By District 26 State Rep. Charlie Howard
There has been much talk of late about Texas’ Economic Stabilization Fund, commonly referred to as the “Rainy Day Fund.” Many myths and misconceptions exist about this specific fund, and because of the current economic situation that our state faces, the true purpose of this fund is often misrepresented.
The Economic Stabilization Fund was born out of a severe economic slump that our state went through in the mid 80s. The state faced a substantial budgetary challenge during those years, and the need to create a fund specifically set aside to cover biennial shortfalls was realized. The next legislative session, a constitutional amendment was passed by the Legislature and approved by the voters in November of 1988 to create such a fund.
The specific purpose behind the creation of the Economic Stabilization Fund was to cover shortfalls in the event of an economic downturn during the previously appropriated biennial budget. The state bases its budget proposals off of expected revenue estimates made by the Comptroller. When an economic downturn occurs, the state generates substantially less revenue than previously estimated. This was the specific intention behind the creation of the Economic Stabilization Fund. It was never intended to be a savings account for the state to use when writing the budget for the next biennium.
The Economic Stabilization Fund is funded by a formula based off of the amount of tax revenue collected from oil and gas in 1987. If the amount of tax revenue collected by the state from oil and gas exceeds the amount collected from this same tax in 1987, 75 percent of those funds are transferred into the Economic Stabilization Fund. Additionally, any money remaining in the state’s coffers after it passes its budget, is transferred into the fund. The fund accrues interest and grows as it is untouched between each biennium.
This session, the legislature will appropriate approximately 3.2 billion dollars from the Economic Stabilization Fund to cover the shortfall for the current biennium to pay the bills we owe because the revenue anticipated this year was not realized. The currently anticipated projections of revenue for the 2012-13 budget indicate an additional 4-5 billion dollars will be needed to cover a shortfall in the 2013 budget.
We are fortunate to live in a state whose government, for the most part, is wise enough to maintain a fund such as this. However, we live in uncertain economic times, and forecasting our state’s economic future is a risky venture. Spending additional funds out of the Economic Stabilization Fund leaves us with no backstop if we are to face another economic downturn in the next two years and are unable to pay our bills with the revenue that comes in during the next biennium. If that were to occur, our state would face a grim circumstance without adequate shelter from our beloved Rainy Day Fund.
