Often called the Rainy Day Fund, the Economic Stabilization Fund (ESF) functions like a savings account for the state of Texas, created to prevent or reduce sudden massive cuts to schools, health care and other state services.
Since 1989, the State Constitution has required that a portion of oil and gas production taxes go into the ESF. Many states have a similar cash reserve, but Texas has one of the largest in the country. The ESF balance is expected to be $8.5 billion by the end of fiscal 2021. The Constitution limits how big the ESF can become; state law provides for a minimum balance.
Though use of the ESF has sometimes been a point of contention, the Legislature has used the ESF frequently, both for one-time and ongoing budget items. Legislative approval by a two-thirds vote in the House and Senate is required to spend money from the ESF in most circumstances.
In the past, the Legislature has spent the ESF on everything from public schools to criminal justice to closing shortfalls in health care programs. The following are common-sense situations when legislators should consider using the ESF:
- when needed to prevent state services from being cut in ways that further destabilize the economy, such as teacher layoffs or nursing home closures;
- when one-time uses could prevent larger costs in the future, like unfunded state pensions;
- when, like a household, dipping into savings will help the state get through a temporary shortfall.
The ESF is not designed to correct chronic underfunding of state services. If something needs additional funding in general, the Legislature should devise a way to provide permanent additional funding.