Things I learned in the Ways and Means Committee hearing today
There’s a headline that’s likely to go viral, right?
But there really were two very interesting things I learned today in the Ways and Means Committee. The first is that for some reason, we keep the billions of dollars in the Economic Stabilization Fund - better known as the Rainy Day Fund - in accounts bearing very low interest rates, presumably so the funds can be deployed quickly if they are suddenly needed to Stabilize the Economy. But we expect to be parking over $10 billion in the ESF in the coming years - it’s certainly not necessary for all of that money to be liquid at all times. If we could invest the money in the fund above the first couple of billion into higher yield accounts, it would be a much more efficient way to manage the money and would provide the state additional resources without a tax increase.
Second, we have an obvious problem with the way we calculate the constitutional spending cap. Each session we are provided a Biennial Revenue Estimate (BRE), which in recent years has been wrong to the tune of billions of dollars (over $8 billion dollars in the current biennium). We also are provided an estimate of the rate of growth in aggregate personal income during the biennium, and this estimate is used to determine the constitutional cap on state spending.
When we come back in session two years later, three quarters of the way through the biennium, we find out whether actual revenues are on track to match up with the BRE, and we enact a supplemental appropriations bill that trues up expenditures with revenues. But we never take another look at the estimate that was used to determine the personal income growth rate used to determine the spending cap. We adjust appropriations to match actual revenues if the BRE was wrong, but we never adjust the spending cap if the estimate upon which it was determined was wrong.
The effect of this is that in the current biennium, we are operating under an artificially low spending cap that prevents us from spending all the money in the surplus, and that, by artificially lowering the baseline upon which the spending cap for the next biennium is predicated, prevents us from spending all the anticipated revenues in the next biennium.
Why do I say the current spending cap is artificially low? Because the estimate of personal income growth was made at the same time - and presumably by the same people - that the BRE was developed, and the BRE wildly underestimated the growth in the Texas economy during the current biennium. If the estimate of growth in personal income was anywhere near as wrong as the BRE, then the spending cap is wrong by billions of dollars. And that has big consequences for the state budget.