That sound you hear is state revenues falling

Look out below!

Comptroller Susan Combs today estimated that Texas has about $9 billion less to spend - $77 billion - than it did two years ago.

Combs called her revenue estimate, which caps how much lawmakers can spend in the legislative session that begins Tuesday, "decidedly cautious."

While Texas dodged many bullets in a national economic slowdown that began just over a year ago, the Republican comptroller said the state's prosperity has cooled because of raging turmoil in financial, housing and auto markets.

"The effects of what may become the worst national recession in many decades will be too large to avoid," she said. "The state is not immune."

It gets worse.

Dick Lavine, of the Center for Public Policy Priorities says this downbeat revenue number is worse than the even-keel number many had expected.

More headlines:

--Some 111,000 non-farm Texas jobs will be lost in the first three quarters of this year.

--Legislators cannot count on the Permanent School Fund generating money traditionally counted on by schools to pay some costs. A constitutional provision keeps those transfers from happening if there's not enough interest revenue coming from the corpus. Punchline: More than $700 million will flow from that source this year; Combs says none will be available in 2010-11.

Depressed yet? Here's more.

Combs says job growth has already peaked in Texas. We're going from adding an average of more than 20K jobs a month to job losses. The housing sector has similarly slowed, with existing home sales down 16% and new home starts down 30%.

As for the state's sources of revenue, sales tax revenue is down "considerably", margins tax (in the first full year of collecting under the revised structure) came up way short, and oil and gas revenues are "much lower" -- down to $3.3 billion from $4.5 billion.

Words heard during her announcement included "down", "slowing economy", "worst national recession in decades", "cooling", and "gloomier".

"I really understand that people are worrying about the future, and that is reflected in reduced spending," Combs said. "But we are still innately optimistic in this state".

Hard to imagine why that might be the case right now. You can see the Comptroller's report in its full gory detail here. Two things to consider: One is that the eagerly awaited federal economic stimulus package will surely include some coin for Texas, which may lead to a revised estimate that bumps the revenue numbers up a bit; it seems Combs took a fairly conservative viewpoint to begin with, so at the very least we're unlikely to see a downward adjustment later. And two, this total isn't the final word regardless of whatever President-elect Obama and the Congress do, as noted in the DMN story:

Comb's estimate that lawmakers will have $77.1 billion to spend doesn't include $3 billion of surplus money that was recently transferred to pay for school property tax cuts.

And it doesn't include money in the state's self-replenishing "rainy day" fund for emergencies.

Mostly drawn from oil and gas revenues, the rainy day fund outgrew all estimates last year and this year. It will have $6.7 billion by Aug. 31. Combs foresees it growing to $9.1 billion by September 2011.

Tapping the funds requires a two-thirds vote by lawmakers in each chamber.

Remember how I wondered what the Lege might do to fund future property tax cuts in the event of a revenue downturn? I have a feeling the answer might involve the words "rainy day fund". Putting aside the question of whether or not such a thing qualifies as the kind of emergency this fund is supposed to cover, I can imagine a deal being brokered where some RD funds are released to pay for (say) Galveston relief or an expansion of CHIP in return for a set-aside in the next biennium like what we have here for more property tax cuts. It's something for everyone, and it doesn't involve raising taxes or fees. It's also crazy and irresponsible, but hey, when has that ever stopped anyone? All I'm saying is be prepared to not be surprised by whatever does happen. Burka has more.

Posted by Charles Kuffner on January 12, 2009 to Budget ballyhoo