Rainy Day Fund Turning Into Revenue Flood

 

January 5, 2014

 

New oil production levels in the South Texas Eagle Ford Shale play and in the Permian Basin is rising faster than even the most optimistic predictions.

 

That means that revenues from oil  and natural gas production  taxes flowing to the state's Economic Stabilization Fund -- the "Rainy Day Fund" -- are soaring too.  The fund is on a path to set new records for deposits and balances and is likely to reach the constitutional cap which is equal to 10% of all other revenues to the General Fund.

 

Texas voters will get a chance to take a major step forward in filling  the state's highway transportation funding gap in November.  The proposed Highway Funding Constitutional Amendment asks voters permission to take half of the taxes on oil and natural gas production that now go to the Economic Stabilization  Fund and place that amount  in the State Highway Fund.  In mid-2013 that was estimated to be about $1 billion a year.  By December the Texas Comptroller's Office had revised that projection to $1.35 billion  per  year.

 

Advocates of the proposal during last year's multiple sessions of the Texas Legislature pointed out that energy industry experts expected revenues to trend upward and to surpass early predictions.  But even if the amount grows to more than $1.5 billion per year it will still be far short of the minimum $4 billion  in NEW ADDITIONAL transportation funding needed annually just to keep road conditions and congestion from deteriorating further in the face of major population growth, the reduced buying power of the gasoline tax and aging infrastructure. 

 

Without voter approval of the Highway Funding Amendment total funding for new highway construction will decline dramatically over the next few years as borrowing and one-time funding sources are exhausted.


The Highway Funding Amendment will provide a new funding stream and allow the Legislature to continue working on incremental measures that will fill the funding gap.


Oil production  in the Eagle Ford Shale jumped past 1 million barrels per day in August and Permian Basin drilling is accelerating.  Industry experts anticipate that drilling of  new wells will continue at a busy pace for at least another decade.  Some believe these shale plays will be highly productive for at least 30 years.

 
Additionally, huge natural gas fields have been discovered and will be developed in the years ahead as natural gas demand grows and prices improve. The passage of the Highway Funding Amendment will mean more funding for highway construction and strong revenues continuing to flow to the Economic Stabilization Fund.


The Texas Taxpayers and Research Association (TTARA) published a paper in October detailing the history of the Rainy Day Fund and concluding that over the next several years Texas is on a course to deposit more than $20 billion in the fund based on conservative assumptions.