Presentation to the

House Appropriations Committee

The Honorable Jim Pitts, Chair

An Overview of the Texas Economy and State Revenue Collections February 21, 2012
Presented by: John Heleman Chief Revenue Estimator Texas Comptroller of Public Accounts

The Economy

The Texas economy began losing jobs in the summer of 2008 and continued for 16 months. The loss of Texas non-farm jobs from the peak in August 2008 to the low in December 2009 was 433,000 or about 4.1% of all Texas non-farm jobs. Texas has now recovered all of the payroll job losses that occurred during the recession. In the 24 months for which we have datafollowing the December 2009 low pointthe Texas economy has added 440,000 payroll jobs. The current unemployment rate in Texas is 7.8%, down from 8.5% in summer 2011. The U.S. lost approximately 6.3% of payroll jobs during the recession and has regained 36% to date. The U.S. unemployment rate is now 8.3%.

The Economy
Housing
Approximately 62,000 new Texas single-family home permits were issued in calendar year 2011, which was far fewer than in the peak years of 2004-2006 and fewer than in 2009 and 2010. The average price per home, however, has remained steady over the past year, between $180,000 and $190,000. Existing home sales have slowed as well. Texas existing homes sales in calendar year 2011 totaled about 205,000, about the same as in 2010 (204,000). In the mid-2000s, however, this figure was between 240,000 and 290,000 units. Median prices have remained steady over the past five years. The average median sales price for an existing home in Texas for calendar year 2007 was $147,000. In 2011, it was about $149,000. The inventory of existing homes peaked at about 8.2 months worth of inventory in summer 2011, and has decreased to 6.0 months in December 2011 (most recent data). Because Texas did not experience a housing price bubble over the past several years, we have not experienced the bust that other states have.

The Economy
Oil and Gas
After peaking in the summer of 2008, the price of West Texas Intermediate retreated briefly to the mid-$30 level in the spring of 2009. Since then, prices have rebounded and now stand at approximately $95 - $100 per barrel. The price of natural gas followed a similar, though less steep, upward path in 2008 and declined to lows in the $3 per Mcf range in the spring of 2009. Unlike oils sharp recovery, however, the price of natural gas only sluggishly increased and have recently retrenched, dropping to near $2.50 per Mcf. Texas oil production trended downward for the last quarter century, but has been increasing the past two years. Natural gas production is stable to slightly declining. The rig count, after being over 900 during portions of calendar year 2008, declined sharply in 2009 amid price decreases and recessionary pressures. After dipping into the lower-300 range, the count has moved back to approximately 900.

State Revenue
Sales Tax
Recent years have seen double-digit sales tax revenue growth rates in FY 2006 (+12.0%) and FY 2007 (+10.9%), a slower FY 2008 at 6.6%, and declining collections in FY 2009 (-2.7%) and FY 2010 (-6.6%). Fiscal year 2011 sales tax collections rebounded by 9.4% reflecting the recovery from recession and strong oil and gas activity. For the first five months of fiscal year 2012 (through January 2012), sales tax collections are up 11% over the same months last year. The sales tax is now generating revenue at a level ahead of that seen immediately prior to the recession in fiscal year 2008.

Monthly Sales Tax Revenue

Monthly Sales Tax Revenue General Revenue
(Millions of Dollars)
$2,500

$2,000

$1,500

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

$1,000

$500

$-

State Revenue
Franchise Tax
Fiscal year 2011 franchise, or margin, tax revenues totaled $3.93 billion. Approximately $2.68 billion accrued to General Revenue, which is the estimated amount that the previous franchise tax would have raised that year. The remaining $1.25 billion was deposited to the Property Tax Relief Fund. Generally, fiscal year 2011 margin tax revenue represents business done during calendar year 2010. For the bulk of margin tax revenue received in fiscal year 2011, the associated tax reportsincluding any final settle-up adjustments, if necessarywere received in November 2011. The manufacturing industry paid the most tax ($697 million) followed by the professional services industry ($367 million) and the mining industry ($319 million). Slightly over half of reports with tax due used the COGS deduction and paid 59% of the tax.

State Revenue
Severance Taxes
Fiscal year 2012 year-to-date oil production tax revenue is 47% above that of the same period for fiscal year 2011. This increase in revenue is due to both increased production and an increase in the price of West Texas Intermediate, which has averaged $10/bbl more than in fiscal year 2011. Fiscal year 2012 year-to-date natural gas production tax revenue is 82% above that of the same period last year. Slightly declining production has been more than offset by revenue from high-value liquids extracted from gas production and a decrease in refunds of tax previously paid for high-cost gas. Average year-to-date prices are similar to prices for the same period last year, although prices have decreased over the last two months. These declining prices have not yet affected tax revenue.

State Revenue
The Rainy Day Fund
The Economic Stabilization Fund ended the 2010-2011 biennium with a balance of $5.0 billion, after $3.2 billion was appropriated from the fund in fiscal year 2011.

Following a transfer of $1.1 billion into the fund in November 2011, the fund now has a balance of approximately $6.1 billion.

Following a transfer in the fall of 2012 and modest interest earnings, the fund is expected to have a balance of $7.3 billion at the end of the 2012-2013 biennium.

Questions?

John Heleman Revenue Estimating Division Texas Comptroller of Public Accounts

_______________________________
john.heleman@cpa.state.tx.us (512) 475-0042

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