The Texas state government has to confront the reality of lower state revenues.
The drop in oil prices that has been a trend, not a blip, has led to Texas State Comptroller to revise state revenue forecasts downward, according to the Texas Tribune. The state now expects $2.5 billion less in revenue for its two-year budget.
In 2008, the oil industry created $9.9 billion in taxes and royalties, according to NPR.
Texas will still run a multi-billion dollar budget surplus with a strong rainy day fund, and Texas should be commended for adjusting to reality instead of assuming the economic boom will continue.
After the 2008 recession, annual general funding spending bottomed out in 2010, but has increased every year since, according to the National Association of State Budget Officers. Adjusted for inflation, states haven’t reached pre-recession spending levels. For fiscal year 2016, 42 state governors recommended spending increases.
That money will go toward K-12 education and Medicaid for the most part.
The solvency of states, however, varies. “Poor financial management across the different dimensions of fiscal condition,” according to a Mercatus Center working paper, have left some states with deep financial issues that they have yet to solve. Illinois had its credit rating downgraded as it grapples with systemic financial issues. Underfunding issues for state and local pensions have given Illinois trouble as well, along with other states.
Fixing pensions won’t be easy, either. Greg Mennis, the director of the Pew Charitable Trusts, noted that “State and local policymakers cannot count on investment returns over the long term to close this gap and instead need to put in place funding policies that put them on track to pay down pension debt.”
States can’t shrug off pension liabilities and expect economic growth to make any budget concerns disappear. With the population aging and growth lagging, elected leaders need to realize that action now will be less painful than action in the future when unfunded liabilities are bigger.
It’s refreshing to see Texas revise its estimates and recognize that, for now, the oil and gas boom has slowed. If states can continue that realistic approach and extend it toward its liabilities, state governments will be more effective in governing and future generations won’t have to sacrifice for obligations that were promised decades ago without a way to fund them.
