Texas Comptroller Glenn Hegar said Texas is experiencing a recession during a live stream Tuesday morning with Ross Ramsey of the Texas Tribune. While there have been early indicators of a recession, he does not have exact data to determine the scope or impact. He said he has been reluctant to use the “R” word, but now he realizes that it is important. He is encouraging people to be aware and proactive.
While Hegar recognized the seriousness of a recession, he stressed that Texas would overcome it and once again have a booming economy. As a response, he is encouraging Texas State Agencies to make budget adjustments now rather than wait.
State revenue relies on sales taxes, and many legislators are calling him asking what the revenue estimates will be for the next biennium. However, He will not see the impact on sales taxes until May 20, 2020, when April sales taxes are collected. He expects to revise revenue projections for this biennium in July.
Because we are living in an unprecedented time, we have no economic model to follow. The Texas economy was already feeling the effects of the oil price war between Saudi Arabia and Russia when the COVID-19 pandemic hit. He used the example that hotel occupancy after 9/11 dropped by 20%, and Today it is declining by 80%.
Texas has tools available to respond, including the Governor moving money around, agencies reducing expenses, borrowing funds from the rainy day fund and federal money. Hegar mentioned he does not believe a special session will be needed.
The federal CARES act allocated $11 billion for Texas, 55% for the state and 45% for cities and counties. Those funds are for costs associated with COVID-19. Phase two funding allocated a 6.2% increase in Medicaid funds for two quarters. This will result in about $1 billion for Texas. Hegar expressed hope that the next two quarters would also be increased in the fourth phase of federal funding. He is looking to phase four funding to provide disaster relief for Texas not explicitly related to COVID-19 expenses.
When questioned about additional revenue sources, Hegar pointed to the list of tax exemptions and exceptions, which may total up to $60 billion per year. He allowed that some of those exemptions and exceptions are covered by other portions of the state tax system so the number of dollars is likely overstated.
Hegar estimated that the reduction in funds for transportation and the rainy day fund from oil and gas revenue would drop from an estimate of $1.8 billion each to about $1.2 billion. He also expects overall state property tax revenues will drop because of the revaluation of oil in the ground. This will put more pressure on the state to increase school funding dollars. There will also be increases in the Health and Human Services budget.