Checking in on State Revenue

Making sure every Texan has the tools they need to come through this health and economic crisis must be the top priority of state lawmakers as they make budget decisions.

The COVID-19 pandemic has highlighted how vulnerable our state’s already underfunded health care, schools and other critical services are, especially for Texans of color. Given the economic challenges the pandemic has wrought, will lawmakers really try to lay off teachers and overfill classrooms at a time when doctors recommend social distancing? Will lawmakers be sure to access whatever state and federal revenue options are available in order to keep hospitals and clinics adequately staffed, including in rural Texas? This summer, will Texas’ U.S. Senators fight for more federal economic relief to reduce this intense pressure?

What Lawmakers Will Face in January 2021

Earlier this month, Texas Comptroller Glenn Hegar announced that the state saw the biggest year-over-year drop in sales tax collections in a decade. Sales taxes were down 13.2% in May 2020 compared to the previous May – the largest drop since January 2010. Year to date, fiscal 2020 sales tax collections are still up 1.2% compared to the same period in 2019, but the comptroller’s Fall 2019 forecast had predicted 4.8% annual growth. If 2020 were to wrap up with a growth rate of 1.2%, sales tax revenue would be $1.2 billion short of the forecast for 2020.

The $8.5 billion already in the Economic Stabilization Fund (ESF) could replace a significant drop in state General Revenue. In fact, a scenario where revenue collections fall short due to an external force like COVID-19 that triggers a recession is exactly why lawmakers originally created the ESF fund. Relying on general revenue cuts to state services is not going to pull Texans out of this recession and could instead slow down the recovery. Even worse, state budget cuts to PreK-12 public education or higher education financial aid or other support could have generational impacts on future working Texans.

5% Cuts

As requested by the Governor, Lt. Governor, and House Speaker, state agencies are submitting their interim 5% budget cut proposals by June 15. There is no official public input process for these proposed budget cuts for 2020-2021, nor on the budget instructions for 2022-2023, but advocates and constituents should still make their voices heard to their state elected officials. The 2022-2023 instructions, along with future revenue updates and forecasts by the Comptroller, will set the stage for the big choices to come during the 2021 legislative session. Our state leaders will have to decide how much of the Economic Stabilization Fund to use, what other sources of revenue are feasible, and what, if any, spending cuts are in the best interest of every Texan.

We will monitor budget developments closely, and we will advocate fiercely for a just and equitable revenue system that makes sure everyone pays their fair share and low-income Texans and Texans of color don’t pay disproportionately more than other Texans.

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