Texas Public Finance 2022 Opening Keynote: The Texas economy- Settling into the new normal

Join Glenn Hegar, Comptroller of Public Accounts, Texas for an update on the state’s economic forecast.

Transcription:

Lloyd Pepperl: (00:09)

Welcome again to the 2022 Texas Bond Buyer. My name is Lloyd Pepperl. I had Moody's Relationship Management team and I'm honored to be able to do an introduction of the Texas Comptroller, Comptroller Hegar acts as the CFO for the state of Texas, which is the ninth largest economy in the world in his role. He's the state treasurer, he's a check writer, tax collector, procurement officer revenue estimator. The comptroller's role has been particularly important over the last couple years as the state emerges and recovers from the COVID pandemic and energy market volatility, the comp spent the last year working with lawmakers on pension reform creation of a broadband development office and management of federal relief dollars. Comptroller Hegar served in both the Texas house and Senate is a graduate of texas, A and M university holds an MA & Law degree from St. Mary's University and has a Masters of Law from the University of Arkansas Comptroller's,Hegar's family has farmed in Texas since the mid 18 hundreds. And when comptroller Hegar is not in Austin, he spends time in Katy with his wife and three teenagers. So with that, let's give a warm in person, welcome to Texas Comptroller Glenn Hegar.

Glenn Hegar: (01:59)

Thank you, Lloyd. It is really good it to see you in person, as the person, since you spoiled it and told everybody I'm the tax collector. Now that's the part of the bio that I always worry about. And literally I make no exaggeration whatsoever. I've been in this position for over seven years and every single time, someone who introduces me said, he's the state tax collector, or I say it, I am looking for the exits. And why is that? Because my grandfather on my mother's side was a Baptist preacher, and I heard his sermons about how they stone the tax collector in the stories. So it worries me a lot, but being that we've got that outta the way and being that of you are not from Texas. Let me just say, we are glad you're here. We hope that you spend your money while you're here. Texas is a great place to spend money. We can actually bring more revenues in the treasury when you're here than when you're virtually. So we're very glad that you're here. It is awesome to see people in person. That's one thing that as someone who enjoys interacting and talking to people, you miss that so much from the virtual. It's a great supplement, a supplement tool. However, it's not the same as in person. So one, it's good to see all of you, good for you to be here. Great to have you in Texas. And I think for so many of us and some of this was kind of brought up as I think Leonard was talking a little bit about, or the challenges of the last couple of years. And I think today no different than two years ago or a year ago or six months ago, we're still trying to figure out what is normal mean? What does normal in today's world? And what is the direction of the economy? Texas, we are very, very blessed to have a strong economy, but like everybody else we've had several hurdles, several issues that have hit us. I was telling some folks the other day and in a discussion that I had as Lloyd mentioned, if nothing else per for Glen Hegar, cause I have three teenagers, I was having a bias. Somebody was introduced me here a year or so ago. And they said, Glen and his three young children and his wife, they live in Katy. And I thought young, I got crazy kids. They're teens is I told somebody the other day, I said when I heard my held my first born, my daughter, Claire, 17 years ago, I looked at her and I thought, oh my gosh, she's such an angel. Then she became a teenager. They Huff and they puff. But the point being is I was telling my kids after, you know the events we've lived through have been pretty remarkable. We've lived through where we live west of Houston, Katy, a devastating hurricane, hurricane Harvey that turned the back of our yard in the back of our house, into literally a river. We've had the COVID pandemic that no one has seen a pandemic for a hundred years. None of us have lived through it. We went through a devastating winter storm that hit the entirety of the whole state of Texas, all 254 counties with this terrible vortex. Last February year ago, my son, at that time, our electricity went off like everybody else, Jonah looked at me cuz we were taken to a friend's house who he's our friends, they do emergency management. He has a natural gas generator. My son said, why don't we have one of those? And I said, well, it's this and it's that. And it's a once in a lifetime event. And Jonah looked at me at young, 12 years old and he, he goes, how many once in lifetime events am I gonna have in my life? thought very good point for a 12 year old child. So we're living through really remarkable times, but the last so many months, actually 11 months, 12 months in Texas from a revenue standpoint has been remarkable. Those of you that may not recall a, of our state budget, 126 billion dollars, one third is federal money. Two thirds is state money of the state money pieces. Obviously tax collection is the biggest portion of the tax collection piece. All revenue streams into the treasury are very important to us, but sales tax is literally 60% of all the revenues that we collect on the tax side, automobile sales and rental taxes are another six to 7%.

