During this keynote address, Texas CFO will provide an update of the current state of affairs in the state as well as latest initiatives and an outlook for the 9th largest economy in the world.
Transcript :
Announcer (
00:09):
Good morning ladies and gentlemen. Day 2 of this great conference. We want to now welcome to the stage, Chairman, President and Chief Executive Officer for Estrada, Hinojosa and Company, Noe Hinojosa.
Noe Hinojosa (
00:29):
Good morning. I had nothing to do with starting a little late, but I have been told we got to hurry up and get this started. As you all know, Who have been in this conference in the past, this is actually the best day where you get to hear a variety of topics. Yes, there was an interesting one too. Good thing we do not have the rail system down here in Austin because our keynote speaker got caught up out there in transit in the northeast, but we should contemplate that Glenn here pretty soon with all the surplus we got. But anyway, the next speaker, keynote speaker, happens to be an old friend, an old friend, not only of our family, but also the banking family. He has been coming up here now for five or six years. I will tell Mike Ballinger, if we were to pay our keynote speakers, I think Glenn would be among probably on the Fortune 500 list for that matter.
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01:25)But anyway, here is someone who is very dedicated to public service. Someone who has been in this office as comp controller for I guess at least 6 or 8, so quite a number of years. He gets elected and re-elected and I think what we admire about Glenn is the fact that he is always going after being transparent, dedicated to his job, dedicated to telling the story, like we like to hear it in the financial sector. So there is never a surprise. The thing that makes me a little bit intrigued by it is that Glenn always gets it wrong in terms of estimating budgets. He is always underestimating revenues and overestimating expenses, but I guess I see Carmen back there and others that are in the CFO business. That is the good trade of a good budget, good CFO this year. As some of you well know, Texas is enjoying of a huge surplus. So now I do not know how well Glenn is. I do not know what I am going to call Glenn, but I think it is more like a zookeeper. Where do we send this money? Which direction? So with that, I want to bring to the podium, Glenn Hegar, help me welcome him please.
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02:45)Unusual.
Glenn Hegar (
02:49):
Thank you Noe. It is good to see you this morning. It is good to see each and every one of you. Welcome to Austin. Those of you that are not from Austin, we are glad that you are here. We hope that if you do nothing else after my speech, you take the rest of the day off and you go shop. We would like for you to spend lots of money on sales tax because you never can quite have enough in the state treasury. So it is good morning. It is obviously a pleasure to be with you to speak once again. When I spoke at this conference the last couple years as you recall, we were working through a lot of different events that threatened our economy, not just here in Texas, the nation and literally around the world, whether emerging from a widespread pandemic or whether we were enduring a deadly winter freeze of winter storm muri.
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03:35)The Texas economy, I can say over the course of the last couple years has literally outperformed our expectations. No one could have predicted how Texas has literally blazed through the last couple years of economic highs. In these recent difficult times, our state continues to welcome literally a stream of new businesses coming to the state of Texas. We have added almost 900 people a day between July of 2020 and July of 2021 and then nearly 1300 people a day from July of 2021, July of 2022. The majority of that growth is what new people that are moving to come here to Texas, those people come here to Texas every single day. The same reason that my family moved here in the 1840s, why for an economic opportunity for themselves and for future generations. We are seeing record high job numbers. Texas was the first in the nation in job growth in February and second nationally in year over year, and our state is revenues collections are exceeding anything that we have ever seen before.
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04:47)My biannual revenue estimate projecting an unprecedented growth in general related revenue balance coming up this next legislative budgeting cycle as the legislature works this session on the next two year budget and literally it is a once in a lifetime budgeting opportunity for the legislature, which can actually change the lives of Texans for the betterment for years to come. Whether that is funding infrastructure projects here in the state of Texas, whether it is investing in salaries for employees or property tax reductions, the legislature has a lot of opportunities. This legislative session, we are projecting an astonishing balance in the economic stabilization fund or as most of us know, the rainy day fund, ensuring that we will be able to meet urgent needs and downturns in the economy in the future. And despite forecasting a mild recession in my revenue estimate yet this year, in this fall, we expect personal income in Texas to increase by an average of 5.3% annually in 2020, 24 and 25, assessing our state on its own.
