Texas' large and steadily diversifying economy continues to perform better than the nation in both economic activity and employment, says a report published today by Standard & Poor's Ratings Services.

The report, "Texas," further states that we expect that Texas' economy will continue to outperform the nation's given its continued population growth and relatively low cost of doing business, which we expect will contribute to gradual employment gains through the remainder of 2012 and into 2013, particularly in the health, education, and services sectors.

However, Texas' approved biennial fiscal 2012-2013 budget failed to achieve structural solutions to the state's long-term budgetary pressures. Chief among these potential sources of persistent imbalances is education funding.

"As we have noted for the past five years, we believe that the school finance reforms that the legislature approved in 2006 created a long-term source of budgetary imbalance and potential liquidity pressure for the state," said Standard & Poor's credit analyst Horacio Aldrete-Sanchez.

The 2012-2013 biennial budget did not materially alter this structural imbalance. The biennial budget preserved approximately $6 billion in the rainy day fund (approximately 3.6% of biennial expenditures). However, that pressure to spend a portion of the rainy day fund may mount as the 2012-2013 biennium draws to a close and the state's long-term structural imbalances resurface.

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