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Fiscal outlook better than expected as Senate opens budget process

By Richard Lee

The state will be in much better financial shape than it appeared last summer, and could even end the current biennium with money in the bank, according to Senate Finance Chair and Flower Mound Senator Jane Nelson.

“Who could have imagined that,” she said.

Last July, there were indications that lawmakers could be facing a shortfall approaching five billion dollars, but better-than-expected sales tax collections, federal aid funds and cuts to state agencies could leave state ledgers in the black when the fiscal biennium for 2020-2021 ends in September.  The budget bill laid out before the Senate Finance Committee on Monday would appropriate $119.7 billion in state revenue for the 2022-2023 biennium.

State Comptroller Glenn Hegar, appearing before the committee, said a major reason for the improved economic outlook is better-than-expected retail sales tax collections, off only about five percent from last year, half of what was anticipated.  A major driver of robust collections was online sales taxes, which Hegar said amounted to $1.7 billion over the last 15 months.  Last session, the legislature approved a bill that would permit the state to collect those taxes following a 2018 Supreme Court ruling allowing states to collect tax on sales made in on-line marketplaces.

“Other states are really kicking themselves right now for not having put that in place before the pandemic,” said Nelson.

Combined with about $3.5 billion in federal COVID aid, which freed up state revenue and a five percent cut for most state agencies, the state will likely end fiscal year 2021 with a positive balance.

“We made wise investments and they are paying dividends as we keep working to defeat this virus and get the economy on track,” said Nelson.

The Senate budget for the next biennium would preserve the increases in public education funding made as part of sweeping education reforms passed in the 2019 session, and add more than $3 billion to cover growth in student population.  It also includes $1 billion to cover revenue lost from local property tax compression.  It also funds payroll growth and reforms made to the Teacher Retirement System last session.

Federal coronavirus aid will also play a big role in the session’s budgeting process.  Though Congress approved a budget of $1.9 trillion for relief last week, it will be some time before states get an idea of how much federal money they can expect to receive.

“We don’t know how much federal aid is on the way, or what strings might be attached,” said Nelson.  “We do know this: we have the tools available to make this budget work.”

Over the next weeks, the committee will hear budget requests from every state agency.  Members will develop final spending proposals to roll into a finished budget to present to the full body. After the Senate approves its bill, five Senators will meet with five House members to hash out differences between the two chambers’ budgets.  As filed though, the House and Senate budgets are very close, separated by only about $60 million in state spending.

Nelson told members she expects a strong post-pandemic economic recovery, and the budget written for the next two years needs to account for that.

“Texas is going to come roaring back and this committee needs to make sure that we are doing what we can do in this budget to be ready for reigniting our economy,” Nelson said.

The Senate Finance Committee will meet again Tuesday at 9 a.m., and the Senate will reconvene in regular session at 3 p.m.