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05:55)As you know, Texas is literally the ninth largest economy in the entire world. Our estimated population of 30 million people today could rise to almost 44 million people by the year 2060. According to the Texas Demographic Center projections, the economist recently wrote that Texas' population could surpass that of California in the 2040s if things continue the way they are today. The article noted that Texas is what California was of the 1950s and the 1960s meaning, and I quote, an affordable place where people for jobs and advancement, we are embracing the chance to do even more for Texas with the record revenues that we have seen these last two years. As legislators continue to ponder what are the wisest choices that they can use for these fundings. We recall and know that every single one of those dollars come from where the taxpayers of the state of Texas. Of course, despite our state's incredible performance, we face difficulties as well, including those that sometimes we had actually no hand in creating, but we must confront responsibly.
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07:10)As we all know too well, our country is experiencing the highest rate of inflation in the last four decades. While consumers are buying more, they are also paying more for items, putting a bigger dent in their family budgets. Texas recently have been paying about $4.5 billion more a month for the same taxable items than they were just a year ago, which means in the last year they have spent almost 45 to $50 billion more just for taxable items than what they were in the past, which also means ironically, greater revenues into the state treasury with three teenagers at home. And let me repeat that because if you remember nothing else that I said today, I asked for your prayers, I asked for your thoughts. As of last month, my oldest daughter turned 18, so I wish I was getting paid. She is going to college in the fall or as I have told several people in my speeches, we live west of Houston, a town called Katy.
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08:17)If you were driving through Katy in the next two months, I would highly suggest that you go around. And why is that? Because just last week I took my twins, Julian Jonah to get their learners permit and as I was telling a few folks yesterday, we were driving down the road with my son this weekend. Nobody was on the road, thankfully Easter weekend, and I told my son up here, we are going to take a left, so I need you to put on your blinker. And we moved over. Thankfully I was looking in the back, I noticed no one was behind us. I looked at him, I said, Jonah, I have got a question. I said, you are doing very well by the way, but let me just ask, did you look in your mirrors or did you look over your shoulders? And he dropped his mouth and he goes, no, sir.
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09:01)And I said, we are going to work on that. So like I said, if you recall nothing else, if you go through Katy in the next two months, go around because I will be on the road with the twins, but get him back to the speech with three teenagers at home. I know firsthand that the concerns for saving enough money for college and long-term expenses while dealing with escalating costs that we have been seeing the last 18 months, a spike in energy prices after the Russian invasion of Ukraine has helped drive up severance tax collections to historical levels here in Texas. But despite this industry boom, we are hearing about the oil and gas entrepreneurs who are having a hard time finding investment dollars. We worry that misleading rhetoric is threatening the importance of this industry's ability to thrive. And as you may guess, I am talking about financial companies that demonize the fossil fuel industry, embracing, as we all know, environmental, social and justice policies, ESG at the legislature's direction.
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10:03)My office is working hard to inject what I call just some plain talk and accountability into the discussion as it is vital that we have what I call constantly talk about an intellectually honest conversation about the connectivity that the industry has to our daily lives. People have the right to invest however they may choose. Yet with that being said, when financial companies publicly slam the fossil fuel industry yet then privately come tell me and or my staff that, oh, by the way, we are continuing to invest in them. Frankly, I am a little offended. I can tell you I can tolerate a lot in life as we all tolerate a lot in life, but one thing that I cannot tolerate is dishonesty. That is one that I cannot accept and never have. Let me be clear, I am extremely proud that our state is a leader in renewable energy, but it is abundantly clear that wind and solar simply cannot and will not fully replace oil and gas as a source of energy.
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11:13)Furthermore, petroleum products are a vital part of our everyday lives to our economic well being and to our national security. In my opinion, the sooner that we come together to ensure to have an appropriate conversation, we can understand what is the appropriate cost, effective and reliable supply of energy to power our homes, our businesses, vehicles, and our overall economy. And truly at that time, we can address the environmental issues that we face today and that we face in future generations. Our incredibly strong revenue performance is due in part to circumstances really that are beyond our control, but it is also in part due to the tax and regulatory approach in Texas that welcomes businesses and works to let Texans keep much of their hard-earned money as possible, making Texas a place to come, invest and stay, we are at the point to where we almost expect every single month to have records broken month after month in revenues when we report those monthly collections.