Glenn Hegar: (06:05)

And so 66% roughly of all the collection on the tax side comes in that area. So people hear me talk way more about sales tax than anything else. Prior to the pan two years ago, Texas had only had three times in our entire history where we hit right at 3 billion dollars in a monthly collection, fast forward through the pandemic. We were fortunate by October of 2020 that really we were rolling on a three month basis of only about 5% below the same three months of the prior year, which was pretty phenomenal for the dive that we had in job losses and impacts to individuals and businesses. And then fast forward past February, the bad storm. And when we got to April of last year, usually the 20th of every month is when businesses start remitting, the collect, the taxes that they collected in the prior month that they held in trust for this state of Texas, my staff starts giving me updates. Wow, we were gonna have a good month. By the time we closed the books, we actually had a collection of 3.4 billion dollars fast forward through the next months and the next months. And the next months we continued over 3 billion dollars. We had a couple more 3.4 S in fact, come run roughly collections in November and October of last year, we had over 3.5. And then if any of you visited in Texas in December, thank you for what you spent because I tell people all the time we were living here, I don't know what you did, you and your family and friends for Christmas and holiday activities last December, but I need you to do it every month. Because we, collected almost 3.9 billion dollars in January of this year for the last 11 months, we have actually surpassed anything that we thought would be in the revenue estimate that we gave a year ago to the legislature. The day before session, we tell them how much we think will come in the treasury. We gave a revision a last October, and once again, we're surpassing even those expectations. So in the last left 11 months, we have had almost 3.4 billion in average, on a three month basis. We're not only over 20% compared higher than the three months a year ago. We're over 20% higher than two years ago. So the economy is strong as I was speaking to it earlier today, I said, yes, the trend is substantial, but anything that we've seen in the last few years, you don't know what's gonna happen next, everybody in this room like myself has the great interest of when is the next recession? What is the down downturn? How deep, how wide, how long, what is it gonna be? And so as of we stand today, state legislature is going to have a healthy sum to deal with in the next budget cycle. However, with that being said, we don't know what's on the horizon. So as the revenue estimator, I always have to put a little caution in there as we don't know what's on the horizon in the next few years. Part of the addition that we've had is not only receipts and sales tax, natural gas tax receipts have been up oil and gas tax receipts have been up pretty much mostly every single industry sector has had job gains. I remember last February I was reading the Dallas fed report, one of the reports and I told my revenue estimator at the time, I said, I've never seen comments so consistent. And what were the three things people were concerned about inflationary pressures, supply chains, and labor shortages Lloyd. And I were just talking about the shortages and labor and the issues, how it impacts all of us. So those are somewhat drags on the economy. And then now we've seen the unfortunate events that are happen in Ukraine with Russia. If you look at what has happened in Texas, we stand in October that we told the legislature, they would have roughly a 12 billion dollar surplus. When we close the books in August of next year, our state's economic stabilization fund or rainy day fund would have a fund balance of about 12 billion dollars in it. Now with all prices being over a hundred dollars, that number we will likely give a revised revenue estimate. Come later this year, we are starting our cash flow forecast. As we always do in April, we will run that through April, may talking to sister state agencies of what their expenditures may be. But also from the revenue side, we'll give an update. And I expect this summer that 12 billion surplus undoubtedly is a bigger number that cash in the economic stabilization fund is going to be a slightly bigger number.

Glenn Hegar: (10:34)

