Texas's upcoming legislative session will likely be one of the most challenging in recent years for lawmakers as they seek to address the state's expected fiscal shortfall and plan for its next budget, according to Texas Comptroller of Public Accounts Glenn Hegar. According to the comptroller’s office, Hegar oversees Texas' finances and serves as the state’s treasurer, tax collector, accountant and revenue estimator.

During a Sept. 10 virtual presentation through the Houston-based Transportation Advocacy Group, Hegar discussed the state's present financial situation and the uncertainty surrounding planning for the future through the ongoing coronavirus pandemic.

Financial planning

Texas's most recent fiscal year ending Aug. 31 had started out on strong footing before the economic effects of the pandemic including rising unemployment and lost tax revenue were first felt, Hegar said.

"Back in February, we were slightly tracking ahead of revenues coming into treasury than we had anticipated when we gave our last revision to our revenue estimate last October," he said. "Texas entered into this downturn in a much stronger foundation and footing than many other states, which has obviously helped the state of Texas."

Despite that start to the state's two-year budget cycle, Hegar said the current fiscal outlook following several months of economic downturn related to government restrictions and consumer reactions quickly shifted from a surplus to a deficit—although some state-imposed spending reductions are expected to slightly curb the shortfall.

“We went from $3 billion surplus in the current two-year budget to what now is estimated to be a $4.6 billion deficit. Now, part of that is going to be lessened because state leadership instructed agencies to reduce their expenditures," Hegar said. "That probably saves about $1 billion, which is not taken into account for the $4.6 [billion deficit] because those dollars are retained in the treasury."

Additionally, Hegar said around $13 billion, including around $6.2 billion related to COVID-19, was sent from the federal government to support the state this year—although some spending requirements on that funding are in place.

“Most other states are in a lot worse cash situation than the state of Texas. Texas can cash flow; we have a lot of tools in the toolbox," Hegar said. "However, other states are either trying to get Congress to pass on additional funding as they have in prior recessionary times, and/or loosen the requirements that are put on the dollars that we’ve got.”

Resident and business response

A key to boosting the state's revenue and economic improvements in the years ahead will depend on the response of consumers, who may be averse to continue spending following increased activity this spring, Hegar said.

“Some of the data we’ve seen and researched is that peoples’ reluctance or hesitancy to engage in the economy is more out of concern and fear than it [is] of government-mandated shutdowns," he said. "Even with the removal of government-mandated shutdown we still have a lot of work to do to instill confidence in the consumer to engage in the economy."

Texas consumers spent well over $7.3 billion on expenses in and around their homes during May and June, according to recent data covering economic activity in those months, which Hegar said represent an increase over the same time last year. Those results were likely brought on by new habits such as residents working from home or cutting back on vacations, he said, as well as the utilization of federal stimulus check dollars and additional unemployment benefits. That uptick is expected to wane in the coming months, however, and continued spending will be contingent on consumers' comfort levels and uncertain factors related to COVID-19.

“We see the economy growing, but we think it’s going to take a while, unfortunately, to reach pre-pandemic levels," Hegar said.

Economic recovery will also be backed by the commercial sector. Imports and exports continue to represent a large portion of Texas' own gross state product, and Hegar said Texas remains the top exporting state in the U.S., which ties economic recovery to international trends as well. In Texas, corporate relocations and business growth are also faring better compared with urban areas elsewhere in the country, and are expected to continue bringing new residents and revenue to the state.

"If you look at companies wanting to move and/or expand in Texas, that is continuing. That hasn't stopped," he said. "If you’re in the real estate market in New York, Chicago, L.A., you have big concerns. But if you’re in Texas, Texas is still attracting and so therefore that growth is going to occur. It may be a little more moderate compared to what we had in the past; however, it’s still going to occur."