Texas economy generates more tax revenue, sparking talk of tax cuts
AUSTIN — The Texas economy is so hot that the state comptroller will soon raise its revenue forecast for the current cycle by a “significant” amount.
Already, Republican politicians are talking about more property tax cuts, though paying for them in the long run is always tricky.
On Friday, Comptroller Glenn Hegar said Texans are back in restaurants and live entertainment venues after the coronavirus pandemic subsides, and industrial sectors led by oil and gas are boosting revenue from sales tax with ever-increasing material purchases.
“State sales tax collections jumped in June, outpacing inflation, with strong revenue growth from all major economic sectors,” Hegar said in a written statement.
A decline in purchases of furniture, sporting goods and hobbies has been offset by an increase in spending on services, he pointed out in his last two monthly revenue-raising announcements.
“Restaurant and service sector receipts were again strong in June as consumers continue to spend more on live events with entertainment options becoming available that have not been available for the past two years,” Hegar said.
But the real driver of this positive revenue picture is business spending, with the mining sector which includes oil and gas nearly doubling its sales tax collections from a year ago. In addition, receipts from the manufacturing, wholesale trade and construction sectors rose sharply, he said.
When lawmakers meet in January, they could have as much as $30 billion in unspent government revenue, Hegar said recently.
That prompted Gov. Greg Abbott and GOP legislative leaders to talk optimistically about granting more school property tax cuts.
“We need to use a substantial portion of this money to reduce property taxes in Texas,” Abbott tweeted.
The Texas Comptroller estimates the account balance at $30 billion by the next legislative session.
We need to use a substantial portion of that money to reduce property taxes in Texas. https://t.co/WItfGeZsQi
— Greg Abbott (@GregAbbott_TX) June 21, 2022
In October, state leaders pocketed $3 billion in fiscal stimulus assistance from President Joe Biden’s American Rescue Plan Act for future use to reduce school property taxes.
Federal COVID-19 assistance is a one-time boon. Hegar’s announcement, however, means there will be additional state discretionary income that lawmakers can apply to a range of pressing needs.
The property tax relief will compete with Republicans’ belief that the state should spend more on border security, as they attack Biden over his immigration policies and school safety, after the May 24 school shooting in Uvalde.
Border and school security are priorities, according to a “budget instruction” letter sent Thursday to state agencies.
“It is imperative that state agencies remain fiscally and operationally efficient with state resources,” wrote Sarah Hicks, Abbott’s senior budget and policy assistant, and Jerry McGinty, director of the Council of legislative budget, a 10-member panel of key legislators.
“Budget requests should reflect conservative values and keep in mind that we are going through a period of global and national economic uncertainty that could impact our state.”
Perhaps because state GOP leaders are talking about tax cuts, the letter did not ask agency heads to submit possible ways to cut spending, as has often been the case.
For several months, it has been evident that sales tax revenue was well above Hegar’s conservative estimate last November.
The state collected $35.3 billion in sales tax in the first 10 months of the current fiscal year, an increase of 20.6% over the same period a year earlier.
Through June, with two months remaining in the state’s fiscal year, Texas has raised more than $1 billion more than it raised in the entire fiscal year. 2020 – and just $800 million less than last year’s total.
At last month’s clip — the state brought in $3.7 billion — sales tax collections reported for July could easily push the year-to-date total past November’s estimate of Hegar for the full fiscal year 2022 ($38.6 billion). And that would leave the August loot in sauce.
From September to June, oil and gas severance tax collections increased over the same period of fiscal 2021 by 89.7% and 192.6%, respectively. However, 75% of any growth in power generation tax revenue goes to the rainy day fund and the state highway fund.
Total tax revenue increased by 27.1% over the comparable 10-month period of the previous year.
Hegar, the state’s Republican tax collector and revenue estimator, said later this month he will revise his “certification revenue estimate” from last fall.
Once the Legislative Assembly passes a budget or supplementary spending bills, as it has done several times in the past year, the Comptroller must certify that there will be enough revenue to pay for them.
Next January, Hegar will release its estimate for the next two-year budget cycle. It will govern how much lawmakers can spend when crafting the 2024-25 budget.
“Due to an extended period of historically high revenue, later this month, Hegar will provide an update to the certification revenue estimate released in November 2021,” his office’s press release reads. “This update will result in a significant increase in estimated respendable income for the 2022-23 biennium.”
In November, Hegar projected a final balance for this round of $11.99 billion in state discretionary income and a cushion of $12.62 billion in August 2023 in the “rainy day fund,” or savings account.
More property tax cuts?
At the recent state GOP convention in Houston, Hegar told conservative online news platform The Texan that the state’s general fund is expected to end at the end of the year with a balance between 15 and 16 billion dollars. By Aug. 31, 2023, the rainy day fund should have $13.5 billion, he said. The addition of these two figures gives us a surplus of up to $30 billion.
Former Comptroller’s Office Analyst Eva DeLuna Castro of the Every Texan group, however, warned that the state’s appearances of untold wealth can be deceiving.
“Basically there will be a lot of money, but a lot of it will be banned,” said DeLuna Castro, whose group is advocating for increased state spending on education and health care for Texans in low and middle income.
People Who Hear TX have $30 billion in unspent state revenue that can be used for local property tax cuts – that’s only if #txlege wants to cut some highway spending, not finish paying for Medicaid/HHS, and ignore hundreds of statutory dedications for fees, fines, etc. pic.twitter.com/IFYqimDCpy
— 🧮 Eva DeLuna 📊 (@DeLunaEva) June 27, 2022
She noted that voters’ decision in May to approve an increase in the mandatory homestead exemption on school property taxes from $25,000 to $40,000 will burn $439.1 million in government revenue. State next year. Additionally, in next year’s session, lawmakers will need to address a $4.4 billion underfunding of Medicaid and the children’s health insurance program this cycle, she said.
Cost overruns from Abbott’s Lone Star operation totaled $975.8 million, she noted. Health care managed by the prison system for inmates is in deficit, and the state could face additional costs in the event of wildfires, hurricanes and other natural disasters. Even before exemptions on homesteads and border cost overruns, lawmakers had only $3.6 billion of “room” under a tax expenditure limit set in the Texas Constitution, a noted DeLuna Castro.
Texas Public Policy Foundation chief economist Vance Ginn remains optimistic about tax cuts.
“There is a historic opportunity to significantly reduce Texans’ property tax bills next session,” said Ginn, who served in the Federal Office of Management and Budget under former President Donald Trump.
Property tax rates for school maintenance and operations can and should be reduced further than they were by the 2019 legislature, Ginn said. Rainy day funds and school district reserves can be tapped to support tax rate reductions, he said.
“Spending restraint and tax relief should be top priorities given the affordability crisis due to inflation and rising property taxes,” he said.