One of the things that has been a stimulus to the state of Texas, to some degree like every state that you live in and represent is the enormous amounts of federal money that have come to our state flowing through the state treasury alone. We have seen roughly over 75 billion dollars flowing into the state treasury to the state of Texas has been well over 300 billion dollars. And whether that is informed to the state of Texas to local governments, to dollars go into individuals or to businesses as substantial amounts of money. If you look at Texas as a workforce, we lost like every state, an enormous number of jobs two years ago. I'm thankful that now Texas economy, we have once again overcome where we were two years ago and we have a higher number of people working in the workforce today than we did two years ago. As I mentioned, every single sector of the economy is continuing to grow in jobs. Our forecast into the up years, as we see our job counts are gonna continue to increase. Our unemployment level is not quite to the level of what it is, unemployment level on the national side. However, with that being said, Texas, we think is gonna continue to grow. As Lloyd mentioned, one of the issues that my office is focused on now, the legislature last legislative session for as long as I've been around the governmental process in Texas, whether it was in the legislature, in the executive branch, I've been around for about 20 years. Hard to imagine I've spent most of my adult working career in and around this process in the legislature or the executive branch for those 20 years, there are certain things that are common themes that continue to be coming up. One of them mentioned was pensions comes up every so often. I've been beating the drum. The legislature needs to take a significant action on our pension systems in Texas, because that is the one cloud that I thought at over home, Texas in the fact that could impact our credit rating as a state, the legislature took a significant action with our employment retirement system, last session, and removed that cloud. Yes, it's gonna take years to pay off that unfunded liability. However, with that being said, there's a commitment. There's a focus and there's a dedication to make sure that issue is removed. One of the other constant themes we've continued to talk about as Texas, as a growing state, most of that growth is centered around the major urban areas as it is in most states and most nations around the world. So, if you're in rural areas, people talked about access to the internet is an issue for economic development. That has been a constant theme. And unfortunately for Texas, we were only one of a handful of states that did not have an office specifically dedicated to how do we incentivize and ensure we have that access across all parts of the state of Texas for economic opportunities, but come years ago, as we all know, it was more than economic opportunities. It was a access to telemedicine. People couldn't get go into the appointment to offices. They couldn't see their doctors, they had to have the access. And all of a sudden we had this complete wrapping of arms around how do we have telemedicine by both providers and the consumer. It also became about education, higher education, public education. It became about economic opportunities for individuals. So the legislature last te session created the Texas broadband development office. Why is Glen talking about it? Because they looked around and said, who's gonna to take it, I guess no one raised their hand. So they said Glen Hegar. So we are on a 12 city tour right now on a listening tour, listening about what's unique in every single community. What communities have used, some of the federal dollars to map their communities, map their towns, map their counties, because we have to come up with a map for the state of tax. And as some legislators during the process would talk about, this is about the last mile. And I've told people in all of these hearings that it's more than about the last mile. It's more than about 3 million Texans who have zero service, no service whatsoever. It's about the other Texans, the other 93% of households in the state of Texas, some of those who which have service, but they don't have very good service. So this is trying to make sure not only is Texas connected and we have half a billion dollars that was appropriated to the office.

Glenn Hegar: (15:13)

