Tumbling oil prices curtailed the spending allowance announced Monday for the first legislative session under Republican Gov.-elect Greg Abbott, whose pledges to cut taxes will be tested by economic volatility as the Texas energy boom slackens.
The good news for Abbott and majority Republicans who are prioritizing tax relief above virtually all else for the next five months: there's extra money on the table. Lawmakers will return to work Tuesday with $7.5 billion left over from the current budget.
Such a surplus would normally delight fiscally hawkish conservatives and energize Democrats bent on restoring funding that had been cut. But plummeting energy prices dampened the tone of Texas' new revenue forecast.
"We must recognize that volatility has significantly increased in recent years," Republican Comptroller Glenn Hegar said.
Hegar, the state's chief accountant, is projecting oil production and regulation tax revenues to drop more than 14 percent over the next two years. Tax revenues from Texas' fracking frenzy are expected to fall 8 percent.
Oil prices last week dipped below $50 a barrel for the first time since 2009. The effects are already beginning to cast a shadow on election-year promises: Voters in November overwhelmingly approved spending $1.7 billion more on Texas' congested highway system in November, but the estimated funds now available has slipped to $1.2 billion.
Yet the forecast was still rosier than what many observers expected.
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Abbott and the overwhelmingly Republican Legislature will have $113 billion in revenue to spend over the next two years. Conservatives say that is still enough money to allow for tax cuts, though not on the scale that some Republicans vowed to pursue while they were campaigning.
Neither Abbott nor incoming Lt. Gov. Dan Patrick have offered details about what form tax cuts would take, clouding tax relief promises. Patrick said in a statement that figures announced Monday are adequate to "provide property and business tax relief," but he did not elaborate.
On the other side of the aisle, the view is that the Legislature has been given just enough money to keep pace with Texas' rapid growth.
"If you do tax cuts that make us more and more dependent on the ups and down of the sales tax, that makes it that much harder to provide services," said Eva DeLuna Castro, a former state budget official and now an analyst for the left-leaning Center for Public Policy Priorities. "It makes the likelihood of coming back in a year and making cuts much more likely."
Hegar dismissed a doom-and-gloom outlook, despite numbers tempered by the oil downturn.
"I am in no shape form or fashion saying Texas is going into a recession," Hegar said. "I believe that Texas is a very strong state. Obviously oil and gas is very important to the state of Texas."
