Biennial Revenue Estimate, 2008-2009

Transmittal Letter

January 8, 2007

The Honorable Rick Perry, Governor
The Honorable David Dewhurst, Lieutenant Governor
The Honorable Thomas R. Craddick, Speaker of the House
Members of the 80th Legislature

Ladies and Gentlemen:

In accordance with Article III, Section 49a of the Texas Constitution, I present herewith my revenue estimate for the remainder of fiscal 2007 and the upcoming 2008-09 biennium.

For 2008-09, the state can expect to have $82.5 billion in funds available for general-purpose spending.

General revenue-related tax and fee collections in 2008-09 are estimated to reach $77.5 billion, with tax revenues accounting for 87 percent of the total. Approximately 61 percent of this tax revenue will come from the sales tax. Other significant sources of general revenue include motor vehicle sales taxes, the franchise tax, the natural gas tax, insurance premium taxes and lottery proceeds.

In addition to the general revenue-related funds, the state stands to collect $79.3 billion in federal receipts and other revenues dedicated for specific purposes and therefore unavailable for general-purpose spending.

State revenue collections from all sources and for all purposes should total $156.8 billion.

This estimate is based on my current economic forecast, which indicates that, consistent with national economy trends, the average annual growth in inflation-adjusted gross state product (GSP) will fall by 27 percent in the next biennium—from 4.5 percent in 2006-07 to a more sustainable 3.3 percent in 2008-09. In contrast, during the 2002-03 downturn, inflation adjusted GSP rose by an average of 1.8 percent per year. Current slowdown notwithstanding, Texas' GSP is still expected to outpace national economic output this year and next, and at least match the national economy in 2009.

In 2006, the 79th Legislature, 3rd Called Session, enacted HB 2, which established provisions for dedicating to the newly-created Property Tax Relief Fund portions of franchise, cigarette and other tobacco, and motor vehicle sales tax revenue. The dedicated revenue is the amount collected under the revised tax statutes pursuant to HB 3, HB 4 and HB 5, 79th Legislature, 3rd Called Session, that exceeds the amount estimated to be collected under prior law. For the 2008-09 biennium, the amount estimated for the Property Tax Relief Fund from the three bills, plus interest, is $7.6 billion. When added to the partial-year collections of $512 million in 2007, the total amount accruing to the new fund for the three years 2007-09 is estimated at $8.1 billion.

I wish to emphasize that whenever our economy enters a turning point, it is always difficult to gauge the magnitude and duration of the ensuing "correction." In such times, I believe that the most prudent course is to adopt a conservative stance until the direction of the economy becomes more certain. As such, this estimate remains subject to revision as the state and national economy evolve. I shall continue to monitor economic conditions and will make revisions whenever necessary to ensure that your deliberations are based on the most accurate and timely information available.


Susan Combs
Texas Comptroller of Public Accounts

c: John O'Brien, Director, Legislative Budget Board