DALLAS - When Susan Combs took her first oath of office as Texas Comptroller in January 2007 the coming recession was just a rumor. By the end of that year it was a fact.
There are some striking parallels as Combs, who did not seek a third term, prepares to hand the office over to her successor, Glenn Hegar.
The comptroller prepares the revenue estimates used to build the state budget.
"It is my duty as Comptroller to point out that I do expect a cooling of the economy in the months ahead," she wrote in her first revenue estimate issued Jan. 8, 2007.
Eight years later, Combs is handing off the revenue estimate for the upcoming legislative session to Hegar. As was the case eight years ago, there are ominous signs for what has been a booming Texas economy.
Combs' final sales tax report set an all-time record, the second peak this year. At the same time, oil prices have fallen at an alarming rate - nearly 50% since June. How deeply those falling prices will affect the state's energy economy is uncertain. But past history provides cold comfort.
If oil stays around $55 per barrel, the state could lose 128,000 jobs by the middle of 2015, about 1.1% of the state's non-farm employment of more than 11.6 million jobs, according to a Federal Reserve Bank of Dallas.
Despite that blow, Texas could compensate in other areas, the Fed said.
Texas' diversified economy is expected to add 390,000 jobs this year after adding 295,000 last year, according to Michael Plante, a senior research economist at the bank.
"We think Texas will, at least, have a rough 2015 ahead, and is at risk of slipping into a regional recession," Michael Feroli, JPMorgan Chase chief U.S. economist, predicted on Dec. 18.
Combs noted that Texas has recovered all the jobs lost in the recession and a million more, far surpassing any other state. According to the U.S. Bureau of Labor Statistics, without the 1.36 million jobs added in Texas since 2008, U.S. employment would still register 0.26% below the 2008 peak.
Combs said the drilling rig count in Texas is down after a massive expansion over the past five years but that some fields in Texas can remain profitable in the $50 to $60 per barrel range.
"I have not heard a soul say that in Texas they are going to shut anything in," Combs said.
However, a recent email from Halliburton chief executive Dave Lesar to employees indicates that hard times are coming.
"Right now it looks like 2015 is going to be a tough year," according to the memo obtained by Oilpro.com.
Halliburton is in the process of merging with another Texas oilfield services giant Baker Hughes.
"I want to be clear -- these reductions are related to market conditions, not the acquisition," Lesar wrote. "It's important to remember that distinction as we go forward."
In 2008, Combs' second year as comptroller, oil plummeted from a record $147 per barrel on July 11 to $32 by the end of December, a 78% drop in less than six months. Texas sales tax collections began falling in March 2009 and would keep dropping for 14 straight months.
"I don't think any of us foresaw the severity and the depth of the recession," Combs said. "They call it the Great Recession for a reason. This whole transformation has taken place across the landscape of people's lives."
The resurrection of the Texas economy, which some called the "Texas Miracle," came with rebounding oil prices and a new technology pioneered in the Barnett Shale region of North Texas known as hydraulic fracturing, or "fracking," combined with horizontal drilling of tight shale formations. Some of the most productive discoveries came in two shale plays: the South Texas region known as the Eagle Ford and the historically bountiful Permian Basin of West Texas.
"One of the major reasons we had an unusually fast recovery that was not projected was the Eagle Ford," Combs said. "The Eagle Ford woke up in 2008 and you look in 2010, all of a sudden there was this gusher that no one predicted. So, that was an outlier from a revenue stream you could never have seen."
The rapid recovery far exceeded Combs' conservative estimates of available revenue for the state legislature, leading some to blame Combs for cuts to education enacted by the 2011 session.
"The part about whether we missed the revenue estimate, well, there's 40-year history on the Web," Combs said.
"If you have a recession in your term, it is very, very hard to get it right. And the reason why you have to be off is because you're going to be conservative," she said.
"You don't want to project a rocket-ship escape velocity flight from the recession because it may not happen," she said. "I remember using the three letters for about a year and a half: the U, the V, and the L-shaped recovery. We bounced along the bottom for a very long time with no glimmer of a V-shaped trajectory in sight."
Combs added that the revenue she failed to forecast wasn't lost but flowed into the rainy day fund. Had legislators chosen to tap that fund to avoid more than $4 billion in cuts to education, they could have.
From her first days in office, Combs used the
One of her final economic reports showed that the state's unfunded pension liability was growing at the rate of $500 million per year with a current funded level of 77%. At the current rate, the state pension funds would be insolvent in 2063, according to estimates.
"With every year that passes without additional reforms, the Employee Retirement System trust fund's slide toward insolvency becomes more expensive to reverse," she warned.
During her tenure, Combs conducted surveys of school construction costs, infrastructure needs, per capita debt, bond elections, and a broad range of other economic vectors. Combs said the flood of disclosure reports was a product of her own initiative rather than any particular legislation.
"On the fourth day I was on the job, I put up the spending of this agency down to the pencil category," she said. "By April, I had gotten 24 other agencies, and we combined were about 80% of all state spend. It took until the fall to get the remaining little baby agencies that didn't have very good computer systems and couldn't track it.
"The school construction report was very hard to get," she said. "And the latest report, the water districts, that took us over a year to 18 months to collect because nobody wanted to give it to us. A letter from this office with an open records request? That's what we did. We had to use that."
The revenue estimate that the Texas Legislature will use to create a budget for the next two fiscal years will remain under wraps until Glenn Hegar takes office, Combs said. The revenue estimate will include an update on how the current fiscal year's revenues are running. The Texas fiscal year begins Sept. 1 and ends Aug. 31.
Economist Stuart Greenfield estimated that revenues for the current fiscal year will increase by $6.2 billion over previous estimates. Texas is also sitting on a rainy day fund believed to exceed $8 billion, a factor in the state's triple-A ratings.
Though the upcoming report will bear Hegar's name, the numbers come from Combs and her staff, just as she inherited the work of her predecessor Carole Keeton Strayhorn in 2007.
"We're giving him books of stuff," Combs said. "Some of his staff has already started here."
Combs, 69, plans to continue running her cattle ranch in Brewster County, 400 miles from Austin. During her tenure as comptroller, Combs sometimes drove the 800-mile round-trip from Austin to the ranch between Friday and Sunday nights.
"Now, I'll be able to stay for a week at a time," she said.
Tall and lean, Combs looks the part of a West Texas rancher but actually has a remarkably diverse background. At Vassar College, she majored in French before going to work in the financial markets on Wall Street, followed by a stint in advertising, then for the U.S. government. After graduating from the University of Texas School of Law, she joined legendary Dallas District Attorney Henry Wade's team of prosecutors.
Combs served two terms in the Texas House of Representatives from 1993-96, and succeeded Rick Perry as state Agriculture Commissioner from 1999-2007. Perry, the outgoing governor and the longest-serving chief executive of the state, administered the oath of office to Combs in 2007.
Combs said she will probably be involved in some future enterprise after leaving office but hasn't decided any specifics.
"I'm going to retire from here, but I'm not going to retire from life," she said. "I've got lots of fun projects. I'm interested in economic issues. I'm interested in efficiency, and I'm sure I will harass people to do things right. I'm going to have fun but be productive."
