Special to Texas Association of Builders
by Glenn Hegar
Not too long ago, my son Jonah asked me, “Dad, how many once-in-a-lifetime events are we going to have this year?” It’s a thought that’s crossed my mind, too.
After a year of dealing with the extraordinary challenges posed by the COVID-19 pandemic, Texans joined the rest of the world in hoping the accelerating pace of vaccination would begin moving us back to stability in our economy and our lives.
Instead, we were hit by a horrific winter storm that killed dozens of Texans and left millions more without power or safe drinking water for days. And now we’re all trying to understand why our state wasn’t better prepared — and how we can prevent this from happening again.
At the Texas Comptroller’s office, we’re working to determine how these crises will affect the state economy and the state revenues that depend on it. As comptroller, one of the most important parts of my job is forecasting how much revenue is available to pay for our state budget, which funds everything from education and criminal justice to basic infrastructure.
Even in good times, state revenue forecasting is a challenge. The Biennial Revenue Estimate (BRE) I delivered to the Legislature before it convened in January predicts how much money the state will have available to spend through August 2023, more than two and a half years in the future.
Comptroller experts are constantly checking and rechecking our data and projections against changing circumstances and that elusive variable, consumer confidence.
Our understanding of the pandemic’s economic effects has evolved since last summer, when we believed it would leave us with a shortfall of nearly $4.6 billion at the end of this fiscal year. Instead, the projected shortfall, which lawmakers will be required to address, has been whittled to a more manageable $950 million.
State revenues have outpaced our early expectations for a number of reasons.
One key factor is that we’ve received a lot of additional sales tax revenue thanks to state legislation following the U.S. Supreme Court’s 2019 Wayfair decision, which allowed states to require out-of-state vendors to collect state taxes. The pandemic shifted an enormous share of economic activity to the internet, and thanks to Wayfair and the Legislature, the state’s revenue hasn’t lost out.
Sales tax remittances from remote sellers and marketplace providers began flowing into our coffers in November 2019 and totaled nearly $1.3 billion in the first year; the tally now has climbed past $1.7 billion. For the most part, this is revenue the state wasn’t collecting only a few years ago.
Texas’ monthly sales tax collections still are mostly down compared to the months before the pandemic, but they would have dropped much more without Wayfair.
The picture may improve further, given the passage of federal stimulus legislation that included funds we can use to replace state general revenue.
In another positive development for our budget outlook, oil prices and production already are exceeding our BRE forecast, so we’ll almost certainly be increasing our estimates for oil and natural gas revenue collections.
We also see great potential for a surge in consumer spending as vaccines reduce the threat of the pandemic and people’s concerns recede. Personal savings rates have risen; in the first three quarters of 2020, Texans spent less of their total income, including enhanced government benefits, than in previous years. And some consumer debt has fallen at the same time.
Home construction also has been a bright spot. As the Texas Real Estate Research Center points out, home sales through Texas’ Multiple Listing Services rose by 9.4 percent last year, and the Texas Residential Construction Leading Index reached a record annual high. And many hope that a proposed federal infrastructure spending bill will give U.S. construction a major boost; Moody’s Investor Services has said that an infrastructure package could boost annual construction spending by nearly 50 percent in 2022.
We’re fortunate that Texas entered the pandemic on a relatively strong economic footing. In crafting the current two-year budget, lawmakers left money on the table, giving us a cushion when the pandemic hit. We also expect to have $11.6 billion in the Economic Stabilization Fund, the “rainy day fund,” at the end of the next biennium, absent any appropriations from the fund.
Despite the pandemic, we projected in the BRE that general revenue-related revenue collections will increase by 6.3 percent from this biennium to the next, which begins on Sept. 1.
But after closing the shortfall and making required transfers to the rainy day fund and State Highway Fund, lawmakers will have $112.53 billion in general revenue, slightly less than for the current budget.
I’ve told lawmakers my forecast may change again in the coming months, given the increased volatility of our economy due to the pandemic. No previous economic hit provides a relevant comparison to help guide our forecast as we recover from a recession that saw worldwide economic activity contract more deeply and quickly than ever before in moder times.
In Texas, this volatility was compounded by the winter storm, which on Feb. 16 alone left at least 4.5 million Texas customers without power. We may see a short-term increase in economic activity and sales tax revenue as individuals and businesses make purchases to repair the damage they suffered in the storm. But a great deal of value and wealth has been destroyed.
Some large industrial facilities suffered losses because they had to shut down temporarily, and then bring operations up again; some small, already struggling businesses face further challenges due to storm damage; and some homeowners and businesses saw very high utility bills if they didn’t lose power, which could be followed by higher rates in the future. Local governments are likely to face substantial costs in repairing infrastructure, especially water systems.
The state’s failure to provide reliable power, heat and water during this storm is a black eye we don’t need as we work to continue our enviable record of attracting businesses to Texas. If businesses and individuals lose confidence in the state’s ability to provide basic services, it could hurt our long-term growth. It’s a positive development that Gov. Greg Abbott and the Legislature are making it a high priority to look at what happened and ensure our state is better prepared for the next disaster.
In my office, we worked to make it easier for people to do business online during the pandemic and took actions after the winter storm such as helping to obtain an IRS waiver to help ease access to diesel fuel.
Our state’s commitment to a sound infrastructure — and our ability to pivot as we learn of fresh solutions to difficult problems — are key to our ability to thrive. My office is committed to providing the information and tools lawmakers and our customers need no matter how many “once-in-a-lifetime” events we encounter.