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Capital Interest - The Right Number

[music playing]

GH: You’re talking about an economy that is larger than most economies around the world.

NC: It’s a fairly intense process that I don’t know that many people really have an appreciation for.

GH: You gotta get people in a room, start having discussions….

TC: You mentioned some pressure — we just try not to get crushed under it.

GH: This is Comptroller Glenn Hegar and you’re listening to Capital Interest — an inside perspective on issues impacting Texas and the Texas economy.

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CB: I sure want to welcome all of our listeners today to our inaugural podcast. I am Chris Bryan, and I am the Director of Communications and Information Services here at the Comptroller’s office.

GH: Glenn Hegar, Texas Comptroller. Obviously, this is my second term.

TC: Hi, I’m Tom Currah. I am the Chief Revenue Estimator.

LC: I’m Lisa Craven. I'm Deputy Comptroller and Chief of Staff.

NC: I’m Nikki Cobb. I’m the Director of Legislative Affairs.

CB: And with that we’ll jump right into our discussion. I don’t know if a lot of our listeners realize this, but you really kick off the [Texas Legislative] session by delivering the Biennial Revenue Estimate.

GH: Yeah...

CB: Can you talk a little bit about that process?

GH: Yeah, yeah, and you know, Tom, jump in here in a second. If you look at the three constitutional obligations we have in this office — whether it’s running the treasury, making sure all the dollars that the legislators appropriate, or whether it’s the tax collection side of it, and then, thirdly, the one that I talk mostly about as I travel the state — what's going on in the economy. We are constitutionally required the day before a legislative session to tell the legislature how much money we think will come into the treasury so they can set a budget. And you know, obviously, that is a task that is... we wish it was easy to do. You’re talking about an economy that is larger than most economies around the world. It’s a significant economy of $1.8 trillion. And the fact is, the budget that they are going to draft doesn't start for nine months the day we lay out this revenue estimate. And then it goes for two years later. And so, it's an extremely difficult task — which is one of the reasons this last session, for the first time in decades, this office... we revised a number slightly up during session because the revenues had come in stronger than we had anticipated in January for the last couple months. So, we gave the legislature a little bit more money that we were comfortable would be in this two-year budget cycle.

But the day before session, we are constitutionally required to estimate how much money we think will come in the treasury. And that sets the parameters for the one and only thing they have to do, which is create a two-year budget.

CB: So that puts a lot of pressure on you and one of our other guests here today. Tom, can you elaborate a little bit more on what the Comptroller was saying about how... you know, what that process looks like, and how you get that done right ahead of the session?

TC: Sure. We, as the Comptroller mentioned, you know it’s a forecast of revenue that we issue in January and it's for a little more than a two-and-a-half-year period. So, we're looking pretty far out. And we have more than 1,800 revenue sources that we have to look at for the state. We estimate every single one of those. So, the BRE is issued in January. We really start working pretty much full-time on that in September ahead of the session for a couple of reasons. Number one: we need some time to do it because there's so many revenue sources in the state. And number two: the state’s fiscal year ends in August, so we have a fiscal year in the books that we can start from in September, develop the estimate for the current fiscal year — which would be the second fiscal year of the current biennium — and then for the two-year period following that, which is the budget they’ll be putting together during the legislative session to cover that two-year period.

You know we start with an economic forecast because some of our revenue sources, particularly some of our larger tax revenues, are correlated with certain economic indicators. So, you know, how the economy goes will determine what... how much revenue we’ll bring in typically. So, what we'll do is we'll develop an economic forecast that will then tie into our revenue forecast. We have a series of meetings with analysts developing estimates for their sources of revenue. And we go over those, and we revise them. We’re constantly updating as we get new economic data, new revenue data, you know we get data on a monthly basis from our revenue; and we're updating that right up until the first week of January before we issue that estimate. So…

CB: So you're fine-tuning very closely to when that session starts?

TC: Right, typically we have a few loose ends that we have to update right at the end, and so yeah, it’s.... You mentioned some pressure — we just try not to get crushed under it. We do a lot of things. We have pretty good data here in-house. We have all the tax revenue. We have forecasting services that we use to help us with our economic forecasts. The Comptroller has instituted a new policy...uh practice that we've used a lot over the last few sessions where he gathers a group of prominent economists together who have expertise in the global economy, the U.S. economy, the Texas economy and particular regions in Texas. And we meet with them in the fall ahead of the BRE. That allows us to kind of test our own assumptions about where the economy's going, to see what they think. Sometimes we’ll maybe tweak things a little bit based on those conversations. We also have a meeting ahead of session with all the former Chief Revenue Estimators that the Comptroller has instituted. And those are folks who still have their finger on the pulse of the state's economy and state revenues... and you know they can kind of tell us what they're seeing, what they're thinking. And again, that might cause us maybe to need to tweak some things as we approach the final BRE.