Last legislative session in the special sessions of federal dollars. We are working to draw those down. We are working on our plan upon which how we are gonna distribute those dollars with a multitude of partnerships. And I repeat partnerships, partnerships, partnerships, partnerships are hard work in the beginning, but they bear of fruit in the end. And so we are working to connect those partnerships across the state of Texas and the different advantages. It's not going to be one technology. It can't be one technology. We have to have a multitude of technologies, and we also have to make sure that we're dealing with all the different issues. So we're on a listening tour, we're doing focus groups with the specific issues and we're gonna come up with a plan. And then on the federal level, we know that we're gonna have roughly another 1 billion to 4 billion, just a small wide range. And we're waiting on the treasury and the fed to write the rules upon which we will know. There's a lot of challenges. We all know we've had a lot of challenges every day and life brings us challenges, but the last several years have brought greater challenges than ever before. As I mentioned earlier in February of last year, when I was looking at one of the fed reports, there were those three issues and I've told people over and over, we did a supply chain tour. Last year, we went and talked about what were businesses doing to be creative, to solve their supply chain problems. We talked about last fall, how we had hoped supply chains would be worked out sometime this year. But unfortunately we all know that's gonna be a lot longer coming to deal with some of the supply chain issues. And especially when you take the very unfortunate events that are going on in Russia, that's causing greater disruptions on certain supply chains. And while that is a challenge for many businesses, it's for consumers, it also ends up being an opportunity for some to be able to provide a service that they didn't have before that they could, if they can get those issues resolved inflation, unfortunately is something that's very real and has a longer tell than all of us in this room had hoped. And so therefore, as we look, look at, and I make this point over and over again, that I am very concerned with the inflation that we have right now at a higher level than we've had in many decades. But my concern is not just the citizens of this state of this country. If you take gas prices, you take the fact of grocery prices, those dual headwinds, how it ends up costing the average consumer thousands of dollars, more than what they had in their budget. But I think looking out into the coming months, as we see disruptions that are going on around the world, what does that mean in many other countries where people are at extreme poverty and those levels of poverty is significant impacts to them. So it's not just here in this country, but literally around the world, if an issue that some of you may have in, I'm not sure. So if I'm off space, you can tell me to move on to the next topic. What is Texas doing in regards to firearm policies, oil and gas policy. Do you want me to address that or move on to the next topic? oh, okay. Let me repeat once again, something I said earlier is that when I moved from the legislative branch to the executive branch, I left the policy shop. I became in the executive branch. I see, my dear friend, former staffer, Brooke pop, who is the chair of the water development board. Who's doing a great job over there. And thank you for raising your hand and us twisting your arm to go over to that shop. Brooke used to run my legislative policy. So she knows my point in meaning that she was very involved in policy, whether it was my office or the governor when he was the attorney general. And then now as the head and chair of water development board were not the policy makers anymore. Our job is to implement that policy. I was asked earlier today, what is the end goal of this legislation? And I think if you look around part, let's say all of us in this room know when it comes to Texas, not doing business with companies that have an anti firearm policy, as you all, whether that's my office or other offices, there is no list. There's no list that's kept essentially it's forms that is sent and you either attest to it or you don't, if you, don't not allowed to do business of certain contracts, if you do, we continue to operate. Now, some will ask what is exactly does that mean? I think that's part of what we're all figuring out. I think we're all figuring out same as Lloyd and I was talking about ESG policies and I've said in two different interviews today, for some that may mean something significant of a direction that we think we need to go in for policy to others. It's just three letters on a piece of paper. And I think that's what we really have to figure out. What, what does that really mean? And it means something different to people. Now, when it comes to oil and gas, I have not done one interview. I have not talked about this up until Monday of last week. And the reason being is I felt strongly that me and my office, which was given the task of creating some process upon which that every entity, a financial institution that would go through our test. And as we work to create that test, because there was no off the shelf product that I could buy, we had to create it internally. And one that we went through multi variations to try to come up with something that we could be very clear. We could be very transparent and people that ultimately got a letter from us could try to answer those questions. And ultimately of those, some may end up on a list cuz there is no list today. And then there was a subsequent letter that we sent just this week to another 150 institutions asking them to list to us any mutual funds and ETFs that they have that are ESG Anti fossil fuels, per se, what are they? And so we want to be very transparent and I didn't want to do any interviews cuz I did. I wanted it to know that we were creating it. And then once here's what we're doing. And the fact is, I think I made one comment when we sent it out, cuz we're getting freedom of information request every week and that's the process and that's fine, but I wanted to send it out publicly because in that way, instead of the one lucky person who happened to ask today and gets it in 10 days, everybody got it at one time, that's ultimate transparency and disclosure.

Glenn Hegar: (22:04)

And so with that being said, I think part of what has become a little of frustrating, I think is that some entities and again, whatever an entity wants as their business policy, that's their right. That's their right. But I think with that being said, it seems as though some, and we'll figure this out are coming and saying, Glen, we're not anti look at all we're doing, but then the rhetoric and the posturing is 180 degrees to the antithesis. And so how do you match that up? If you come in with a closed door meeting and says, look what hole we're doing, but then you turn around and read in the press and the statements that are coming out on official letterhead that are 180 degrees, how do we match those up? And I think that's probably more than anything about this is whatever the position is. You take the position and you live with the position and if that's pro that's anti and as an oil and gas state, I think, and I firmly believe I have three young kids. There's a few things that make Glen Hegar function in my bio at the very end, it says of every award, every title doesn't say it this way. It says the most important title to Glen Hegar is dad, all those other awards I have on the shelf while I greatly appreciate him. I thank group's time and effort. All of those are meaningless. At the end of the day, what is meaningful to me is my three kids. And what's meaningful to me is the direction of the state and the nation that I get to call home. That's what makes me go every single day. And so in saying that, having an environment that my three kids can live in into the future longer than my lifespan is really important to me. I grew up on a family farm and in that land is very important to us being a good steward of what God has created is important to me and my family. So we're in the environment's important, but I also say we believe in a diversification of portfolio in the trust and what we do in investments. We believe in a diversification of electricity in this state, we've got almost more wind generation than any other state in the nation and country in the world we're putting into these resources. But the fact is, if you want to drive an Electric vehicle, that's your right and companies can sell 'em. But when you close the door, guess what? You touch a petroleum product. When you touch the steering wheel, guess what? You touch a petroleum product. The tires that make your car go round are what a petroleum product, the wiring that is coded with what petroleum products. And we're not even talking about airplanes. We're not talking about ships. We're not talking about trains. So the point is this, I think what the legislature is saying in part here in Texas is that the fact is we are not moving to a non fossil fuel industry and world anytime soon. So if we want to have the rhetoric that we are, that's a little disingenuous to the public and we need to be honest. And I think we all need to be honest, wherever we fall on these issues, what is a real ESG policy? What are we doing to make this world a better place? And not essentially just provide rhetoric that says we're doing one thing and we're really not. And so I think in part that's probably as much more about it than anything else, always laugh when I give these speeches and I have a few of my staff come in, they always write a speech for me, which I appreciate they are to know me after seven and a half years, I never read the speech and they go, oh my God, he goes off script all the time. He never reads the script. No I don't. I've never liked scripts. I figured that out a long time time ago, what is, what is a few things that keeps me up at night? One of them that keeps me up at night. I was given an interview not too long ago from, just up the street and whatever that university is over here. I never can remember the one that's here in Austin. It's not A and M it's that other one, I forget, who did A and M did beat them, who they are in baseball last night. Anyway, that's not the fact, over at the university of Texas and I was, given a speech and it was a panel discussion. And somebody from the audience had asked the question, a former Congressman and asked the question. I said, what worries you?

