As expected, the Comptroller released his Biennial Revenue Estimate on Monday … The estimate projects the amount of revenue that will be available for appropriators to craft a budget for FY2022-2023.

Here are the key things to know …

1. The Good news.

  • The projected shortfall is shrinking. For the CURRENT budget cycle, the deficit is now estimated to be only ~$1 billion … this number is significantly less than the ~$4.5 billion deficit that was projected in July 2020. Moreover, this projection does NOT include savings due to the budget cuts implemented in June 2020. Nor does the estimated deficit “incorporate the effects of substituting federal funds provided as pandemic-related assistance for some GR-R pandemic-related expenditures.” In our assessment, the combined effect of these two unincorporated factors may eliminate the deficit entirely.

  • The Rainy Day Fund remains robust. The Comptroller projects that at the end of the next budget cycle Texas will have more than $11.5 billion in its Rainy Day Fund … that assumes appropriators do not tap the fund to help with the current budget cycle. Appropriators utilized the Rainy Day Fund in a big way in the aftermath of Hurricane Harvey and we expect a similar discussion to take place this session.

2. The Bad news.

  • Appropriators will have LESS to spend. When the Comptroller certified the current budget, he estimated the legislature had $121.76 billion available for general-purpose spending. By contrast, the Comptroller is estimating that the legislature will have $112.5 billion available for general-purpose spending for the next budget. Appropriators will have to be creative.

3. What they are saying …

  • Governor Greg Abbott: “I think we have the tools and strategies to deal w/ budgetary challenges … for the next 2-year cycle, we should be … in great shape.”

  • Lt. Governor Dan Patrick: “"The Comptroller’s Biennial Revenue Estimate today is welcome news considering the economic challenges our state has faced. We believe that with a continuing healthy economy, a growing Economic Stabilization Fund and federal COVID-19 relief, we will be able to move forward on our budget priorities this session and balance the budget …”

  • Speaker Dade Phelan: “I will say we have a challenge ahead of us, there’s no doubt about it. … We have to look at everything.”

  • Senator Jane Nelson (Chair, Senate Finance): “Tough decisions remain, but I am confident we can pass a budget that meets our essential needs, maintains our commitment to education and follows the principles of fiscal responsibility that put us in a stronger position than other states to withstand this unprecedented pandemic.”

And so it begins …

1. On Tap …

  • The 87th Legislature will officially kick-off Tuesday. Both the House of Representatives and the Senate will convene at 12:00 pm on Tuesday, where members will be sworn-in to office. The only substantive actions expected to occur this week will be the discussion, and likely adoption, of rules. Many expect both chambers to adjourn by Thursday and to stay adjourn for a week or more due to still-elevated COVID-19 case counts.

  • One Senate rule to watch ... In the Senate, we will be watching to see whether the Texas Senate will choose to further erode its traditional super-majority requirement to bring a bill up for a floor vote. The rule was historically referred to as the “2/3s Rule”, which required 21 Senators to coalesce to bring a bill to the floor. In 2015, that number was reduced to 19 … With the net loss of 2 GOP Senators over the last two election cycles, the Lt. Governor has suggested he may move to reduce that number even further … to 18.

  • A change in vaccine distribution strategy. Last Monday, we mentioned that we expect vaccine distribution to be a major political football over the next few weeks. To wit, last week dozens of Democratic legislators sent a letter requesting changes to the distribution process. Also last week, the Department of State Health Services decided to shift its vaccine distribution strategy to emphasize larger providers. This has resulted in a larger number of vaccines being distributed to a smaller number of providers. The Governor tomorrow will visit one such large provider in Tarrant County, where he will get a briefing, tour the operation, and host a press conference. The Governor will be joined by Dr. John Hellerstedt (DSHS), Chief Nim Kidd (Texas Department of Emergency Management), and Texas Health Resources’ CEO Barclay Berdan among others.