GH: You know, obviously, the process that we have and we go through is really critical and you're never going to completely be able to look at the past, take what the past has done in Texas, and then extrapolate that forward and say, “Okay, here's your revenue estimate.”

I mean we are tied into a global economy we are the number one importing-exporting state out of the nation. Right now, we're having trade discussions which can disproportionately impact Texas. We're 9% of the U.S. economy, but we’re 20% of all the U.S. exports. And so, therefore, the point being is, there are things that can shift drastically in the global economy that can have a disproportionate impact on Texas. And you know that doesn't get taken up in a model in looking at the past. And so therefore, I think learning from people's experiences — former revenue estimators — as you know Tom just kind of laughed and said “Yeah, we're under a lot of pressure. We just don’t want to get crushed by the pressure.” And you know, some of them have gotten crushed over the years with the changing economy…

[laughter]

…and we don't want to have that happen to us. So, you know what happened? What do you look for? And they enjoyed having those conversations with us. They welcome that opportunity. Which was nice. It is really great for us, in my opinion.

And for me, coming into this role, which is vastly different than obviously being a legislator. It’s a completely different processes and procedures and practices we go through. But I think, you know, I've learned a lot of things in life. One of those is if you listen more than you talk it's amazing what you can learn. And so bringing in people who have great expertise — the former revenue estimator, economists that look at the global economy in the U.S., look at different angles, different aspects, it allows us to say, “Okay, are we on the right path, or maybe we should re-evaluate that assumption?” But again, as Tom said there's a lot of assumptions that go into this, but a significant change can make a difference in the outcome. I think it’s just been helpful, more or less, to reconfirm the assumptions we’ve made.

TC: I think that's right. You know they’ve been very helpful conversations, but I think as we’ve had these conversations it’s mostly sort of confirmed what we were already thinking. If there are any changes, it’s minor on the edges. It’s good to get that confirmation, give you a little bit more confidence in your assumptions about what might be coming.

GH: And again, for something that doesn't start for nine months and ends two years later…

TC: Right.

GH: So if you miss it now, then it can have significant consequences up or down. And you want to give them the right number, and you're never going to give them an exact number. I mean you can't. You can't. I mean how many of us can estimate exactly what's going to come into our own personal household for the next two years? You can’t do it. I mean, much less an economy this big. So, having those other conversations helps gauge those kind of gut instincts, but also with the data shows you what you're looking at.

I mean it’s no different than if you're on a boat and you're traveling just across the lake which is, you know, a couple hundred yards — one little degree is not going to make much, but if you travel across the ocean? That one degree is going to make a lot. So, the difference is whether you’re trying to look out two weeks for your next paycheck or the next two-and-a-half years? That one degree makes a big difference. And we're talking about billions of dollars. The state budget right now is a $250 billion budget between federal and state dollars. That's a huge number so we want to make certain we get it right. Or as close as we can.

CB: But the revenue estimate is more than just that number. And that brings me to my next point. When you present the revenue estimate you are putting that estimate in context. You’re providing some additional information to legislators. I know this year you talked a little bit about severance tax volatility.

GH: Yeah, well, one of those... in fact if you go back to the first revenue estimate that Tom and I had worked on back in 2015 I had some of the same slides that I did this time. I just tried to highlight them a little bit more now than before because I knew we were going to make significant decisions this session regarding public education and property taxes. And those costs would be based on decisions of revenue sources that come into the state of Texas. And therefore, it is critical and important that the legislature — now more than ever — even though I have shown many of these exact same slides back when I first got here four-and-a-half years ago, when it was 2015 session, ‘17 session, and again this session — that if you look at severance tax, for example. You know severance tax — if you just look 20 years ago to the day you go, “Wow, it increases every year, that’s so exciting. We can depend on that.” Uh, no, you really can’t. It's extremely volatile. It goes up one year and down the next year and can drastically. You know the fact is if you look at our sister states that use severance tax to fund basic elements of government like public education – during the last downturn they all got a downgrade in their credit rating. Texas did not. And, in part, because we send most of it to our state savings account. Or we keep a little bit in the treasury and send, now, some of it to transportation. But the point being is, it's important for policymakers to understand certain revenue streams are more volatile than others. And I think that historical context is critical because usually hindsight... if you look at it, it'll teach you something about what's coming in the future.

