Texas economy

Texas economy buzzes, adding $14 billion to state surplus amid record sales taxes

AUSTIN — Texas has recovered so fully from the economic crisis caused by COVID-19 that state tax revenues have set records, adding $14 billion to an already bloated surplus, Comptroller Glenn Hegar said Thursday. .

Inflation is a factor, but so is rapid population growth and a thriving energy sector, Hegar said.

“I’m rounding it up to $40 billion,” Hegar said of his projected surplus, shortly before formally informing GOP heads of state of the good news in a letter updating his “estimate of certification revenue” from eight months ago.

In the two-year budget cycle that ends in 13 months, about two-thirds of the state’s $40 billion cushion is state discretionary revenue that lawmakers can spend when they meet next year. next, Hegar noted.

The rest is in a “rainy day fund” that would require supermajority voting to tap into, the Republican tax collector pointed out.

Sales tax is the workhorse of state revenue, and it’s gone crazy, Hegar said in an interview with The Dallas Morning News.

“Yes, we have record sales tax numbers,” he said. “Even without inflation, we would still have record sales tax numbers.”

In the past three months, even after adjusting for annual inflation of 8% or 9%, state sales tax still increased 3.7% from the same month a year earlier. , did he declare.

Its new forecast calls for sales tax growth of about 19% in the fiscal year that ends at the end of next month.

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Total tax revenue is growing even more dramatically in the current fiscal year — by 24%, Hegar said.

And that reflects the year-over-year growth in collections of certain taxes that are growing even more dramatically than sales tax – natural gas production (184%), oil production (81%), hotel occupancy ( 43%).

Last year, lawmakers passed and Governor Greg Abbott signed a two-year “all-funds” budget that spends $264.8 billion. Of this amount, $143.5 billion, or 54%, is federal funds. The budget plans to spend about $125.5 billion in state discretionary income.

But Hegar said there would be $149.07 billion in general purpose funds.

Combined with some spending cuts, it projects an ending balance of “general revenue related” funds of $26.95 billion.

In the Rainy Days Fund, fueled mostly by oil and gas tax revenue, it projects $13.66 billion will go unspent by Aug. 31, 2023.

Add the $13.66 billion and the $26.95 billion, and you get about $40 billion.

Conservative estimates

But Hegar is cautious in projecting revenue for the fiscal year that begins September 1. Sales tax would only increase by 1.5% next year and overall tax revenue by 2.3%, he said.

“That’s a very conservative estimate for the second year,” Hegar conceded.

It’s not predicting a recession so much as staying at the low end of its fiscal 2023 revenue projections, he said.

Why? Perhaps because he still has six months to watch the economy before his revenue estimates become the real determinant of how much lawmakers can spend.

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“They’re not in session,” he said. “They’re not making decisions on the budget right now. They won’t do them until January. There is a large cash carryover balance. And so whether we’re more or less conservative in Year 2 won’t really impact decisions by January.

But about $300 million a month in state sales tax right now “is being dragged down because of inflation,” Hegar said.

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The two-term comptroller, who is seeking re-election this year, said he was trying to keep in mind the pressure Texas workers and consumers are feeling from rising prices.

The average Texas family pays $3,500 more a year because of inflation, he said.

Property tax relief, school funding

Lieutenant Governor Dan Patrick released a statement on Thursday outlining how he would prioritize the spending of excess funds:

  • Use an additional $4 billion for property tax relief next year
  • Permanently increase homestead exemption to $60,000 and eventually to $100,000
  • Suspend state gasoline tax for remainder of 2022
  • Provide another 13th check for retired teachers

“I believe, first and foremost, that any surplus should go to the taxpayers of Texas first,” Patrick said. “Texas homeowners need tax relief before committing to new spending.”

Christy Rome, executive director of the Texas School Coalition, a public school advocacy group, applauded state leaders for wanting to use the excess property tax relief. But that shouldn’t come at the expense of students, she said in a prepared statement that urged lawmakers to invest in public education in next year’s legislative session.

“Local schools are struggling to cope with soaring costs, from schools buying fuel for buses to rising housing and utility costs that teachers and their families face at home. “, Rome said.

oil and gas

As Hegar tries to figure out if the revenue will float in the state budget, he pays more attention to the sales tax than the wild swings in power generation tax revenues.

Primarily due to rising oil and natural gas prices, not a wild production boom, he nearly doubled his estimate of how much natural gas severance tax the state will collect this cycle. – to $9.15 billion from its projected $4.7 billion last November. For oil, the start tax for the round will be $12.8 billion, down from the $9.6 billion he forecast eight months ago.

Texas has 361 active oil rigs, Hegar said. The number had dropped at the height of the pandemic to 100 in August 2020. But it is still a long way from the record high of 540 in October 2018, he said.

Hegar raised its projected price of West Texas Intermediate crude oil. In November, he estimated that the current year price would average $75 a barrel; and $70 next year.

In his letter to Abbott, Lt. Governor Dan Patrick and President Dade Phelan, he raised them to $90 a barrel for fiscal 2022 and $97 a barrel for next year.

At 2:30 p.m. Thursday, the New York Mercantile Exchange listed the price at $96.46 a barrel.

The $300 million a month in inflation-linked sales tax “is a real number, which also reflects the impact it has on members of their average household,” he said. “That’s a bigger factor than volatility in oil and gas severance taxes and prices in general.”

Overlooking guesswork is a big uncertainty, he said.

The last two and a half years have been a frantic race for an income estimator, he said.

“Wow, you just don’t know what’s going to happen next,” Hegar said. “The pandemic. Uri winter storm. The invasion of Ukraine. I mean, what world we live in right now.