With record $12.5 billion in Texas’ savings account, lawmakers set $7.5 billion minimum balance

“With record $12.5 billion in Texas’ savings account, lawmakers set $7.5 billion minimum balance” was first published by The Texas Tribune, a nonprofit, nonpartisan media organization that informs Texans — and engages with them — about public policy, politics, government and statewide issues.

As Texas’ savings account swelled to a record high of $12.5 billion this week, a group of state lawmakers on Friday unanimously agreed that the state should leave more than half of it untouched over the next three years.

The joint Economic Stabilization Fund Balance Select Committee voted to keep the Rainy Day Fund’s minimum balance unchanged at $7.5 billion — the same figure they chose in 2016, when lawmakers were entering into their last legislative session.

The unanimous decision by the joint Economic Stabilization Fund Balance Select Committee means that stewards of the fund can invest more money in higher-return investments, as they hope to keep the fund growing to keep pace with inflation. If lawmakers had chosen to raise the minimum balance, it would have required more funds to remain available at short notice for emergency spending, limiting their investment potential.

The question on lawmakers’ minds was if leaving the minimum balance unchanged could affect the state’s credit rating, as state officials told lawmakers that ratings agencies like to see states have a healthy amount of cash on-hand for fiscal emergencies.

“If we increase the minimum balance, that’s less money you would have to invest in receiving a greater rate of return,” said state Rep. Sarah Davis, a West University Place Republican who co-chairs the committee.

Lawmakers are preparing for a legislative session that begins in January in which the billions in the Rainy Day Fund could potentially play a role in discussions on two major issues – overhauling the way the state and local governments provide funding for public schools and putting together a state aid package for coastal communities still recovering from Hurricane Harvey.

Another effect of Friday’s decision is that lawmakers in 2019 can withdraw a larger amount from the fund without jeopardizing revenue for state highways. Before 2014, most of the state’s taxes on oil and gas production went into the Rainy Day Fund. Then Texas voters approved a plan to divert some of that tax revenue to the State Highway Fund instead. Friday’s vote maintains the status quo, in which those automatic transfers from oil and gas taxes would stop going to the state highway fund if the Rainy Day Fund dips below the minimum $7.5 billion. So long as the fund is above its minimum balance, oil and gas revenue will be split between highways and the Rainy Day Fund.

“This sufficient balance will ensure the maximum transfer of resources to transportation and allow a greater return on our investment for a significant portion of the Rainy Day Fund,” state Sen. Jane Nelson, a Flower Mound Republican, said in a statement. “It also protects our credit rating by demonstrating Texas’ commitment to keeping sufficient reserves on hand to address financial challenges.”

Earlier this week, Texas Comptroller Glenn Hegar announced he had transferred $1.4 billion into the Rainy Day Fund, raising its current balance to $12.5 billion, a record high. (Phillip Ashley, an associate deputy comptroller, told lawmakers on Friday that the fund balance will fall to $11.8 billion next year as state agencies spend money on projects the Texas Legislature approved in 2017.)

Hegar has said that credit ratings agencies would like to see Texas invest more of its emergency fund, which is the largest of its kind in the country, to improve the state’s long-term fiscal health, rather than letting the money depreciate as overnight cash.

“It is crucial that Texas use this amazing asset to maintain our strong fiscal position and our state’s AAA credit rating,” Hegar said in a Thursday statement. “That’s why I have asked the Legislature to authorize me to invest a portion of the fund in a more prudent and responsible manner and use the returns to address the types of long-term liabilities that have crippled the finances of states such as Illinois and New Jersey.”