CB: What was the immediate reaction to the BRE that you were hearing? Comptroller, did you get an earful from legislators?

GH: Well I tell you, they... at the beginning of session it was pretty amazing. It was as though... they reminded me of back when my 14-, 11- and 11-year-old were much younger, and they had gotten a really nice group of presents at Christmas. And everybody was giddy and excited and said thank you, thank you, thank you, because the economy had done well. We think the economy is going to continue to grow – not quite at the pace it has in the last two years, but because it's grown pretty well, they had a sizable amount of money that they can address these issues with. And so yeah, they were pretty giddy and excited. But, you know, I try to also tamp down some of those expectations with what volatile revenue streams can be: a certain uncertainty. You know that's kind of our role — is to kind of moderate expectations and set expectations. And so I think most members were appreciative that the economy had done well. We gave them tools in the toolbox to address some of these very hefty issues.

CB: Lisa, Nikki when you guys were sort of entering into the session talking to legislators, staff members, what was the response that you were getting from folks who were paying attention to the revenue estimate?

NC: The members and staff I heard from were obviously grateful and excited about the revenue that was coming in because I think it gave them the opportunity to really solve some of the big problems that had been out there — like school finance, like property tax reform — in a way that they hadn't been able to do in the past.

CB: Well, that’s a good point. I think a lot of people don't realize what goes into the various components of putting the budget together. Can you talk a little bit more about once we have that BRE, once they understand from Comptroller Hegar how much revenue is available — then where do they take it from there?

LC: Well, I think they start and look at the needs of the state and the things they want to address. They have a pretty good handle on what needs to be paid in the current biennium and that goes into the supplemental appropriation. And they spend the session kind of refining that. And then they look at what are the upcoming needs? And what are the things that the legislation that's going to pass that needs to be funded? They had two big issues they had to address that both cost money and so they deal with that throughout the session. And then, it’s the money that Glenn says is available over the next two years. They also tapped the rainy day fund this session in a fairly significant way to help pay for some of those things, and including some Hurricane Harvey things, but there were other things that they used that rainy day fund to address.

CB: After we deliver the revenue estimate, we don't kind of just come back to the offices here and watch. We are active participants in that. Y'all in particular play a big role. I know that it's not always obvious right out of the gate. And so, Comptroller, you're testifying especially early on in front of a lot of committees, Appropriations and Senate Finance being some of the big ones —House Appropriations and Senate Finance — and those are the two primary budget-writing committees. Can you talk a little bit about what you discuss with them very early on in the session?

GH: For one, before a session I try to start setting what I call managing expectations. I think it's really critical, as we have an idea what the fiscal year will end in the summer before session, having seen what has occurred in the first year of the biennium of last session. And so I start trying to manage expectations as I talk to legislators, as I go around and give speeches across the state on where the economy is, and kinda some trends that we think are occurring. Now we don't have a revenue estimate number at that time, but I think it’s early to start there. We give the revenue estimate, my point is, talking with legislators, talking out in the public, seeing things that are printed as in what the trends are. And then during session immediately, as you mentioned, number one going to testify before committees… we do that a lot. Nikki and her team are dragging Tom over there a lot to talk to legislators and their staffers to help them understand: “What does this mean?”

And then through the whole process, up until the last few weeks of session… I mean as they’re putting the finishing touches on the tape — two main issues of public education, school finance — we’re over there constantly and/or answering questions via every mode of communication. Whether it's emails, or phone calls, or you name it, on, “What does this revenue source do? What does this do? What is this going to cost?” And so, we play a really critical role and are over there, and if not physically there, we are talking to them all the time.

The folks at this table are up here on the weekends working. Their teams are up here on the weekends working. The amount of hours that our folks put into a legislative session… I mean, geez, if they worked in the Capitol they’d get off for the rest of the year. I mean the overtime they put in is overwhelming. It really is. So, we are not finished the day before session. It is just the beginning, as you said earlier.

NC: So, the Senate Finance Committee has, you know, two reserved seats — along with several seats for the Legislative Budget Board, but two reserved seats for the Comptroller's office. And we serve there as a resource for them if they have questions about fiscal notes or some sort of a policy issue that we might be able to provide some input on. We always have somebody there available. A lot of times it would be Tom or somebody from his division... occasionally somebody from our Tax Policy Division or Property Tax Division, Fiscal Management Division. It really depended on what bills they were hearing that day. But we absolutely provide a resource to them. We also do the same in House Appropriations. We serve the same role there. We also testify frequently in the Ways and Means Committee in the House as they hear a lot of the tax bills and tax-related bills. And we frequently have people there who serve as resources and get called up to answer members questions... and, you know, “Somebody's testified, can you get up and kind of elaborate on what this person has said.” You know, what is the state's position or input on that.

