Texas Comptroller Glenn Hegar has revised the Certification Revenue Estimate and now projects a fiscal 2021 ending shortfall of $4.58 billion.
Hegar attributed the shortfall to the COVID-19 pandemic and recent volatility in oil prices.
The shortfall is a decrease from the $2.89 billion surplus originally projected in the October 2019 revenue estimate.
On July 20, Hegar said in a letter to state leadership that Texas will have $110.19 billion in general revenue-related funds available for general-purpose spending during 2020 and 2021. This amount is down from a projected $121.76 billion in the October 2019 revenue estimate.
The ending balance does not include the impact of state leadership instructing most agencies to reduce spending by 5% of general revenue-related appropriations for 2020-2021.
The balance also does not assume any further financial assistance from the federal government.
"The economic contraction associated with COVID-19 has resulted in revenue collections this fiscal year that are much lower than our earlier CRE projections," Hegar said. "It's important to note that this revised estimate carries unprecedented uncertainty. We're assuming the state will effectively manage the outbreak and that infection rates won't overwhelm our health care system. This estimate also assumes that restrictions on businesses and individuals will be lifted before the end of this calendar year and that economic activity will strengthen but not return to pre-pandemic levels by the end of this biennium."
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The pandemic significantly impacted tax revenues across the board, Hegar said. Hotel, motor vehicle sales, severance, and mixed beverage taxes were especially affected.
The state's sales tax, its largest source of tax revenue, has held up better than some taxes, but still has fallen significantly, Hegar said.
Sales tax revenues for the 2020 fiscal year are expected to finish about 1% below fiscal 2019 totals and are expected to drop more than 4% in fiscal 2021.
The Economic Stabilization Fund and the State Highway Fund, both of which receive funding from oil and natural gas severance taxes, will each receive $1.1 billion in fiscal 2021 in transfers from the General Revenue Fund for severance taxes collected in fiscal 2020.
Severance tax collections in the 2021 fiscal year are expected to drop from fiscal 2020, resulting in transfers to the ESF and SHF of about $620 million each in the 2022 fiscal year.
After accounting for appropriations and investment and interest earnings, the estimate projects an ending balance of $8.79 billion for the Economic Stabilization Fund in the 2021 fiscal year.
The State Highway Fund will receive $2.5 billion from sales taxes collected in each year of the 2020-2021 biennium in accordance with Proposition 7, an amendment to the Texas Constitution approved in 2015 that requires the first $2.5 billion in sales tax collections exceeding $28 billion to be deposited to the State Highway Fund.
The final transfer from collections during the 2021 fiscal year will not occur until September 2021, the first month of fiscal 2022.
"In the coming months, some economic indicators will establish new records for rates of growth, but those records will be on the back of this year's unprecedented declines," Hegar said. "The rebound will leave many measures of economic health below pre-pandemic levels. Consumers and businesses must be confident the virus is controlled before economic output, employment and revenues return to pre-pandemic levels."
This forecast can be impacted both positively and negatively due to a variety of factors.
If the spread of COVID-19 slows or stops sooner than anticipated, causing consumers and businesses return to pre-pandemic levels of economic activity, Texas may finish the 2020-2021 biennium with more revenue than projected
The state may also finish 2021 with more revenue than projected if the federal government provides more aid.
However, if COVID-19 case counts continue to increase or accelerate, or if there is a substantial new wave of infections nationally or in Texas during the fall or winter, revenue collected during the biennium could fall short of this updated forecast.
Texas may also finish the 202-2021 biennium with less revenue than projected if consumers and businesses are slower to resume economic activity than assumed.
