Sean Collins Walsh | Austin American-Statesman
As potentially expensive court cases and grim economic forecasts align with other factors that could squeeze state coffers, House Speaker Joe Straus on Tuesday warned representatives to prepare for difficult budget negotiations during next year’s legislative session.
In a letter to the House Appropriations Committee, which held a hearing on the Texas budget Tuesday, Straus said the state foster care system is “in crisis,” a pending Texas Supreme Court ruling on school finance “could potentially require a significant infusion of additional state funds,” and the retirement benefit system for teachers requires “a sustainable, long-term solution.”
“Any of these issues individually would pose a challenge. Yet they come at a time when our state continues to grow rapidly, bringing more children in our schools, more cars on our roads, and an overall greater demand for state resources,” Straus wrote.
In the 2015 legislative session, when revenue was soaring, thanks to the oil and natural gas boom, lawmakers were able to cut some taxes and fund projects such as the state’s $800 million border security effort while approving a $209.4 billion two-year budget.
With low oil prices cutting into revenue and other challenges looming, next year’s session will be much more challenging for budget writers.
Comptroller Glenn Hegar, however, has been relatively optimistic about the state’s ability to weather a prolonged period of low oil prices. Repeating previous comments Tuesday, Hegar said the Texas economy is much more diverse than it was in 1986, when an oil bust wreaked havoc on state government.
Still, he said, the state would benefit immensely from a resurgent energy market.
“If prices continue to stay where they’re at or go down, you’re still going to see a lot more pain in those sectors, and that’s not good for the balance sheet,” Hegar told the committee.
Hegar, who sets the state’s official revenue estimates, in November lowered his assumptions for oil prices by about $15 per barrel to $45 this year and $51 a barrel in 2017. But the price of oil has been as low as $30 per barrel recently — it was up to about $40 Tuesday amid a strike in Kuwait — and some are worried that his projections are too rosy.
Another curveball is a pending Texas Supreme Court case on how the state taxes manufacturing expenses related to the oil and gas industry. If the industry prevails, the state could have to pay $4.4 billion in tax refunds, essentially erasing the surplus that is projected to be available when the next session starts in January.
State Rep. Donna Howard, D-Austin, said lawmakers need to be prepared to pay more for vital services such as education and the foster care system while avoiding revenue-reducing measures such as new tax cuts.
“More of the members need to get the big picture and not come in with any knee-jerk responses,” Howard said after the hearing. “Last session, we had a huge surplus to work with, and as we heard today, that’s not going to be the case when we come back.”
State Rep. John Otto, chairman of the Appropriations Committee, said reforming Child Protective Services will be a major priority. The agency has been scrutinized for high turnover and dysfunction after the death of 4-year-old Leiliana Wright in Dallas and the murder of University of Texas student Haruka Weiser, who police say was killed by a runaway foster child, Meechaiel Criner, 17.