TX Lawmakers Brace Oil Crash in State Budget

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State leaders give Texas lawmakers a heads up this week, warning them that the plunging of oil prices will mean trouble for state finances.

In the past two years oil prices fell from $100 per barrel, to almost $30 in February. As a result, oil and gas companies were forced to lay off thousands of employees across the state, and in some cases even file for bankruptcy.

In a letter to the House Appropriations Committee on Tuesday, House Speaker Joe Straus warned lawmakers of rough times ahead.

“For nearly twelve years, Texas job growth outperformed many other states and the nation as a whole. However, with job losses in the energy and manufacturing sectors, that is no longer the case. The impact is also being felt in the state’s finances,” Straus wrote in the letter. “Out of the last six months, the state’s sales tax – the largest single source of general purpose funding for government – has registered five monthly declines.”

Texas Comptroller Glenn Hegar testified this week in front of that same committee, but he had a slightly different tone.

“If you look at the Texas economy, the 12th largest economy in the world, obviously lower oil prices have had an impact on our unemployment one in the manufacturing industry and number two in the oil and gas industry,” Hegar said. “But overall, it’s still amazing that Texas has gained 185,000 jobs in the last 12 months.”

Hegar admitted that the pain of the plummeting prices is felt statewide, particularly in areas that depend primarily on the oil and gas industry. However, he also stressed the fact that compared to neighboring states, Texas is doing pretty good.

“The point being is that this economy is much more resilient than many people anticipated being an energy state,” Hegar said. “The Texas budget continues to work, the funding sources continue to work. Even though there are certain areas in the state, some of the 12 economic regions, those regions are heavily more impacted if they are much more dependent on manufacturing and/or much more dependent on the mining industry. But if you look at it as a state overall, the state budget continues to work.”

Chuck Devore, Vice President of National Initiatives with the Texas Public Policy Foundation, said 14 percent of the state revenues come from oil and gas taxes. So naturally, Devore said, low oil prices would directly impact next year’s budget.

“On the other hand, there is not a lot of people employed in that industry compared to the rest of the economy,” Devore said. “In fact oil and gas extraction and refining is about half as important as it was back in the 80s to the Texas economy, and other parts of the Texas economy are far bigger today.”

Devore said a diversified economy would help relieve some of the pain, but lawmakers can expect to have less money than they anticipated when they return to Austin in January for the next legislative session.

In 2015, Texas lawmakers passed a $210 billion budget, the largest budget in state history. Lawmakers also made sure to put aside a couple billion dollars extra for worst case scenarios.

Because of the oil downturn, Hegar has already retracted roughly $3 billion than he originally projected Texas would have available to spend.

“If you are one of those individuals that has lost or still potentially could lose your job industries, it’s very serious to you, it’s very serious to those companies,” Hegar said. “But if you take a step back and look at the state economy, Texas continues to grow a little bit more modestly than what we have in the past. So the point is that there continues to be more job creation in Texas in other industries that have helped enable someone to move over into another industry if those skill sets match.”

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