Hegar on Jan. 11 shared his updated projections for the coming biennium as a guide for lawmakers working to shape the state's next budget amid the declines and uncertainties related to the COVID-19 pandemic. Hegar said available revenue for the 2022-23 cycle may fall to around $112.53 billion, a 0.38% drop from the $112.96 billion available in the 2020-21 period, in part due to declining economic activity and tax collections in 2020 that cut the previous biennium's final budget outlook.
“The pandemic, which resulted in steep declines in key sources of revenue of the latter half of fiscal 2020, and has continued to drag down revenue collections in fiscal 2021, wiped out a projected positive ending balance for this biennium and has turned it into a currently-projected deficit of nearly $1 billion," Hegar said in a Jan. 11 video presentation on his revenue estimate.
Despite the negative fiscal trends experienced throughout the state over the past year, Hegar said his forecast for the coming biennium does anticipate a shift back to economic growth as tax collections and consumer spending potentially rebound. However, he noted the uncertainty in forecasting trends months and years ahead during the unprecedented situation and said the state's ongoing surge in COVID-19 cases and hospitalizations could depress activity over the weeks and months ahead.
“Unfortunately, the economic damage done by the pandemic has created a hole that it will take some time to climb out of," he said. "The prospect of effective and widely-administered vaccines generates hope for a return to pre-pandemic levels of economic activity in the next year, though the near-term could see a reversal of recent positive trends due to the recent surge in cases and hospitalizations."
While Hegar anticipates a drop in available revenue for the next biennium, he also highlighted the potential for an improved fiscal outlook and surge in consumer activity over the next one to three years. He said elevated personal savings rates, federal stimulus dollars for individuals and relief funding for the state, and possible savings realized through cuts at state agencies last summer could end up offsetting portions of the 2020-21 biennium deficit and boost economic activity by late 2021.
Even with a lowered revenue projection, Hegar also noted that some items, most depending on state funds such as highway projects and education, may not see significant cuts.
“Every single conversation that I have had with members that revolve around public education, as well as state leadership, is everybody continued to maintain the commitment they made last legislative session to public education," he said. "There’s a very strong commitment by the Legislature.”
Hegar's full 2022-23 biennial revenue estimate may be viewed here.