The Truth About Raiding the Texas ESF (Rainy Day Fund)

The truth road signBy Sheri Edwards, Texas Conservatives

Folks, the Texas Legislature has thrown up their hands again stating that they cannot find a way to pay for required Texas infrastructure without robbing the Rainy Day Fund, and they have chosen You the Voter to be their accomplice.  They want you to approve a constitutional amendment to raid the Fund because they didn’t want to do the hard work of making cuts – instead they increased the budget.  They also did not want to do the hard work of overhauling an agency (TxDOT) who is mismanaged.  Instead, they want you to give permission to take money out of our savings account to give to TxDOT to continue on their road to mismanagement.

Almost all of the senate and leadership moderates in the House, such as Rep. Drew Darby of San Angelo, have been claiming that we don’t pay enough in taxes to fund TxDOT. Now they want to divert half our emergency savings money to TxDOT in perpetuity. Never mind that amidst all the crying for road money, these same legislators have done little to end all of the diversion to other sources of money already supposed to go for roads. Robert Pratt

The Legislators and the Comptroller haven’t factored in basic economic principles of supply and demand and forecasts for declining prices for oil and gas when looking at the revenues they expect to receive from oil and gas severance tax.  I’ve worked in oil and gas for 24 years. Just like any business, price drives the business.  As prices per barrel or Mcf fall, so does production.  Therefore, so will severance taxes.  The prices of both oil and gas are dropping and are forecasted to continue to do so.  (See Moody’s cuts price assumptions for natural gas, oil through 2015.)  The legislators are also not advertising the fact that passing Prop1 will not fully take care of the annual deficit. They are leading the public to believe this is the answer to all of our problems, and yet it is not true! (See Voters poised to give TxDOT more money, but shortfalls persist.)

What part of the term “Rainy Day Fund” don’t some politicians grasp?  The “Rainy Day Fund” is meant to be a contingency fund for significant budget shortfalls that fail to provide for emergencies. It is not a piggy bank for politicians too lethargic to find cost savings in an otherwise free-spending fiscal environment.  The most recent major withdrawal from this fund was last year’s voter approved constitutional amendment to use $2 billion to shore up and repair the dismal water management infrastructure and conservation efforts in our state — an important issue in Texas.◊

Last Session, $4 billion in ESF dollars were appropriated to fully fund education and Medicaid. Texans approved an amendment in November 2013 to take $2 billion from the ESF to pay for water projects and will vote on an amendment in November 2014 to use another roughly $1.4 billion to pay for transportation projects during the 2014-15 biennium.

Using one-time funds to pay for ongoing expenditures only delays needed difficult decisions, while simultaneously depleting one-time funds that should be saved for future emergencies or tax relief. Put differently, no reasonable person would advise a household who is spending more than their monthly income to tap their savings account to pay for a lifestyle beyond their means. If we wouldn’t advise that for a family, then why would we collectively, as a state, advise that for our government?

While publicly feigning poverty, TXDOT will submit a biennial budget request to appropriators for $20 billion. Ignoring these boondoggles, agency officials are emphasizing their purported need for an additional $5 billion simply to keep up with growing population needs.

This fall, Texans will have a vote on Proposition 1, a constitutional amendment creating a major funding source for the agency. With leadership like this, it is certain that much of the new money will be wasted on similar initiatives that have little to do with operating the agency now and addressing current, vital transportation needs.

Texans are right to be skeptical of TXDOT; episodes such as this demonstrate why the agency has a long way to go to earn the public’s trust. While trying to develop driverless cars, it appears TXDOT has a bigger problem to tackle: driverless leadership.-TXDOT’s driverless leadership by Christopher Paxton

The Economic Stabilization Fund (ESF) — commonly called the “Rainy Day Fund” — was created by the passage of an amendment to the Texas Constitution in November 1988. The ESF is established in Article III, Section 49-g of the Constitution and became effective on Sept. 1, 1989. Section 49-g spells out:

• Revenue sources deposited to the ESF and
• Requirements for making appropriations from the ESF

In the mid-1980s, Texas experienced a severe economic crisis.  In 1984, against a backdrop of declining tax revenues, the 68th Legislature, 2nd Called Session passed a major package of tax increases.  The following session, the revenue continued to be lower than expected, causing problems for the State. The passage below comes from House Research Organization’s Special Legislative Report: the August 1986 Special Session: a Preview

“In November 1985, the price of oil stood at $28 per barrel. By the beginning of this year, increased production by oil-producing countries, especially Saudi Arabia, started a steep price decline that turned into a freefall. In January, prices fell $5 in one week. By March, the price was $12 per barrel.… The state has reached the point that by December 1986 … it may not have sufficient cash available to cover its warrants.”

The Governor called the 69th 2nd Called Session and 69th 3rd Called Session to deal with the shortfall. By the end of the 3rd C.S., the Legislature had enacted both spending cuts and tax increases. The House Research Organization’s Special Legislative Report: Wrap-up of the 1986 Special Sessions provides detailed descriptions of both the cuts and the tax increases. Budget problems continued, and the Legislature did not pass a General Appropriations Act during the 70th R.S. A budget was passed by the 70th 2nd C.S., along with a package of tax increases reported to total some $5.6 billion.

From Texas Public Policy Foundation (TPPF): 

The Facts

* The ESF is expected to grow due to the substantial increase in oil and gas production across the state.
* If the fund reaches $8.1 billion as projected, the ending balance would be near a record high. 
* Using one-time funds to pay for ongoing expenses is poor public policy. 

Recommendations

* The ESF should only be spent on one-time emergency items or tax relief. The funds should not be spent to support ongoing expenses. 
* At a minimum, even in the face of one-time emergencies, lawmakers should preserve an ESF balance equal to 5% of the general revenue and general revenue dedicated funds in the 2014-15 budget. 
* Based on the 2014-15 Certification Revenue Estimate, the Comptroller estimates general-purpose revenue to be $98.9 billion, which would amount to a minimum ESF balance of $4.9 billion.
 

For more information, please see our previous article Proposition 1 – Why Vote “No”

 ◊ From Rainy Day Fund not piggy bank for politicians
► From Economic Stabilization Fund Report, TPPF
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This entry was posted in 2014 Election, Prop 1, Rainy Day Fund, TxDOT, Wasteful Spending. Bookmark the permalink.

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