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Last night’s State of the Sate very much tracked the preview we were able to provide yesterday morning. Below we track the major themes of the speech – using excerpts from the speech itself. We’ve tried to share key themes from the Democrats’ response to the State of the State throughout, and you can watch the official response from the party here.

Please also note brief comments pertaining to the budget below.

“[A]s we gather tonight, I can tell you that the state of our state is brimming with promise.” The Governor indeed struck a hopeful tone last night, emphasizing the pandemic will not be “a reversal of who we are as Texans.” While fully recognizing the “personal hardships and the pain that we have all endured,” he declared that “Texas remains the economic engine of America. The land of unmatched opportunity.”

  • In response, Texas Democrats offered a more sobering outlook. Senator Carol Alvarado lamented: “I wish I could tell you that the state of our state is strong and working for all Texans, but the sad truth is it’s not.” Democrats emphasized the on-going pandemic, including continued high case counts and high unemployment, slow vaccine distribution, and a high uninsured rate.

The Governor declared several emergency items. As foreshadowed yesterday and is typical for the State of the State, the Governor declared several emergency items. As a reminder an emergency item is simply anything the Governor deems important enough to prioritize during the coming legislative session. By designating the item as an emergency, members are permitted to decide to vote on those items earlier in the session than they are normally permitted to do by the Constitution. Of course, they should also be viewed as a use of the Governor’s bully pulpit. Here are the five (5) items that he declared emergency items … they largely track the issues we previewed yesterday.

“From medicine to education to business, broadband access is not a luxury—it is an essential tool that must be available for all Texans.” Emphasizing that telemedicine had “proved very helpful during the pandemic,” the Governor noted Texas must seize this momentum to permanently expand telemedicine. As the quote above reflects, the Governor also notes that the expansion of broadband access is essential for education as well. Response from legislators – on both sides of the aisle – showed broad consensus for expanding broadband access. We expect bills that would establish a statewide broadband office, mandate a statewide plan, and – assuming money is to be had – create a broadband development incentive program (particularly for rural Texas) to move quickly through the legislative process.

  • State Representative Senfronia Thompson (Houston) emphasized: “The COVID-19 pandemic uncovered the ugly truth of the inequities in our healthcare system” and called to increase coverage for women to 12 months of post-partum care and alluded to the need for expanding coverage by “draw[ing] down federal Medicaid dollars.”

“To keep Texans safe, and to discourage cities from going down this dangerous path, we must pass laws that prevent cities from defunding police.” As expected, the Governor continued to emphasize that “Texas has always been a law-and-order state” and the need for continued support of law enforcement … and declared this issue an emergency item. We expect a bill which would use the power of the state’s purse to disincentivize cities from defunding police to be heavily pushed by the Governor’s office.

  • Criticism from Democrats revolved largely around the continued need to improve policing: “Our communities should not have to live with trauma and fear of wondering if they or their families or their neighbors will be next to die from police brutality.” (Dr. Candice Matthews)

“To fix our flawed bail system and keep dangerous criminals off our streets, I am making the Damon Allen Act an emergency item this session.” As we suggested yesterday, bail reform will be a major priority for the Governor this session. Two years ago, the Governor announced the Damon Allen Act, which would have increased qualifications for magistrates able to set bail and amended the Texas Criminal Procedure Code to ensure that magistrates consider criminal history when setting bail. Damon Allen was an officer that was killed in the line of duty by a man who had been released on $15,000 bail despite having been previously convicted for assaulting a sheriff’s deputy.

“Texas businesses that have operated in good faith [during the pandemic] shouldn’t have their livelihoods destroyed by frivolous lawsuits.” Emphasizing the great measures that businesses have taken to remain open and operate safely, the Governor asked the Legislature to quickly pass a bill that would protect from civil liability individuals, employers and healthcare providers that operated safely throughout the pandemic.

“One thing all of us should agree on whether you’re a Republican, Democrat, or Independent, is that we must have trust and confidence in the outcome of our elections.” The Governor also declared election integrity as an emergency item, but offered few specifics on how to address the issue of election integrity.