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12:22)If you recall little elf's from this speech, listen to this, in the last 30 years, Texas has had five times where we have had our total tax collections grow from one fiscal year compared to the prior year. Those five times ranged in double digit numbers. That is what is significant about those five years, and those five years increased between 10 to 13%. When we closed the books last fiscal year, our total tax collections compared to the year before was once again a double digit increase. We once again hit a double digit increase as we had only five times in the last 30 years. However, the point that I want you to hear more than anything else is that this double digit increase was not 10 to 13%. This one was a 25.6% increase. In essence almost double what we have had in a single year increase in the last three decades. According to my most recent revenue estimate, lawmakers have an estimated 26% more in the current budget than they did the prior two years. Revenue collections are augmented by an expected 2223 ending cash carryover balance in general related revenues of 33 billion.
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13:47)I talk about that quite a bit because 33 billion in cash carryover balance to me is historic. It is unprecedented, and one of the things I continue to say to remind legislators, it is literally once in a lifetime. We are also projecting that our rainy day fund will reach an all-time high in excess of $25 billion by fiscal year 2025, a big jump from the $11 billion of just last year, and we will finally reach the upper echelons of the constitutional limited balance on that fund. The ESF is growing faster in part because of historic severance tax collections here in Texas. To make a point of those historic collections in the last 10 years, we have had two times where we actually collected over 5 billion last year's. Collections not only surpassed that 5 billion but actually was closer to 10.3 billion. That is how historic those revenues are and we are continuing to add to the rainy day fund.
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14:52)You may recall that when I became controller, my office was required to keep the entire balance of the ESF in the treasury pool. Thankfully, I was able to convince the legislature that actually there are better cash management tools than keeping billions of dollars in the treasury overnight cash, as we need to cover at least the inflationary pressures that are put on the purchasing power of the ESF. The cash requirement went down from the entire 25, the entire balance down to 25% requirement with an expected balance of 25 billion. I think it is imperative that the legislature removed that 25% requirement because now the ESF is expecting the 25% to be what the amount of when I came into office. Over $6 billion is a lot to keep in cash. Lawmakers have the ability to address critical needs facing taxes and invest in key priorities that will help secure the future of Texas prosperity.
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15:55)I am glad to see that they are taking a very thoughtful approach that is in line with the actions that lawmakers took last legislative session to where they increase the fiscal soundness and actual soundness of our employee retirement system. Most budgets in Texas, much like all states can usually if revenues increase more than expected the next legislative session, they can only address maybe at best one major issue when the economy outperforms expectations. However, with the unprecedented historical and literally as I have continued to remind people once in a lifetime budgeting opportunities, lawmakers are able to address an array of issues that face Texans this year. They are considering substantial options such as further investment in the electric grid, broadband accessibility, water road infrastructure, salary increases for state employees, teachers development of a skilled workforce and meaningful property tax relief. A priority has also been put on the efforts to stem the tide of illegal fentanyl that is crossing in the borders of Texas and helping Texas that are affected by the opioid epidemic.
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17:14)But House and the Senate have filed more than 60 bills this session to try to address this issue and this crisis, which is a particular interest to me in my office because I chair what is called the Texas Opioid Abatement Fund Council that is literally set up to help address funding needs of how we deal with this issue in the coming years. In the years past, that crisis was pretty much focused on over prescription as well as the black trade of prescriptions, but today it is fentanyl and that crisis must be addressed as our young kids are literally unaware that literally one pill can take their lives. My agency also oversees the broadband development office, as you know, thanks to the legislative action taken two years ago. And we have been working fast to pinpoint exactly the areas of the state that do not have high-speed internet and we want to help them get connected.
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18:11)We have published a plan, we have published a map of the areas that are underserved and unserved, and we are currently accepting grant applications for broadband infrastructure projects that qualify for federally funded, bringing online opportunities to Texas. To me, it is absolutely difficult to imagine how life goes without high speed internet, and it is even harder to imagine that we have nearly 7 million people in the entire state of Texas out of the 30 million residents that we have, almost 25% of the entire state's population has no high speed internet connectivity in and out their homes. And that is not because they choose not to purchase it. That is not because they can not afford to purchase it. It is literally because it does not exist. So it is an issue that I think is literally the highway system of this century and one that for Texas to continue to prosper economically, not just in the suburban urban areas, but all across the state of Texas. That is one that we have to fix and we have to address. Now, as you may be wondering, so I'm here to unveil today if you are curious if the legislature is actually going to replace the Chapter 3 -13 tax program, which allows public schools to offer property tax incentives to businesses that invest in their communities. So I am here to tell you today the answer to your question if the legislature is going to address that, and the answer is it's still unknown.
