Hegar gives lawmakers dour revenue estimate for 2017 session

Editor's note: This story has been updated throughout.

Facing sluggish economic forecasts amid low oil prices along with billions in tax revenue already dedicated to the state highway fund, Comptroller Glenn Hegar announced Monday that lawmakers will have $104.87 billion in state funds at their disposal in crafting the next two-year budget, a 2.7 percent decrease from his estimate ahead of the legislative session two years ago.

Hegar told state lawmakers he expected a "slow to moderate" expansion of the Texas economy. Still, he said, the amount of revenue they will be able to negotiate over has fallen. That's largely because lawmakers in 2015 moved to dedicate up to $5 billion in sales tax revenue every two years to the state's highway fund, rather than being spent on other priorities such as schools, health care or reforms to the embattled Texas foster care system.

"We are projecting overall revenue growth," Hegar said. "Such growth, however, is more than offset" by the demands of the state highway fund and other dedicated funds.

The revenue estimate does not determine the scope of the entire Texas budget. Rather, it sets a limit on the state’s general fund, the portion of the budget that lawmakers have the most control over. The general fund typically makes up about half of the state’s total budget.

Two years ago, Hegar estimated that the Legislature would have $113 billion in state funds, also known as general revenue. Adding in federal funds and other revenue sources, lawmakers would have $221 billion in total for its budget, as well as $11.1 billion in the state's Rainy Day Fund, he said at the time. Lawmakers ultimately passed a $209.4 billion budget, which included billions in tax cuts.

On Monday, Hegar estimated lawmakers would have $104.87 billion in general revenue, and $224.8 billion in total revenue to write a budget for the 2018-19 biennium which begins in September.

The state's Rainy Day Fund, fed largely by taxes on oil and gas development, will have a balance of $11.9 billion at the end of the next two-year budget, assuming legislators don't tap that savings account during the session that begins Tuesday, Hegar said.

“There are obviously going to be cuts to the budget. We’re just going to have to figure out where those cuts are going to come,” said state Rep. Drew Darby, R-San Angelo, one of the House’s experts on the budget. He said that the amount of general revenue available to lawmakers is $5 billion to $6 billion less than what it would take to cover current services when inflation and the growth of the state are taken into account.

It would take about $109 billion in general revenue to cover the cost of current programs and services provided by the state, a little more than $4 billion more than Hegar estimated the state will have to spend, according to an estimate from the left-leaning Center for Public Policy Priorities.

Gov. Greg Abbott said in a statement Monday that Texas would live within its means.

"As fiscal conservatives, we must treat our state budget the way families do – by funding our priorities, while constraining the size and growth of government," Abbott said. "I will work with the Legislature this session to craft a budget that funds our most vital services without growing faster than the growth of population and inflation.”

Hegar's forecast for oil prices Monday was far less rosy than it was two years ago, when he based his estimate on the assumption that a barrel of West Texas crude would average between $65 and $75 over the 2016-17 biennium. At the time, oil was trading at around $46 a barel. The averages since then have been well below $50 a barrel.

On Monday, while a barrel of West Texas crude was trading at around $52, Hegar's office said his latest forecast assumed oil would trade at $55.11 a barrel for the first year of the biennium and $59.26 for the second year.

Ross Ramsey contributed to this report.

Read more:

• In December, state leaders picked a spending cap for the next budget that many lawmakers predicted the state wouldn't have enough money to hit.
• In July, Texas' top elected officials directed state agencies to scale back their budget requests by 4 percent, seeking to further rein in state spending for the 2018-2019 cycle.

Disclosure: The Center for Public Policy Priorities has been a financial supporter of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.