Bloomberg News

Texas Reserve Fund Will Reach $7 Billion by 2013, Estimator Says

October 05, 2011

Oct. 5 (Bloomberg) -- Texas will have $7 billion in its main reserve fund by January 2013, the state’s chief revenue estimator told lawmakers, a projection deemed overly pessimistic by a senior Republican legislator.

The so-called rainy-day fund, financed by taxes on oil and gas production, will reach $6.1 billion by December and should rise by about $1 billion next year, based on stable energy prices, John Heleman, the estimator for Comptroller Susan Combs, a Republican, told a House of Representatives panel that met today. The reserve has exceeded $4 billion since 2008, he said.

“That $7 billion estimate sounds lower than I expected, given how robust oil and gas has been,” state Representative Harvey Hildebran, a Kerrville Republican who leads the House Ways and Means Committee, said in an interview after the meeting. “I’ve been thinking that it will be $10 billion on the optimistic side and maybe $7 billion on the pessimistic side.”

Legislators closed a budget deficit for the two years that began this month by cutting expenses, shortchanging schools and pushing some Medicaid spending into fiscal 2013. The actions adhered to Governor Rick Perry’s pledge to avoid raising taxes and limit using the reserve fund for the current spending plan.

More than $4 billion of reserves are likely to be used in 2013 to cover expenses for Medicaid, the health-care program for the poor, Hildebran said. The Legislature, which isn’t scheduled to meet again until January 2013, didn’t provide for about $4.8 billion in Medicaid costs in the two-year budget passed in June.

Fund Cushion

“Texas only used its rainy-day fund relatively later in the downturn, which means at this point that they still have a cushion that is more significant than many other states,” said Nick Samuels, a Moody’s Investors Service analyst in New York. “That cushion has really helped buffer Texas.”

The state had the second-largest reserve fund in the U.S., trailing only Alaska, according to a National Association of State Budget Officers’ study earlier this year.

The “healthy budgetary cushion” provided by the fund helped Texas retain a top credit rating and a stable outlook from Moody’s in August. Analysts including Samuels cited their expectations for the state’s economy to recover faster than the nation’s as a whole.

--Editors: Ted Bunker, Walid el-Gabry.

To contact the reporters on this story: David Mildenberg in Austin at dmildenberg@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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