Texas Comptroller Glenn Hegar's recent announcement that his office was cutting its tax revenue forecast for 2016-2017 by $4.6 billion was the realization of my greatest fear: a surprise reduction in oil prices that will lead to a reduction in tax revenues to Texas.
As required by law, Hegar’s revision was part of the Certification Revenue Estimate issued at the beginning of each legislative session. But what if lawmakers had had access to a more up-to-date forecast while they worked out a budget?
The best solution to the problem would be to require the Comptroller to update the state's revenue forecast every three months. That’s how we do it in business, and it would be a tremendous improvement over the ancient method of predicting revenues at the start of each legislative session, baking a two-year budget around the numbers — and then not revising the forecast until after the governor has signed the budget and lawmakers have gone home.
Having spent the majority of my professional life in and around the oil industry, and having lived through more than one "out-of-the-blue" oil price decline, the possibility of another was constantly on my mind while I campaigned against Hegar for the comptroller position in 2014. A collapse in oil prices could undo everything I and other Democrats were campaigning on. We wanted to improve our investment in roads, schools and water infrastructure without raising taxes.
The oil business was booming at the time, and we knew that with prudent fiscal management we could achieve these goals. In the back of my mind, however, I worried that an oil recession would make this very difficult. As a first-time candidate I did not want to fall into the trap of making false promises to win an election.
For example, take the budget debacle of 2011, when lawmakers cut $5.4-billion to public schools because of a bad revenue forecast. Those cuts, which eliminated thousands of teacher jobs and put the state into a deep education deficit that continues to this day, would not have been necessary had the revenue forecast been updated during the session.
Imagine if our comptroller had adopted quarterly revenue forecasting when he entered office in January of this year. A revised forecast would have been published in the middle of the 84th legislative session, and another would have been published near the end — and it would have been clear by then that state tax revenues might flatten due to low oil prices.
In response to such a warning, the Legislature could have agreed to finalize the budget only after the fall forecast became available. That would have required a special session, but Texans would have been happy to see their Legislature working hard to do the job right. By the fall, it would have been obvious that revenues were not going to be as strong as the outdated, rosy forecasts had suggested. And it would have been obvious that massive cuts in the franchise tax, in the face of softening revenues, might result in insufficient funds for public education and transportation in the days ahead.
Old ways of running Texas’ finances simply won’t work as we become the largest economic engine in America. Our population is exploding, and with it the challenges we face in providing education, transportation, water and basic services that the citizens of a truly great state deserve. If we want to be both conservative and effective, we must embrace change.
Quarterly revenue forecasting is a great example of the kind of change that can improve peoples’ lives at almost no cost to the state. What are we waiting for?