Since the 1980s, Texas has set aside a portion of state funds specifically to be used when things aren’t so rosy. It seems like an economically prudent move, but now some say the operations of the Economic Stabilization Fund (ESF) – also known as the Rainy Day Fund – make no fiscal sense. Texas State Comptroller Glenn Hegar says it’s time for a change.
The ESF is made up of oil and gas severance taxes – imposed on the removal of nonrenewable resources from the ground. Hegar says for the first 20 years after its inceptions, the fund was mainly a name only. But now that the Texas oil industry has seen a revitalization, the fund has grown to about $10.2 billion over the last several years, making it one of the largest ESFs in the country.
The money sits in what’s called a General Treasury Pool, which doesn’t earn enough return to cover inflationary pressures. Hegar’s new concept is to allow the money to grow over time by investing part of it, and to create an endowment fund that can be used to deal with long-term liability issues.
The idea is to maintain an 8 percent reserve balance in the ESF, with any new dollars going into the endowment fund, or the Texas Legacy Fund.
“That’s a very conservative and reasonable proposal that would leave us with a nice nest egg for when the next recession occurs,” Hegar says.
Last legislative session, lawmakers gave Hegar’s office flexibility to start investing some of the ESF. This session, Hegar is proposing lawmakers hold public hearings on his plan, and possibly enact it to send to voters as a constitutional amendment.
“If nothing else, at least we’ve put the issue out there had a healthy debate, a healthy discussion,” he says. “It’s kind of like we take the money and we bury it under the capitol lawn and that’s not very prudent. And no one in their own personal household or their business would do that with that amount of money or any amount of money.”
Hegar says he wants Texas to be able to use and invest the money instead of just stocking it away.
“When we have the next downturn and the oil fields of today go dry, like we thought they did in the 1980s,” he says, “then you would still have something that continues to be there available for the next generation of Texans.”
Written by Beth Cortez-Neavel.