In his own words … other major priorities. The Governor also mentioned several other major priorities. Here are a few other highlights from the speech:

  • The budget and taxes. “To say the least, we must balance the state budget without increasing taxes.”

  • Jobs. “There's no brand more powerful than Made in Texas … Products with the Texas brand must be made by Texans. We must protect Texas jobs for Texas families. Employers should be hiring Texans when they fill job openings. If job training skills are needed, Texans will work to provide them.”

  • Civics education. “[I]f we expect the next generation of Texans to keep Texas the best state in the nation, we must teach them why we are so exceptional. We must educate them what it means to be an American and what it means to be a Texan.”

  • Freedom of religion. “We must ensure that freedom to worship is forever safeguarded. I want a law this session that prevents any government entity from shutting down religious activities in Texas.”

  • Border security. “Public safety also extends to our border. Because of the federal government’s open border policies, Texas must fortify its efforts to secure our border.”

  • Life/Abortion. “Estimates show more than 40 million babies lost their lives to abortion in 2020. That’s shocking. It’s horrifying. It must end.”

Senate Finance Committee sets hearing dates. The Senate Committee on Finance has scheduled several meetings to discuss S.B. 1, the state budget. The first meeting will be held on February 8, when the Senate returns to Austin. The Committee has scheduled 16 hearings that will run through March 2.

State Sales Tax Revenue totaled $3.1 billion in January. On Monday, the Comptroller released his monthly revenue watch, reporting that sales tax – the primary revenue source for the state budget – totaled over $3 billion. Importantly, collections were only 0.3% below last January. The number demonstrates a continued return to pre-pandemic activity … where revenue and collections were actually running ahead of previous projections. Notwithstanding the positive sales tax news, the Comptroller did note that these gains were “offset by continued deep declines in collections from recreational services and the oil- and gas-related sectors.” Oil and gas severance taxes directly fund the state’s Rainy Day Fund and the State Highway Fund and should be watched closely as the economic recovery continues.

House committees to be announced soon. We expect Speaker Phelan to announce committees very soon … possibly by the end of this week.

Here’s an early preview of tonight’s State of the State address by Governor Abbott …

Streaming statewide … from Lockhart, Texas. The Governor – and the state – will find themselves in unprecedented territory tonight. The State of the State, which is normally given in the Capitol in front of a joint session of the Legislature, will instead be streamed by Nexstar statewide from a small business (Visionary Fiber Technologies) in Lockhart, Texas.

The speech will be optimistic … but cognizant of the tough year the state and its residents have endured. Expect an optimistic speech that turns Texas’ eyes towards a return to normalcy. However, also expect the Governor to begin by recognizing the pain and grief that the pandemic has caused many. From lost loved ones to economic hardship, the Governor will likely be keenly aware that there is still healing taking place and that while there is an end in sight, the pandemic and the scars it has caused are not yet gone. As we look forward, the Governor will likely note the many months of job growth … and that, just like its past, Texas’ future will be bright. The Governor will undoubtedly mention the massive migration of corporate headquarters and manufacturing facilities to Texas as a harbinger of more good things to come (e.g., Oracle, Tesla, Hewlett Packard).

Expect the Governor to lay out some broad legislative priorities … many that we have highlighted previously in this update. The Governor will touch on a dozen or so issues that he hopes to see accomplished this session. Many of the issues are ones we have been tracking for many months as major trends during the legislative session. The Governor’s designation of some of these as an emergency item (see below) provides further momentum for these major trends.