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19:56)As you know, the legislature did not review, did not renew the Chapter three 13 program in 2021, and as a result, my office received an extraordinary number of applications from companies seeking to secure incentives before the program expired. Consider these numbers. In 2019, my office received 133 applications the following year in 20, we received 91 the following year in 2021, went back up to around 135 applications last year. My office received 416 applications to put that in perspective. In other words, 416 is more than the entire three years combined. Plus of the 918 active programs in the chapter three 13 program, 33% are for manufacturing, 26% are for wind projects and 41% are for energy projects. If you look at it from a different perspective. On the other hand, of qualified investment through the life of these agreements, manufacturing makes up 66% of the qualified investments while solar is 20 and wind is 12, we know the state must closely scrutinize any incentives that we offer.
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21:17)And the same is true of how we do business with the private sector. Our gold always must ensure that value for the state of Texas, just as the state of Texas should always remember that we have a fiduciary duty to who the taxpayers. I think it is dangerous in my personal opinion, when firms lose sight of that fiduciary responsibility like most Americans. About a month ago, the day before my daughter, oldest one turned 18, I had never heard of Silicon Valley Bank. Never heard, never knew it existed. And then all of a sudden we all heard of it. And literally I have read more than I can find on that issue because it is actually fascinating to me. It is one that I think will be a case study for years in classrooms. I think it will be one that regulators as well as policy makers will be investigating for quite some time.
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22:17)My office thankfully has no direct exposure across the portfolios that we manage. And actually, I could stand up here and give an entire speech on this topic yet. Most importantly, I think SVBs failure is a reminder that we cannot lose sight of the fundamentals no matter how good we think, seem things may be seen. That is certainly how at least I run my agency and that is how I see how the state should proceed in times of plenty. I continue to warn legislators that with literally every single passing day, we are one day closer to the next global recession and the next day we are also closer to the next difficult budgeting session. So that is why it is imperative now more than ever before to make wise choices because the wise choices that today will help set us up for the difficult times to have better success then.
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23:21)Now, none of us has literally a crystal ball here. A few weeks ago, I gave a speech to a bunch of young high school kids in the Capitol. I was talking about some of the finances and numbers, and one of the kids raised their hand and said, I got a question. Your job is to forecast the ninth largest economy in the world. You talked about how Texas is intertwined to the global. It is 20% of all the exports out of the entire United States comes out of Texas. And you said Texas is not 20% of the nation's population. So how is it that you and your team make these forecast? Do you have a crystal ball? And I said, well, let me ask you, my crystal ball is kind of like a snow globe. Have any of you in this room ever seen a snow globe?
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24:09)And a bunch of the kids said, yes, we have seen one. And I said, whether it is sitting on a shelf, it's sitting on a desk, whether it's sitting in a showroom. When you look at that crystal ball and it's been sitting there, can you see through it? And they said, yes, we can. And I said, when you shake it up, can you see what's inside anymore? And they said, no, we can't. And I said, well, that one is my crystal ball. I can't see much either. No matter what the facts and the data are in front of you, you make the best choices you can with the data. But the fact is, we all know that one day we are closer to the next major event that is going to happen. I have got a story that I tell pretty frequently in speeches just to make a point.
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24:56)I talk about how years ago, we live west of Houston, we live Katy, we back up to a Buffalo Bayou. My kids five years ago, as most of you recall, much of Texas, whether it was Port Aransas, the Houston area, Beaumont, port Arthur, many areas were devastated with Hurricane Harvey. Thankfully, me and my family did not flood, but we know so many who did the back of our house behind us. The creek was no longer a creek, it was a roaring river. My kids were looking at it and I told my kids, I said, hopefully what we are seeing is literally a once in a lifetime event. And then fast forward a few months, actually two years, fast forward to covid. My kids were out of school. They are trying to make sense. Why are we out of school? What is going on in this world? We do not understand.
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25:43)Everybody is kind of panic, worried businesses are shut down. No one understands what is happening in this world. And I literally told them, this has not happened since 1917, other than a few cents. No one is lived through this before. And so literally what you were living through is once in a lifetime event. And I thought I was done. Then two months later, as most of you recall, the businesses you are in, that was the day for the first time ever that if you had an oil futures contract, those contracts were coming due. Literally, there was no place to go with the oil. And so in order for me to sell it to you, instead of you paying me, I had to pay you. I was having lunch with my kids at home that day. Because they were out of school. We were teleworking. And I remember my phone blowing up.
