduction in estimated revenue, he said.

The Texas’ State Highway Fund (SHF) and the Economic Stabilization Fund (ESF) — the state’s “Rainy Day Fund” — both receive funding from oil and gas severance taxes, and are expected to feel the impact of the downturn in energy production.

The Certification Revenue Estimate predicts fiscal 2016 transfers of $1.1 billion each to ESF and SHF, in line with the BRE estimate, but fiscal 2017 estimates have been revised downward to approximately $594 million for each fund.

However, the Legislature passed a proposed constitutional amendment that would direct more revenue to the state’s transportation needs.

If in November 2015 voters approve the proposed constitutional amendment, then a portion of state sales tax and motor vehicle sales tax revenue will be deposited to the State Highway Fund. The deposits will not begin until fiscal 2018 and therefore will have no effect on the 2016-17 biennium.

“I will continue to monitor the Texas economy and state revenues closely, and will keep the public informed of significant events as they arise,” added Hegar.

Prior to each regular legislative session, the Comptroller’s office issues a Biennial Revenue Estimate (BRE) that estimates how much revenue will be available for spending in the state’s next two-year budget cycle. After the session, the agency releases the Certification Revenue Estimate to provide the detailed basis by which the Comptroller certified the budget and to revise estimates in the BRE to reflect new laws and current economic information, as well as to take into account final numbers for the recently ended fiscal year.

The Comptroller’s BRE projections, released in January, have proven to be accurate. Actual fiscal 2015 revenues for all funds fell just 0.3 per cent short of BRE estimates, while General Revenue-related totals came in 0.1 per cent ahead.

This level of accuracy provides a strong basis for forecasting revenues in the current economic landscape, said Heger.