January 12, 2015

Texas faces 15 percent state oil revenue ding

New Texas Comptroller Glenn Hegar
already looks as wrong as rain on oil prices.
The Texas Lege can expect about a 15 percent ding in oil and gas revenues from previous expectations, or so says new Comptroller Glenn Hegar. So, if Lite Guv Dan Patrick wants to cut any taxes, what’s he going to do, go after public school revenues? (See new poll on right to vote on where you think oil will be on March 31.)

The financial figures are from Hegar’s biennial revenue estimates.

And per the Statesman's take, they appear to come from fantasyland.
Hegar’s approximation – formulated, he has said, under much and diverse advisement – showed that state lawmakers, who convene at noon on Tuesday, will have $113 billion in general revenue to spend on the 2016-17 budget. It assumes oil prices – currently at less than $50 a barrel – will be $64 per barrel on average for current fiscal year, which ends Aug. 31, and to nearly $70 per barrel by the end of 2017.
If oil is still at a flat $50 by the end of February, and $55 by the end of April, and $60 by the end of May, it’s going to need to be $80,  or better, by the end of the year.


And, that just ain’t happening.

Goldman Sachs says Glenn Hegar is off by $30 a barrel.
In a wide-ranging note to clients, Goldman Sachs slashed its forecast for oil prices. It now estimates that that crude will average $50.40 a barrel this year, far below its previous forecast of $83.75. It also trimmed its forecast for Brent crude, a type used in international markets, to $70 a barrel from $90. 
More here. GS has its 12-month-out price on West Texas Intermediate at $65. So, no way in hell, if GS is even halfway right, that oil prices average $64 for the year.

(Update: What if even Sachs was too optimistic in its original estimates? What if oil sits at $40 for months? See my newer post here.)

If the Texas Lege isn't listening to somebody else, we're really, really up shit creek.

By press release, here’s the details. Actual release and more analysis below the fold.


Texas Comptroller Glenn Hegar released the state’s Biennial Revenue Estimate today, showing the state is projected to have approximately $113 billion in revenue available for general-purpose spending during the 2016-2017 biennium.

“Texas recovered well from the recession of 2008-2009 and witnessed strong economic growth well ahead of the rest of the country. This recovery is perhaps most obviously illustrated in our tremendous job growth figures of 1.1 million since the recession, which far outpaced those of other large states,” Hegar said. “This was partly attributable to the recent shale oil boom in Texas which helped counterbalance a sluggish national recovery and weakness in other sectors of the economy. Texas remains a leader on the national economic stage and while we anticipate the robust pattern of growth the state has seen in recent years to moderate, we do expect continued expansion of the overall Texas economy.”

The state begins with a projected $7.5 billion ending balance from the current biennium. This amount is added to the estimated $110.4 billion in projected General Revenue-related collections from taxes, fees and other income over the course of the 2016-17 biennium. From this amount about $5 billion will be set aside for transfers to the Rainy Day Fund and State Highway Fund. The resulting $113 billion represents the estimated revenue available to the Legislature for general purpose spending in the next biennium.

In fiscal years 2013 and 2014 the Texas economy saw inflation-adjusted growth rates of 4.3 and 3.7 percent, respectively. In fiscal 2015 the Texas economy is projected to grow by 3 percent. That growth rate increases slightly to 3.2 percent in fiscal 2016 and increases further to an estimated 4.1 percent in fiscal 2017. The state’s unemployment rate, which has fallen significantly since the recession peak of 8.3 percent, is expected to remain around 5 percent over the coming biennium.

The state’s largest tax revenue source is the sales tax, which accounts for more than half the state’s general revenue. It is expected to generate approximately $61.2 billion in the 2016-17 biennium, an 8.9 percent increase over 2014-15 collections. Among other large tax revenue sources:
• Motor vehicle related taxes, including sales, rental and manufactured housing taxes, are expected to reach $10 billion, up 14.6 percent from 2014-15.
• Oil production and regulation taxes are projected to generate $5.7 billion, a 14.3 percent decrease from the current biennium; natural gas production tax revenue is expected to be $3.2 billion, an 8 percent decrease from the current biennium.
• The state’s franchise tax revenue for all funds is estimated at $9.6 billion for 2016-17, a 3.7 percent increase.

“The significant drop in oil prices in recent months will likely lead to a marked slowdown in oil exploration and production. This slowdown will dampen overall economic growth in Texas,” Hegar said. “However, in addition to the economic boost felt by Texas motorists as a result of lower gasoline prices, there are industries in Texas’ diverse economy such as transportation and some manufacturing that will benefit from lower energy prices. This, coupled with continued strength in construction, professional services and other sectors of the broader economy, should somewhat counterbalance a slowdown in the energy sector.”

At the end of the current biennium, the state’s Rainy Day Fund will have a balance of $8.5 billion, absent any additional appropriations that might be made by the Legislature. At the end of the 2016-17 biennium, the balance is projected to be approximately $11.1 billion, absent any legislative appropriations.

State revenue from all sources is estimated at $220.9 billion for the 2016-17 biennium, including approximately $110.5 billion in federal receipts and other income.


That all said, Hegar doesn’t mention the possibility that his sales tax estimate might be high, either. Tool purchases for the oilfield will be down, hitting that. And, so will things like new work vehicles. I think any estimate above 7.5 percent over the two-year period might be high.

In dollars and cents? That would be $60 billion, not $61.2. So, knock $1.2 billion off his sales tax numbers. And knock $800 million off his oil and gas revenue numbers, for $8.1 billion, not $8.9 billion, combined.

Hegar's estimating $2 billion too high, in my book.

And, that's not even counting "run-on" economic spillover effects.

I can name one of those right now. I just saw a press release from the Texas lignite coal mining association, officially the Texas Mining and Reclamation Association, touting the economic benefits of Texas' cheap (in quality, and maybe price) and dirty coal. I'm sure they're scared of continuing sub-$50 oil prices.

Here's more reasons to think Hegar isn't being conservative enough this time around. It may take several months of low-priced oil to knock all the current structural surpluses out of the system. If just half that doom and gloom is right, West Texas Intermediate may not break $65/bbl before the end of this year. Or, it may take even longer than "several months."

In either case, Hegar simply seems to be imitating national-level Republicans who offer up bullshit for economics on a regular basis, usually, as here, as a prelude to justifying spending cuts and tax breaks for the rich.

That said, Hegar could rein in his numbers by another $2 billion, and I don't think that would slow Dan Patrick down one minute.

And, since, besides oil, the "Rick Perry economic miracle" was otherwise based on illegal immigration, and we know how Danny Boy feels about that, we're in a lot of trouble.

Perry's got more, namely, about how Rick Perry's leaving the barn just before the barn door hits him in the butt.

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