TXEXplainer: The Rainy Day Fund (and Higher Education)

Legislators are looking for new ways to fund their favorite projects, including higher education. Some are looking to the state’s Economic Stabilization Fund—commonly known as the “Rainy Day Fund”—to keep the dollars flowing. But can their rain dance really work? We look at the facts about the fund.

TXEXplainer: The Rainy Day Fund (and Higher Education)

The fund is a savings account. Established by a public vote in 1988, it was designed to fill budget holes and prevent shortfalls. The savings comes from oil and gas production taxes and other unspent general revenue, but most observers never thought it would amount to much.

Now, it amounts to quite a bit. At the beginning of 2013, the fund had swelled to $8 billion, and is expected to grow by another third in the next two years, according to the state comptroller’s office. A lively debate kicked up in 2011 around whether to use the fund to offset a massive deficit, but lawmakers opted for budget cuts instead.

It’s not so easy to break into. And that might be why leaders haven’t taken a hammer to the piggy bank yet. Despite the fact that fund may be approaching its statutory limit, the process of getting money out remains difficult.

The Texas Constitution requires a 3/5 vote to use the fund to offset declining state revenue, or a projected future decline. To use the savings for any purpose, the Constitution mandates a 2/3 vote—a supermajority.

In order to use the funds on non-budget correcting measures, legislators will have to cobble together a large coalition. This session has begun to look like the first real chance to do so.

This session changed a few minds. In the fight over the fund, Democrats have traditionally argued for using the money to supplement schools and public services, with Republicans insisting the fund is meant to cover unforeseen needs, not ongoing state projects.

Now, the discussion is more open, with legislators on both sides promoting plans to tap the fund for both infrastructure and services. Surprising many, Senate finance chair Tommy Williams (R-The Woodlands) proposed using $6 billion in Rainy Day funding for state infrastructure projects. The measure has been passed out of committee and to the full Senate, while his colleagues are looking to put even more from the fund toward health services.

Unlike last session, the door to the bank vault seems to be creaking open, thanks to legislators who know the combination. But while the door is open, so is the question of how to spend the money, even among Republicans. Williams and House budget chief Jim Pitts (R-Waxahachie) may be amenable to using the fund for education, but Gov. Rick Perry has implied that he doesn’t support that specific idea.

Now everyone wants a piece. Perry does support using $1.6 billion in Rainy Day money to offset tax relief for businesses. Some, like Williams and other Republicans, are insisting on infrastructure—a buzzword of the 83rd session—like transportation and water. Many have voiced the need to fund public education at higher levels, especially since schools saw the brunt of 2011’s billions in budget cuts. Higher education has also come up in serious discussion.

Senate higher education committee chair Kel Seliger has floated the idea of using Rainy Day money for one-time investments, like UT’s Engineering Education and Research Center. Spearheaded by Sen. Judith Zaffirini, BS ’67, MA ’70, PhD ’78, Life Member, (D-Laredo), the proposed center is currently going through the process of getting debt service from the state, called a tuition revenue bond (TRB). Though the outlook for UT’s TRB is good, the legislature hasn’t passed any such debt measures since 2006. Seliger (R-Amarillo) told the UT Advocates podcast in February that using Rainy Day funds is a better alternative to incurring debt.

“There’s plenty of money in the Rainy Day Fund,” said Seliger. “The Governor has always said that there’s some validity toward using some of that money for water infrastructure and transportation infrastructure. Higher ed infrastructure ought to be part of it.”

Photo courtesy rreichle via Flickr Creative Commons.


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