CB: And Lisa, as deputy comptroller, how do you see that process sort of evolve as the session goes on?

LC: Well, I think to kind of piggyback on what Nikki said… We serve as a resource for the legislature, in general, on the budget and on any bills that affect revenue. So, we have that role to play, but at the same time we're also advocating for our own agency’s budget, for Glenn's priorities for the session of the things that we want for this agency, and then we have legislation that we are also trying to get done. And that includes things like clean up in the tax code or this session we had a package of bills dealing with the Wayfair decision. And so, we're also kind of out front on those things. So we’re playing, kind of, these dual roles all session long serving as a resource but also trying to get out there and get some things done for the agency.

NC: Yeah, so we had a fairly robust legislative package — a lot of it was agency clean up things, but also the two Wayfair bills: one relating to marketplace and the other relating to a single local use tax that were.... It was fairly amazing, in my opinion, watching how easy they went through the legislature because they raised a significant amount of revenue. But we had worked really hard internally leading up to the session with stakeholders to kind of come to agreement on what the bills would say and what they would reflect. And the fact that, you know, they went through fairly easily with minimal changes, I think is a testament to, you know, the process we had here but also the Legislature’s respect for the office.

CB: That brings up an interesting topic because it's… and let me bring the Comptroller back into this discussion... it is not... the legislature, as you mentioned before, can be a big funnel. A lot of bills go in at the beginning and not a whole lot come out at the end. How do you, as sort of steering the ship, identify the issues that you want to prioritize? And what are the types of things... whether that’s publications or research... what are the types of things that you are asking of staff to prepare to make sure those priorities get across the line?

GH: Well, early on, let’s say as soon as a legislative session is over, this agency — we begin the process of not only implementing the legislation that passed, but also now let's start looking at, okay, things that may not have passed, or wasn't high enough on our list of things that we may need to update our processes, our procedures, policy, clarification. You know a lot of these things are not just for the agency in our functions, but also customer service. How can we do our job better? And maybe our hands are tied with state statute that just hasn't caught up to today's world. And so therefore I ask my executive team, I also ask each individual division, to look at what are things that they think they need. And we start a very long process of each division coming up with their priorities within the division, moving up to executive, to my associate deputies — they review those. Also, Lisa, Mike Reissig — they review them — Nikki... and then it gets to me. And we make decisions on, okay, what made our list? But then through that process, as Nikki mentioned earlier, such as because of the U.S. Supreme Court decision and Wayfair changing the taxation of items you buy over the internet — that is substantial change in law. And a lot of states wanted to go forth and start taxing those items immediately. Yet here in Texas — 28 plus million, we have 254 counties, thousand plus local municipal jurisdictions with different potential tax rates on the sales tax side. And so, we try to take a much more deliberative and long approach as Nikki has mentioned — let’s visit with all the stakeholders. I mean I was a legislator. I know how this works. You got to get people in a room, start having discussions and learning some of the issues that maybe you didn’t think about and work through this. And so, by us doing that, that helps them take a major piece of legislation and essentially it was done. All you got to do is file it. We’ll help you explain what it is.

And so, you know being the fact that I've been over there, many of us have worked over there and know what this process is — it's critical to start early. I mean we are starting that process, believe it or not, they just finished session and we're starting the process for next one already.

CB: It is truly a marathon process that is ongoing. What were some of the other things that y'all saw from the standpoint of important pieces of legislation whether that's… we’ve talked a little bit about Wayfair... what are some of the other things that we saw that you and your staff were working on?

NC: We were very focused on, you know, obviously the two Wayfair-related bills, but also we had a package of the Texas Bullion Depository clean-up bills and property tax exemption bill for the Depository, which we are pleased to say passed both chambers and have been signed by the governor. We were also watching Senate Bill 69, which authorized the Comptroller to invest the Economic Stabilization Fund in a more prudent manner to try to yield, you know, higher returns for the state. But, yet, still in a conservative manner but just, you know, slightly more aggressively than has been in the past.

So those were kind of two of the big ones. We also were watching the Hurricane Harvey bills that were appropriating revenue to try to mitigate some of the damage that had been done, and try to provide some services to the cities and counties for future disasters. So, it kind of ran the gamut. Obviously, we were watching the property tax reform bill, Senate Bill 2, and the school finance bill, House Bill 3, very closely. And you know, we served as a resource to leadership on those issues, as requested, you know particularly our Property Tax Assistance Division. You know in terms of actually trying to clean up some of the property tax code and make some changes they solicited our feedback and we were happy to provide that.