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26:30)My kids were like, what is going on? I said, it can wait. What is going on? What is going on? And finally, I explained this. So we had this remarkable discussion about global supply, demand, economic forces around the world. At one point the kids were asking, what is it now dad? And I said, it is $34 negative. And my oldest daughter literally went like this. And I did not know what that meant, but I have learned since. That is teen talk. From my mind's blown. I can not comprehend what this means, but the point is, what did I tell my kids? What we are living through at this moment is literally a once in a lifetime event. And I thought I was done with that. And then as I alluded in the beginning of my speech, one of the difficult things that Texas has been thrown where the entire state of Texas at one time was hit with a polar vortex.
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27:16)The entire state, every five years, part of the state gets hit with a very cold polar vortex. But this is the first time we have been hit with the entire state, the whole state of Texas. We had no electricity the next day, like most people had no electricity. My kids were asking me as we were going to take them to a family friend's house who they had electricity, had a natural gas generator, so they had electricity. And my son said, dad, I just have to know. And I said, what is it, Jonah? And he said, why do we not have a natural gas generator? Why do we not have electricity, dad? Why do the Bensons have it and we do not? And I said, well, number one, he is in emergency management. He is prepared for everything. But number two, I said, come on Jonah, this is the first time the state has ever been blanketed by a polar vortex of this magnitude never before in our history and what you were living through. Jonah is literally a once in a lifetime event. My son, true story. He looked at me a couple months shy, 13, and he said, dad, I have got a question. And when he looked at me, I thought, I do not know what's coming, but this is going to be interesting. And he looked at me and he said, dad, how many wants in a lifetime events do I have to live through?
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28:39)And at that moment I realized, one, we have been through a lot of lifetime events in the last few years. Number two, I need to stop saying that phrase number three, as the guy who is in charge to forecast the ninth largest economy in the world for a legislature that does not start for nine months and ends two years later. While we are very confident of the data, the numbers in front of us, while we are very confident that Texas will outpace the national average, while we are very confident in the growth and the point in our history that Texas is a great place to call home, the fact is we do not know literally what is on the horizon the next once in a lifetime event. So as we were preparing for this session, and I was telling the legislature, preparing to tell them that they have a record, 33 billion in cash carryover balance.
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29:38)I called it historic. I called it unprecedented. And guess what other phrase I said? It is once in a lifetime. The fact is you have to use it wisely as we prepare for the future. So if you take nothing else from this today, realize that while we may not know what is on the horizon, Texas Foundation is very strong. The foundation of the economy is strong, and we are going to make wise choices with those dollars that we have been entrusted with to ensure that the future of Texas is strong in the future. Now, Noe, I see I got about a couple minutes left, so I am going to ask this. I am not sure, I can not remember if you all actually provide comments to speakers. I would like to know comments and feedback if you do not mind. And the reason I say this is because yesterday, what most of you do not know except a couple of my staff, I actually, as part of Financial literacy month, I have been reading to some different classrooms.
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30:35)So yesterday I was reading to a group of kindergartners and the first little boy sitting there waiting for class two and three and four to come in and get in line. And he raised his hand and I said, yes, what is it? And he said, I have a watch. And I said, that is so awesome. I said, do you know what? I have got one too. Oh my God, it set off the whole class. I got to watch, I got to watch, I got to watch. And you go, well, what does that have to do anything with? Well, I am going to tell you, one of the teachers sent my staff comments back from that reading yesterday of the kids. And so I am curious to what the comments will be today. Because yesterday's comments and takeaways from the kids were one, he is a good reader that I appreciate two, he dresses fancy.
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31:24)Oh, I did not know that. Number 3, he has short hair. They're astute, little observant kids. Number 4, he has a watch. That is why I told you the watch story because otherwise it would not make sense. And then last one, this is my favorite, instead of a green tie. I had a red tie on yesterday. And so this kid said his ribbon around his shirt, it is long, it is shiny and it is red. You know what? You just got to love kindergarten kids. So I am curious to know you all's feedback too, Noe. So if you send me those comments. So with that being said, I am glad you are here. Thank you for inviting me once again. It is always good to see you. May God bless you and God bless Texas. Thank you.
