FY19 Revenue, a half-time report
by Stuart Greenfield, Ph.D.
Two months ago Comptroller Glen Hegar released the Biennial Revenue Estimate (BRE), which predicts total revenue available for general-purpose Legislative spending for the 2020-21 biennium.
Lawmakers would have $8.9 billion (an 8.1 percent increase) more in additional revenue from the current two-year budget cycle which ends in August.
The $110,197.0 available from this current biennium (FY18-19), is $2.5 billion more than in the July Certification Revenue Estimate (CRE), and $5.3 billion more than in the BRE provided to the last Legislature.
Let’s take a look at the changes in General Revenue-Related Revenue through the first six months of FY19, and how these changes affect the amount now available for use by the current legislature.
Table 1 below shows revenue growth for General Revenue-Related (GRR) funds in FY19 has increased at a rate substantially higher than the estimated decline in the BRE. Through February 2019, six months through the fiscal year, GRR tax collections have increased by 2.2 percent compared to an estimated -1.7 percent loss in the BRE.
Table 1: General Revenue-Related-Revenues (Taxes, non-Taxes, and Total Revenue) through
February, FY18, FY19 (in millions of dollars) and Actual and BRE Rate of Change
While sales tax collections are declining, that rate of decline is 43.9 percent less than previously estimated. That may mean an additional $600 million in sales tax collections for FY19 which should result in an additional $1.0 billion in sales tax collections in the coming FY20-21 biennium.
But it was a big jump in collections of both the oil production tax, up 26.7 percent, and natural gas tax, up 31.3, that made the biggest differences. Should the current rate of increase continue through August, state coffers should expect an additional $1 billion in severance tax collections. By law, 75.0 percent of this increase will be transferred either to the Rainy Day Fund (RDF) or the State Highway Fund (SHF).
While the BRE notes a drop in the price of a barrel of oil from 2018 to 2019, both the Comptroller and the Energy Information Industry (EIA) expect stable oil and natural gas prices for 2019 and 2020. According to EIA’s short-term forecast production of both oil and natural gas should increase. Should these projects, stable prices and increased production, be realized, severance tax collections for FY20-21 could be $2.9 billion more than in the current estimate. This increase in severance taxes will provide both the RDF and SHF with an additional billion dollars in transfer payments.
Figure 1 shows the cumulative rate of growth over the last five fiscal years. The Year-to-Date (YTD) growth in FY19 GRR revenue is considerably less than the growth experienced in FY18. The FY18 growth rate is also substantially greater than the growth rate in FY14 through FY16. Each one percentage point increase in the GRR growth rate will increase GRR revenue by over $500 million per year or $1 billion per biennium.
Figure 1: Cumulative YTD Growth in General Revenue-Related Revenue, FY14-FY19
Source: Comptroller of Public Accounts
To achieve the BRE’s estimate for sales, oil production, and natural gas production taxes would require growth rates for the rest of the current fiscal year in these taxes to drop by -6.0 percent, -25.1 percent, and -12.6 percent, respectively. This decline would be difficult to achieve given the economic growth in Texas and U.S. All that is required to reach the BRE’s increase in GRR revenue would be for net revenue to decline by 3.9 percent for the remainder of FY19.
It now seems most likely that if present trends continue, increases in both sales and severance taxes will exceed the estimate for BRE FY19. Increasing economic growth in Texas is one factor contributing to the additional growth in tax collections.
The increase in sales tax growth along with increasing crude oil production and natural gas production and stable prices in the energy markets are the reasons for the increase in GRR tax revenue. These increases should result in an increase in GRR revenue in FY19 and the FY20-21 biennium
With this additional revenue, the legislature will have additional funding to improve public education and other longer-term issues, e.g., teacher insurance, infrastructure, employee and teacher pensions.
Dr. Stuart Greenfield holds a Ph.D. in economics from the University of Texas. He worked for three Comptrollers of Public Accounts and other Texas state agencies. Since retiring from the state in 2000, Greenfield has taught economics at ACC and UMUC.