Comptroller outlines state’s financial outlook, transformed by COVID-19

TAC’s 2020 Legislative Conference opens with Hegar discussing budget issues

By Jody Seaborn and Zelma Smith

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Members of the Texas Legislature are bracing for what they expect will be one of the more challenging sessions in recent history when they convene in mid-January. The coronavirus pandemic and the steps taken to curb its spread have created an economic crisis that, coupled with low oil and gas prices, may leave lawmakers confronting a revenue gap that could rival the $15 billion to $27 billion shortfall that the Legislature faced in 2011. 

How challenging the next session will be will become clearer a few days before it begins. That's when Comptroller Glenn Hegar will release the revenue estimate for the next two-year state budget that lawmakers must write. The Texas Constitution prohibits them from exceeding the comptroller's estimate. 

Texas Comptroller Glenn Hegar addresses attendees during the Opening General Session of the TAC Legislative Conference, which was held online in August for the first time in the Association’s history.  

Appropriately, the Texas Association of Counties began its 2020 Legislative Conference on Aug. 26 with Hegar discussing the budget outlook. The rosy projections of a year ago have given way to more dire forecasts driven by a pandemic no one could have foreseen, Hegar told county officials via videoconference. 

"We certainly couldn’t have predicted that our state’s multibillion-dollar revenue cushion would have turned into a multibillion-dollar shortfall," he said. 

AC Legislative Director Noe Barrios kicks off the Opening General Session, "State of Financial Affairs and Impact of COVID-19 on State Budget," from the TAC Events Center in Austin.

In July, Hegar issued a revised revenue estimate, which projects that the state will have $110.2 billion available for general-purpose spending for the remainder of the current two-year budget cycle, which ends Aug. 31, 2021. Hegar’s revised estimate is $11.6 billion below the revenue forecast he released in October 2019 and includes an expected $4.6 billion deficit rather than the $2.9 billion surplus in the earlier forecast. Lawmakers will have to cover that shortfall when they gather next year, in addition to writing a budget within available revenue for the 2022-23 biennium, which begins Sept. 1, 2021, and ends Aug. 31, 2023.

Bee County Judge George Morrill spoke during the "COVID-19 Grant Resources Roundtable."

Hegar's revised estimate doesn’t assume the possibility of additional federal coronavirus relief or take into account the 5% cuts to their current budgets that Gov. Greg Abbott, Lt. Gov. Dan Patrick and House Speaker Dennis Bonnen ordered most state agencies to propose. Many of those cuts target county funding for programs such as indigent defense and formula funding for juvenile and adult probation departments. Various factors and adjustments could modify where the numbers end up, favorably or otherwise. 

Revenue for fiscal 2020 — the first year of the current biennium, which ended Aug. 31 — was down 1.5% from fiscal 2019, according to the comptroller's office, putting it slightly ahead of where Hegar’s revised estimate expected it to be. Robust retail trade and online shopping helped boost yearly revenue by bringing in nearly $3 billion in sales tax receipts in July, Hegar reported in a news release, an increase of 4.3% over July 2019. But a 5.6% reversal in August sales tax collections compared with the same month a year ago followed. The reversal continued in September, when the sales tax revenue remitted to the state came in 6.1% below the amount collected in September 2019. 

Mixed signals aside, "we don’t expect the economic output in employment and state revenues will return to pre-pandemic levels before the end of this biennium," Hegar told conference attendees. "The economy, unfortunately, has just fallen too fast and too far."

Robin Knipling, Victoria County grants administrator, also presents during the roundtable. Also presenting were Mason County Judge Jerry Bearden and Williamson County Judge Bill Gravell.

And the state's vital energy sector, which already was reeling from Saudi and Russian production cuts when the pandemic caused global demand for oil to collapse, is experiencing a historic downturn. "We think it’s going to take some time for the oil recovery here in Texas and the United States," Hegar said. 

When faced with downturns in the past, state lawmakers have resorted to spending cuts and accounting maneuvers to write a budget. They've also dipped into the Rainy Day Fund, or the Economic Stabilization Fund as it’s formally known, to close some funding gaps. Hegar said his office expects the Rainy Day Fund will end the current biennium with an $8.8 billion balance. 

"That’s a big asset for lawmakers to have to navigate the current budget challenges that we are facing," Hegar said.

Hegar was in the Texas Senate when the Legislature grappled with the 2011 shortfall. That session was "a miserable time packed with a lot of tough decisions," he said.

Similar misery may await lawmakers next year as they balance the current budget and write the next one. Hard choices will have to be made, and those choices undoubtedly will affect the limited funding counties receive through the state budget. "Belt tightening will obviously be a given," Hegar said. “Cutting is always difficult." 

But decisions must be made, he said. “One of the things we talk about in my office and that I talk about with my three kids,” when dealing with the uncertainties that currently surround us, "is in 2020, one of the words is ‘flexibility.' Another is 'adaptability.'"

Those are two good words to keep in mind as the state moves toward and into next year, Hegar said. 

For counties already scrambling to cover the pandemic’s unbudgeted costs and hits on revenue, the fiscal impact of unfunded and underfunded mandates such as indigent defense and the confinement of inmates for the Texas Department of Criminal Justice in county jails will continue. As with any legislative session, proposed new mandates and regulations with no accompanying funding are inevitable.