Texas Comptroller of Public Accounts

Texas Comptroller of Public Accounts, Glenn Hegar

skip navigation

Texas Comptroller Susan Combs
2012-2013 Biennial Revenue Estimate

LBJ State Office Building
Austin, Texas
Monday, January 10, 2011

Good morning. Welcome. Pursuant to my Constitutional duty under Article III, Section 49a, I am delivering my estimate for the available revenue for the 2012-2013 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 2012-2013 is $72.2 billion.

Let me tell you how we got there: All projected General Revenue comes to $77.3 billion.

Less the amount required to be set aside for future transfers to the Rainy Day Fund gives us Net General Revenue of $76.5 billion. Offsetting the estimated revenue collections is a projected negative $4.3 billion ending balance for the current biennium.

This would become the beginning balance for the 2012-2013 biennium and leaves the Legislature with the estimated $72.2 billion for general purpose spending in the next biennium.

The reason for this negative balance was the weakened economy and its impact on sales tax and other major revenue sources DURING THE LAST COUPLE OF YRS.

Sales taxes account for approx. 64% of all tax revenues. These revenues dipped sharply.

I might add that there will also be over $100.5 billion in federal & other receipts, and the total of all revenue collections to the state should total $177.8 billion in the coming biennium. I want to commend the state’s leadership & their foresight approximately a year ago sending the first instructions for state agencies to curtail spending.

This was followed, as you know, by a second letter in May of 2010 and most recently by another request for agencies to further curtail spending.

During the recent recession, all across Texas, consumers & businesses didn’t spend money, thereby lowering tax revenues, and they also showed a marked increase in their savings rate.

The other point I would like to make is that GENERAL revenue collections during 2012-13, are expected to be $5 billion more than what we are now projecting for 2010-2011, with more than $3 billion of that gain from sales tax… thanks to the improving economy.

In the current biennium, 2010-11, we expect sales tax collections to be 6% below the previous biennium…but in 2012-2013, collections should be up by 8%.

What about the economy?
The state has not been immune to the economic forces wreaking havoc in other sections of the country. (Poster #2- employment)If you’ll take a look at the poster, here on my right. This is based on the number of months that goes in a recession and this one here is the United States and this green one is the present recession that we have just come out of.

Poster #2 shows the impacts the most recent and previous recessions have had on Texas jobs. This recession (Green line) has been more severe than previous recessions. However, as you can see, we have turned the corner.

The recession’s impacts began later in Texas (summer of 2008) than the U.S., which was December 2007, and Texas is recovering faster.

In fact, Texas employment has increased by more than 220,000jobs since employment returned to growth in the fall of 2009.

This represents a 51% recapture of all jobs lost, versus the US percentage of a little more than 13%. The state is on pace to recover all jobs lost in the recession by 2nd half of fiscal 2012.

Now let me take a look at this poster over here. (POSTER THREE WITH MULTIPLE INDICATORS)

Let’s talk about housing.
The vibrant housing climate in Texas has turned down. From an extraordinary high in 2005 of new single family housing starts, today, housing permits are at only 40% of their peak.

This puts us back below the level of 2000, more than a decade ago. The earlier peak issuance of permits was in large part due to much different credit practices.

However with credit tightening and the mood of marked caution, the housing sector has yet to show real improvement. The green line is the personal savings rate and then it’s obviously going up. And the blue line is single family and the gold line is non-residential.

What about oil and natural gas?
Crude oil prices, after hitting a low of near $50 per barrel in the spring of 2009, have been in the mid$70s to nearly $90 dollar range for many months.Prices are expected to be in the $70-$80 range throughout the 2012-13 biennium.

Natural gas prices, currently low due to abundant supply, are expected to remain in the $4-$5.00 range during the upcoming biennium.

Texas in the out years should continue to benefit from the shale production activity in the natural gas sector.

I’d like to talk generally about the state’s largest tax, the sales tax.
As stated, sales tax accounts for about 64% of all TAXrevenue going to GR and 50+% of ALL revenue going to GR – it was in overdrive during the middle years of the last decade.

Specifically, construction, oil and gas and consumer sectors were the major drivers.

Fiscal 2006 saw sales tax receipts soar 12% over 2005, and FY 2007 saw those receipts up yet another 10.9%.

Fiscal 2008 was more than 6%.

Then the recession came and FY09 saw the receipts decline 2.7% from 2008 and FY10 saw a further drop, of 6.6% from 2009. These revenue drops had the effect on tax revenue we have discussed.

Construction, as I pointed out, was one of the three most active sales tax sources because of construction materials. So when new single family housing permits went from a peak in 2005 of 166,000 to about 62,000 in2010, that was a major drop in sales tax receipts from construction items.

Consumers in mid 2000 decade were spending at a new rate with virtually no savings. That has changed with savings rates at near 5%. Earlier they were buying new houses, and filling them with furniture, driving up those tax receipts. YOU CAN SEE THIS CLEARLY ON POSTER 3.

With respect to sales taxes paid by the oil and gas industry –crude oil prices went from a yearly average of $30 in 2003 to a whopping yearly average of $101 in 2008—then fell to an average of about $64 in 2009.

Fiscal 2010 saw an average price of $76 per barrel. This rise and fall in prices drove a corresponding rise and fall in activity which in turn affected sales tax revenues. More or less the same pattern was observed with natural gas.

In a general sense, the higher oil and natural gas prices are, the more dollars go into the Rainy Day Fund as well at the General Revenue Fund. At the end of the 2010-2011 biennium, which is August 31, 2011, the Rainy Fund should have about $8.2B.

Adding to the fund, over the course of 2012-13, will be two more of these transfers of oil and natural gastaxes. All told, the Fund would have approximately $9.4 billion in its balance at the end of 2012-13, absent any appropriations that might be made by the 82nd Legislature.

By way of history, from 1990 through 2010, money has been appropriated out of the fund in excess of $100 million in only 6 fiscal yrs.

And as you can see, it has a very volatile history due to price variations.

I want to stress that the Rainy Day Fund is not a reliable source of additional annual funding for the state’s needs.

It appears the state’s economy has turned the corner; however, signs of sustained and robust growth are not yet broad-based. The outlook I am releasing today, for both state revenue and the economic picture, is for tempered growth. And I would urge lawmakers to continue their historical practice of careful budget deliberations.

There are many national and international observers who have used the phrase ‘the new normal’ to describe spending and business patterns. This phrase would predict a more moderate and restrained economy for at least the next several years.

Required Plug-ins