  • Expect the Comptroller to release his Biennial Revenue Estimate. The Biennial Revenue Estimate is typically released the day before the Legislature convenes (which would be today). The budget situation is much improved since he updated his 2019 BRE in July 2020 during the height of COVID-19. The July Update to the BRE forecasted a $4.5 billion deficit for the CURRENT budget cycle. Discussion in Austin recently suggests this number may be much smaller (~$1 billion) due to the influx of federal relief dollars, emergency budget cuts, and higher than expected revenue. All eyes are on the Comptroller as he will now project how quickly state revenues will return to normal during the 2022-2023 budget cycle – the budget legislators must write this session.

2. What to watch this week …

  • An interview with incoming Speaker of the House Dade Phelan. The Speaker discusses Capitol protocols and session logistics, the tough budget environment, the desire to fully fund public education and more.

  • The Sunset Commission Meeting, where the Commission will consider and take possible action on recommendations related to the Texas Department of Licensing and Regulation, the Texas Racing Commission, the San Jacinto River Authority and other state boards currently under sunset review. Full Agenda.

3. Prevailing political winds …

  • The legislature will begin with no shortage of tension after last week’s unrest in Washington, DC. In the aftermath of the disturbances, the Texas Capitol was temporarily shut down, only two days after it reopened after being closed for months. It’s back open again, but the fallout also saw harsh rebukes from elected leaders on both sides of the aisle in Austin. Including some finger-pointing directly at Texas leaders.

  • The riots in DC have also refueled another discussion that is likely to get significant attention this session: law enforcement and policing. The Governor is considering legislation to establish a special district in the aftermath of the City of Austin’s movement to defund the police. And this week the Texas Municipal Police Association launched a new campaign to help shape the discussion:

Happy New Year ...

The 87th Legislature convenes in one week ...

1. State Preservation Board Establish Guidelines ahead of Capitol Reopening.

The Capitol officially reopens today. The building will be open M-F from 9 am – 6 pm. The public must enter through the north entrance. Testing is encouraged and will be provided at no expense on the North plaza. Public visitor capacity limits will be observed and social distancing will be required. No public tours or sponsored group events will be allowed. For now, masks must be worn at all times.

2. House Administration Committee Sends "COVID-19 Considerations" to Members.

The Considerations contain general protocols that generally align with common guidance for preventing the spread of COVID-19 (e.g., regular temperature checks, social distancing, masks, etc.). The considerations also encourage limiting large meetings, regular temperature checks, the use of hand sanitizer, and masking up. Routine testing is also being encourage and tests are being provided to each office. Finally, each member was advised to follow screening protocols for staff and guests, and to require staff to quarantine after known exposure.

3. What to watch this week ...

  • Today is the final day for candidates’ names to be placed on the ballot for the special election for House District 68. The special election to replace Senator-elect Drew Springer was called for January 23 by gubernatorial proclamation. 

  • Today, at 10 am, Jim Wright will be sworn in as Railroad Commissioner.

  • On Friday at 1 pm, the Task Force on Infectious Disease Preparedness and Response will conduct a meeting to provide a situation update on COVID-19, including an update on vaccine distribution.

  • In the next 7-10 days, we expect Comptroller Glenn Hegar to release his Biennial Revenue Estimate, the document that guides appropriators on how much money they have available to spend as they set the budget for the 2022-2023 biennium.

4. Dominating the news ...

  • In Washington, DC, Speaker Nancy Pelosi narrowly secured another term as speaker.

  • Most eyes will be on the electoral college count on January 6. Some, but by no means all, Texas Republicans are vowing to object to the results unless a full audit is conducted. 

  • Over the New Year’s holiday weekend, much was written about the vaccine distribution process … both here in Texas and nationally. This included concerns that vaccines were not being administered promptly or were not being reported promptly. We expect vaccine distribution and administration to remain an issue as vaccines remain in short, but steady supply.


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