We’ve all got bills – and the state of Texas does, too. Bills are nothing to be afraid of, if you can manage them. If you miss some payments or take on more debt than is healthy, your credit score will go down and your interest rates will go up. Suddenly, your debt has become overwhelming.
Currently, Texas has a AAA credit rating, the best there is, so it’s less expensive for the state to borrow money and it makes for a hospitable business environment. Texas Comptroller Glenn Hegar has issued a warning about the state’s credit rating and its rainy day fund, which helps the state keep up with its long term liabilities.
“We need to reform the way that we manage that,” he says. “If we do not pay attention to our long term liabilities, then I think sometime in the near future Texas could see a downgrade in our credit rating.”
The Rainy Day Fund, or the Economic Stabilization Fund, currently has $11 billion in it.
Hegar says the Rainy Day Fund is sitting “in the treasury pool” and functions as overnight cash.
“That means that my office is not able to earn enough interest to cover what the inflationary cost of that money is,” Hager says. “We can’t earn enough interest on it. That means next year the purchasing power of that money has gone down.”
Hegar suggests putting the money in an endowment fund, similar to the structure that universities use. This would allow the money to grow over time and to be there if and when the state needs it down the line. But Hager doesn’t want to be hasty about investing the money.
“Markets are something that’s long term. There are highs and there are lows,” he says. “You don’t try to invest it all at once. You time it very strategically.”
Hager wants to make sure the state invests defensively and mitigates the risks. The goal is to avoid the drop in the credit rating that would come with the state getting behind on its long term liabilities.
Written by Jeremy Steen