Glenn Hegar: (26:45)

What keeps you up at night? And I said, well, obviously the state of the economy is one that keeps me up the direction of the economy. Worries me a lot. Because that's my front and center job and I'm not in control of it. So, it worries me the directions and different data points. But the one that really is me more than anything else, a thing called cybersecurity. No, we mentioned that earlier that that's gonna be a discussion point. And that's one that worries me all the time, because it only takes one email click and you got a big problem. So we focus a lot of attention, a lot of resources on that. We go to the legislature, I talk to, them quite a bit about cyber, the need for the state to invest in it systems, to upgrade our systems, to protect them from those potential threats. And it's not as though we will never have an attack it's which one and how do you make sure you have resiliency and have systems that are backed up for those purposes? So that's one. The only other thing, when I was walking up here, I got a little disoriented, sorry. If I started off rough, it was cuz Lloyd, I'm gonna have to blame you because he said, it's a real honor, which I thought he was gonna say the honorable. And when he, anyone says honorable, I always flash back and I'll conclude on this. And then, I flash back to the very first time I was a state representative. I sworn into office. I was very excited. I was very nervous. My wife, who wouldn't be elected if it wasn't for de Hegar. And I had an issue that day, cuz any of you not have seen the Texas house or representatives a very crowded place. There's 150 members. There's two chairs that you get, you get to pick. Who do you want in those two chairs? Well, my wife has to be there, but I need my grandparents cuz my grandmother unfortunately was ill. She wasn't gonna make another another swear and end ceremony. So I got three people, two chairs. What do I do? I came up with a true Aggie solution. My wife and I squeezed into my chair. So I love humor. I love laughter. I like to make fun at myself. I try to teach kids, how do you roll with the punches? It's fun to dish it out a little bit, but you gotta learn to take it. And so communication's important. Skill sets are important to me. Those are things that we try to teach our kids all the time. And so I decided to go back to that moment of humor that I like. And, I don't know men in the room, if you, any of you that are married, if you've ever said something really stupid that you really regret that moment in time I stood up, I took the oath of office. I sat back down, I whispered in my wife's right ear. And I said, dear, you can now call me honorable. Huh? Yeah. It wasn't that funny that was 20 years ago. And still to this day, every once in a while I wake up at night and my wife goes, oh my gosh, did you have a bad dream? And I've yet to tell her. Yeah, it was your look. When I told you to call me honorable is what I had a nightmare about. So I don't like titles or none of that, but I do like the one that's called dad. I will say that in concluding thank you for being in Texas. Thank you. Bond Buyer for all the work that you all do, the focus you put on important issues, I will know there are certain things that concern all of you and I respect that whatever I can pledge to you is we will always have an open door policy where we can discuss those issues and figure out how do we get to a better result. I firmly believe Texas is a great place to do business and we want to keep it that way. So may God bless you. You, I hope you have a great week while you're here and whatever you do do me a favor, spend just a little bit extra money. Thank you all.