Elections

Why Texas May Tap Its Rainy Day Fund During Boom Times

The state's economy is attracting 1,500 new residents a day, but growth is costing billions of extra dollars in road and traffic maintenance every year.
by | October 20, 2014

ELECTION 2014: This article is part of our coverage of ballot measures to watch.

The outlook for Texas is anything but gloomy these days. Every day, 1,500 new residents settle in Texas. The local economy is adding jobs in all of its major sectors. And the state's oil and gas production are at their highest since J.R. Ewing dominated prime time.

But with growth comes growing pains. For Texans, the price of prosperity is getting stuck in traffic. Despite a rush to build toll roads and, in some areas, mass transit, the roads simply can’t handle the influx of newcomers.

The state's population has more than doubled in the last 40 years, and the number of vehicles has tripled. But, according to Texas A&M University, the state's road capacity has only grown 19 percent in that time. The additional cost of keeping the road network in good enough shape to maintain the current levels of congestion, according to state transportation officials, would be $5 billion a year. That includes $3 billion for new capacity, $1 billion to upgrade roads to handle heavy loads from the oil and gas boom and $1 billion for maintenance.

Texas voters will have a chance to cut that unfunded need by $1.2 billion to $1.7 billion a year, if they approve a measure on the November ballot called Proposition 1.

The new money for roads is money that would otherwise be socked away in the state’s rainy day fund. The Economic Stabilization Fund, as it is formally known, has been growing rapidly, because it is primarily funded by oil and gas taxes. It had $6.2 billion at the end of June 2013 and, even if the ballot measure passes, it is expected to grow to nearly $8.4 billion by next June.

Legislators signed off on the proposal last year, and sent it to voters, because it requires a change in the state’s constitution. So far, no organized opposition to the measure has emerged.

“It’s a critical first step, but it really isn’t going to solve the problem,” said Scott Heywood, president of Move Texas Forward, a transportation advocacy group. “It’s something that we have to do to fill the gap that we have.”

“Proposition 1 represents the low-hanging fruit. It’s an easy vote,” added Gary Scharrer, a spokesman for the Associated General Contractors of Texas, one of the many groups backing the measure.

“The supporters for Proposition 1 are pushing for very large, overwhelming show of public support to help persuade lawmakers that Texans support investing in highway construction,” he added.

To do so, supporters have to get their message out to voters who are more likely to be paying attention to the race for governor and other statewide contests. (Both major party gubernatorial candidates support Prop. 1.)

And there are still dissenting voices who question the wisdom of diverting money from the rainy day fund.

“We may require this money for more pressing other needs,” wrote state Rep. Tryon Lewis, a Republican, in a recent op-ed. He said, for example, that the state could be liable for claims to a state-run insurer if a hurricane hits the Gulf Coast.

“If anything, the state’s reserves should be enhanced, not cut. Severance taxes should be available for our most pressing state needs and emergencies,” he wrote.

In fact, Texas lawmakers have habitually tapped the rainy day fund for extra money since its creation in 1990. The state made major withdrawals to help cope with the two recessions of the 2000s, for instance. Last year, legislators sent voters a measure to let them take $2 billion from the fund to pay for water infrastructure, and the measure passed with support from 89 percent of voters.

The Texas Constitution puts limits on how much money can be kept in the rainy day fund. The fund cannot be bigger than roughly 10 percent of the state’s general revenue in a two-year period. For the current biennium, that would be about $14 billion.

Prop. 1 would also require the legislature to define the minimum amount of money that should be kept in the emergency fund.

The rainy day fund is a tempting target for transportation funding, because legislators have had little interest in raising taxes to support transportation spending. The last time they raised the state’s 20 cent-per-gallon gas tax was in 1991, and not all of that money goes toward transportation. A quarter of gas tax money, for example, goes to public schools.

Without new money, Texas has relied on debt and on tolls to pay for transportation projects.

There have also been calls from varioius interest groups to use rainy day funds to boost Texas schools or to provide health insurance for the poor.

But Chuck DeVore, a vice president of the Texas Public Policy Foundation, a conservative think tank, said spending one-time money on infrastructure makes more sense, because it is easier to stop if the state’s finances get worse.

“You can stop pouring concrete for a while, and the concrete isn’t going to hold a protest in the Capitol,” he said.

But Devore is concerned about the legislature’s approach of using rainy day funds for infrastructure, because it skirts constitutional spending limits on state budgets. “It essentially allowed that spending to be off the books. We don’t like that, because it allows government to grow more rapidly,” he said.

Discuss

More from Elections