DALLAS – Texas now has the nation's largest rainy day fund after Alaska drained nearly a third of its fund in one year, according to a
If the next Texas Legislature, starting in January, doesn't tap the rainy day fund, it should contain about $10 billion by the end of fiscal 2017. The fund's value was estimated at $9.7 billion as of Aug. 31. That total represents nearly 20% of Texas' annual general revenue expenditures.
Despite falling revenues amid the oil and gas slump, the Texas rainy day fund gained nearly 15% from fiscal year 2015 to 2016. The fund was created in response to a severe funding crisis brought on by the collapse of oil and gas prices in 1986.
According to figures from the National Association of State Budget Officers, the average rainy day fund equals 6% of annual general revenue expenditures.
California now ranks second with a fund of $8.66 billion, nearly double the $4.34 billion recorded in fiscal year 2015. Based on projections, California could match or surpass Texas in the 2017 fiscal year.
Alaska's rainy day fund fell from $10.31 billion in fiscal year 2015 to $6.88 billion in fiscal year 2016, according to the NASBO figures.
The state government is nearly entirely dependent on tax revenue from oil, and it has been hit hard by falling local production and falling oil prices.
The 2016 total represents more than 126% of Alaska's expenditures, but in the 2017 fiscal year, the fund is projected to fall to $2.38 billion.
According to the NASBO spring survey, the states of Arkansas, Kansas, Montana, Nevada and New Jersey have nothing in their rainy day funds.
Since its creation in 1988 through July 2016, the Texas rainy day fund has received deposits of $19.5 billion and earned $789.9 million in interest, the Comptroller's office reported Monday.
The Comptroller's office has up to 90 days after the end of each fiscal year to transfer revenue to the fund. The agency's next transfer in November will total more than $439.5 million, with an identical sum transferred on the same day to the State Highway Fund.
The Texas Constitution authorizes the Legislature to make appropriations from the rainy day fund if a budget deficit develops with a three-fifths majority vote or for any other purpose with a two-third's vote.
Texas lawmakers have made seven appropriations totaling $10.6 billion from the fund since its inception, most recently in 2013. All were approved by two-thirds votes.
The transfers were for water projects, disaster relief, public education, economic development and health and human services.
Only one appropriation was made to cover a budget gap. That $3.2 billion transfer, representing 34% of the fund balance, came in 2011.
In the 1990s, the fund's year-end balance exceeded $100 million only once, the report said. The Legislature tapped the rainy day fund three times during that decade, each time exhausting almost the entire balance. After an appropriation to address school finance in 2005, the fund balance was reduced to $7 million.
"The ESF's huge balance today is due mainly to extraordinary growth in oil and gas tax collections during the recent shale boom," the report said. "In 2006, it received its first revenue transfer based on the oil production tax since 1992; natural gas taxes also skyrocketed that year, responding to the surge in production based on hydraulic fracturing ("fracking") technology."
While oil and gas taxes have contributed to the rainy day fund every year since 2006, natural gas production taxes will not reach the transfer threshold in fiscal 2016 because prices are lower than they were in 1987.
Texas voters approved a constitutional amendment creating the ESF in 1988, following an oil price plunge and economic recession that forced lawmakers to raise taxes to keep state government in the black.
Some tax revenues were automatically set aside in boom years to help the state during downturns. Later legislation and another constitutional amendment made further changes to its funding process.
Crude oil and natural gas production taxes are major sources for the fund, contributing more than 85% of the fund's revenue over time.
"Ironically, the state has amassed its substantial cushion by tapping the same volatile revenue stream that has caused it financial difficulties in the past," the report said.
Historically, the rainy day fund tapped 75% of each year's oil and natural gas production tax revenues in excess of the amounts they yielded in fiscal 1987. Those benchmark numbers were $531.9 million for oil and $599.8 million for gas.
In fiscal 2015, despite faltering energy prices and production, these taxes yielded nearly $2.9 billion and $1.3 billion, respectively.
A November 2014 constitutional amendment shifted half of the ESF's share of oil and gas tax revenue to the State Highway Fund to address urgent transportation needs. Without further legislative action, the arrangement will end after fiscal 2025, and the fund's share will return to 75% of oil and gas tax collections above the fiscal 1987 thresholds.
