DALLAS — State revenues are beginning to increase after more than a year in the doldrums, officials told the Texas House Ways and Means Committee Tuesday, but are still coming in shy of estimates in the current two-year budget due partly to lethargic residential construction.
John Heleman, chief revenue estimator for Comptroller Susan Combs, said monthly sales tax revenues have posted year-over-year increases in each of the past four months, but those gains come after 14 months of declines. Sales tax collections in the first 11 months of fiscal 2010 — which ends Aug. 31 — were $1.4 billion less than expected.
In January 2009, Combs estimated the state would generate sales tax revenue of $21.7 billion in fiscal 2010 and $22.6 billion in fiscal 2011. Falling short of those estimates is an unusual position for Texas, which is one of the nation's most conservative states from an accounting perspective, and the shortfall has become a hot-button issue in the gubernatorial campaign.
The 8% state sales tax accounts for 65% of Texas general fund revenue. The biggest decline in sales tax revenue came from the retail, housing, and oil and gas sectors, Heleman said. Retail sales and oil drilling activity have increased, but home construction has not.
"We have reached the bottom and we're on the way up," Heleman said. "The last four months have seen revenue increases, albeit at a rather slow rate."
Single-family home construction has declined in Texas since 2005, according to U.S. Census Bureau data. Homes built in Texas during 2009 had a total value of $11 billion, down 54% from $24 billion in 2005. Localities in the state issued almost 38,000 construction permits for single-family homes, with a total value of $6.7 billion, during the first six months of 2010.
Heleman told lawmakers Texas should still rebound from the recession quicker than most states, many of which are facing even bigger drops in residential construction activity. Homebuilders provided significant employment opportunities in many states before the recession.
"Recovery for some unfortunate states is expected to take five or six years," he said. "We should be back at pre-recession employment levels by the end of 2011.
Texas had a seasonally adjusted unemployment rate of 8.2% in June. That compared with a 9.5% national rate, according to the Bureau of Labor Statistics. Its jobless rate was 4.5% in June 2008.
"We had a very rapid fall in employment that began in 2008, but we hit the bottom this spring," Heleman said.
A business tax designed to help compensate for a state-mandated reduction in local school district property-tax rates is also generating less revenue in fiscal 2011, said deputy assistant comptroller Mike Reissig. Annual collections are expected to total $3.84 billion, he said, well below the $4.3 billion predicted by Combs in January 2009 and far less than the $5.9 billion lawmakers expected when they approved the tax in 2006.
"We have a far different economy than we had in 2006, or even in 2008," Reissig told lawmakers. He said the rainy-day fund will total $8.2 billion by the end of fiscal 2011 and could be used to offset some of the expected shortfall.
Republican Gov. Rick Perry calls predictions of an $18 billion revenue gap for the next biennium "premature," but Bill White, the Democratic gubernatorial contender, said Tuesday the latest revenue outlook shows the governor is trying to hide an even larger shortfall from voters.
"I believe that the governor fully intends to try to obscure this issue until after the election," said White, a former three-term mayor of Houston. "I would lay out the best estimates of what our revenues were going to be, what the expenditures would be, and the strategy for dealing with that."
A Perry campaign official said the governor will propose a budget in January linking state priorities to the available revenue. "Bill White is running a campaign based on criticisms with no solutions," said Mark Miner, a spokesman for Perry. "What is he going to cut? What would he do as governor?"
In his testimony on Tuesday, Heleman said Texas's recovery from the recession would be slow but steady. "We're adding 10,000 private sector jobs a month," he said, "but that's not very much in a state with 10 million employed."
Texans have been able to buy new homes, refinance existing home loans, and expand their businesses in recent years thanks to easy credit for consumers and businesses, Heleman noted. "In my opinion, those days may not be here again for a while," he said.
The Legislature will meet in January to write the budget for the fiscal 2012-13 biennium.