  • Broadband and closing the digital divide. The Governor will undoubtedly discuss the work that has already begun here, but emphasize that Texas must seize on this momentum to ensure every family and every school child has access to quality broadband. This is an issue we have foreshadowed for many months as a major priority this session. The designation of it as an emergency item provides further momentum. (Emergency Item)

  • The continued expansion of telehealth. Again, expect the Governor to mention the expanded use of telehealth during the pandemic. The Governor will ask that many of these stop-gap measures employed during the pandemic be made standard practice. (Emergency Item)

  • Continued efforts to improve Public Safety. This topic will include gratitude for our public safety officers, including the Governor’s opposition and desire to see legislation to discourage movements to defund the police. The Governor is also very keen to see bail reform, to ensure that dangerous criminals remain behind bars. This will include expanded criteria that will need to be considered in setting bail and increased qualifications for judges that set bail. The Governor will also recognize the need for increased training for police officers as well. (Emergency Item)

  • Civil liability protection. The Governor will reiterate his desire to see a bill this session that shields individuals and businesses from civil liability during the pandemic. (Emergency Item)

  • Election integrity. Another legislative priority this session will be continued improvement of our election processes – to ensure both the integrity of the election system and voter confidence and trust in the system. As we have noted in previous updates, election issues often rise to the top following major elections and during redistricting years. (Emergency Item)

  • Other major priorities. The Governor will also mention several other major priorities … including the importance of balancing the budget without raising taxes; cutting regulations on small businesses to jump start the economic recovery; continued protection of First and Second Amendment rights; job training and skills for Texans to ensure Texans fill Texas job growth; border security; and protecting unborn life.

The Governor will declare several emergency items. As is typical for the State of the State, the Governor will declare several emergency items. We have noted the topics above that we believe are most likely to be declared emergency items. A quick Texas civics lesson … an emergency item is simply anything the Governor deems important enough to prioritize during the coming legislative session. By designating the item as an emergency, members are permitted to decide to vote on those items earlier in the session than they are normally permitted to do by the Constitution. Of course, they should also be viewed as a use of the Governor’s bully pulpit.

Here’s an update as we head into Week 3 …

Both chambers release initial draft budgets. Both the Senate and the House released very similar budgets. Both budgets are over the revenue estimate provided by Comptroller Glenn Hegar by nearly $7 billion. Both budgets will have to move through committee hearings and floor debates before being reconciled in conference committee, so there will be ample opportunity to debate how the state will address the $7 billion spending gap.

  • The State must have a balanced budget. Because the Comptroller is required to certify a balanced budget, lawmakers must either find cuts or utilize other tools to reduce spending, tap the state’s Rainy Day Fund, or as is sometimes the case, the Comptroller may revise his revenue estimate upward.

  • The budgets maintain key spending and tax cuts. Notably both chambers were quick to point out that the budget drafts released last week maintain the increased public education spending committed last session in HB 3, as well as related $1 billion in property tax compression. The combined amount of these two items represents about $4 billion of the $7 billion spending gap.

  • The $7 billion gap may be a telegraph to leaders in Washington as they consider another round of stimulus. The President’s newest proposal would provide nearly $350 billion in aid to state and local governments, more than double what was provided in the CARES Act. Under the CARES Act, which provided a total of $150 billion for state and local governments, the state of Texas received nearly $8 billion.

Governor Abbott held roundtable discussions of legislative priorities. In two separate events last week, Governor Abbott hosted roundtable discussions to discuss his legislative priorities. During a visit to a Houston hospital, the Governor discussed his healthcare priorities which included the continued response to COVID-19, and especially vaccine distribution and a renewed emphasis on advancing telehealth. The Governor also signaled an emphasis on mental health and plans to ensure the ongoing availability of personal protective equipment (PPE). Later in the week, the Governor unveiled Texas’ Homeland Security Strategic Plan, and discussed specific proposals such as bail reform, which would make it harder for offenders with a violent history, and potential legislative measures to freeze property taxes to disincentivize cities from defunding police departments.

What to expect this week …

  • Expect another light week. The House and Senate both return to Austin this week on Tuesday, but neither chamber has anything substantive up for consideration.

  • The Senate Committee on Redistricting has scheduled a series of meetings over the coming week.

  • House Committee preference cards are due at the end of this week. We believe the most aggressive schedule would provide for committee assignments to be announced at the end of next week, but potentially (and maybe even more likely) later than that.

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