CB: What would you say is the call that you get the most from legislators, from staff? What is the question that you get the most?

GH: She may not be allowed to say that. [laughter]

TC: They’re usually mad at me.

LC: Why did Tom make the fiscal note…

NC: Yeah, I think the fiscal note… we get a lot of calls about fiscal notes. “How did we arrive at that?” “What if we give you some new information?” “Can I talk to somebody?” We had someone actually show up at our office wanting to speak to someone in revenue estimating this session. Which I'm told, was the first time that had ever happened. And it was a very friendly, “Hey, we were just in the neighborhood, wanted to come by, and visit with y’all about this fiscal note.”

[laughter]

GH: “We walked two blocks away from the capitol. We walked all around the construction of the LBJ building, and it took us an extra mile-and-a-half, but we happen to be in the neighborhood.”

NC: “We’re just here.”

GH: Yeah, right.

LC: We get a lot of calls... especially as things get heated up during session, to ask for resource witnesses on a bill. Like, “Can somebody from the Comptroller’s office be there to explain how this would work?” And then, I think we do a lot of work, and people may not be aware of this, but looking at language on if something were to pass would we be able to administer it with our systems. A lot of times people have an idea of what they want to do, but it may not do what they think it does and we need to be able to administer anything that passes. And so, we do a lot of work on language or cleaning up language. We get a lot of questions on that kind of stuff.

CB: Well, I think that brings up an interesting point about our role in the session because we do have a very, I think, behind the scenes role in session. But it is still a very significant role. And the fiscal note process is one that, I think, most people don’t really know a whole lot about. So, I’d like to bring Tom back into the conversation here because Tom, your group really spearheads the fiscal note process from our side. You work with the LBB [Legislative Budget Board]. Can you explain a little bit more about that process?

TC: Sure. Every fiscal note — which is just a document indicating to legislature what a piece of legislation might cost, or raise in revenue, and every one of those is officially documented with the Legislative Budget Board, the LBB, but for any bill that affects state revenue they look to us to do the fiscal note. So, we typically have 14 or 1,500 of those every session that we put fiscal notes on that affect state revenue. The reason the LBB relies on us for those is because we tell the legislature how much money they have to spend. When we issue that BRE that gives them a number, but then the legislature will do things that affect revenue. And so, we have to track all those things during the session to see what they’re adding to our revenue estimate, what they might be taking away from the revenue estimate, so that when we get the budget at the end of the session we can tell the Comptroller, “Yes, we still think there's going to be enough revenue to pay for the budget they’ve passed,” so that he can sign it and then send the budget to the governor. So, we are very involved in that process during the legislative session, and it keeps us up here late at night quite a bit.

GH: And any bills that might impact this agency.

TC: Right.

GH: You know any bill that impacts any different division with the agency that gives us a new task that Lisa was talking about, or a change in that task. It may, to a legislator, they may think, “It's pretty simple, and you can do it with the current people that you got. You’ve got thousands of them, can’t you do this?” Well, no, maybe now we will need to have a technical expert that we don’t have in-house. So, it's critical that we make sure. I'll tell you it takes a lot of people in this agency to vet those different pieces of legislation and try to make sure we arrive at a right number to give to them. And then, it takes Nikki's and her team skill or maybe Tom or someone else in the agency to politely explain to them so they can understand more behind what that piece of paper says.

NC: Yeah, I think as a former — so, I worked in the house for 10 years before coming here — and in my previous capacity actually worked fairly close with the Comptroller’s office and still didn't have a real appreciation for how many people are involved reviewing bills from the Comptroller’s perspective. And, you know, we have 29 divisions that reviewed thousands of bills and it ran the gamut of things that directly affected our agency to things that just affect state government to tax bills to policy, statewide procurement, fiscal matters... we do a lot here. And I had no idea how many people were involved, but you know we have a whole team of people from each division who review bills, and they input comments, and they allow legislative affairs to read those comments so we know what are the problem bills, what are bills that we can add some extra assistance on to help members over the goal line by saying we think this is something that would be good for the state or would be easy to administer.

It’s a fairly intense process that I don't know that many people really have an appreciation for, particularly in an agency this size that has this many functions.

LC: I think the thing we saw this session was that a fiscal note didn't necessarily kill a bill. If it's a good idea but it cost money it can get passed by the Legislature, but that's not a case that we make. That's a case the Legislature makes.

TC: Right. I think that in the past a lot of times legislators feel that if we note that something's going to have a cost or result in lost revenue the bill is just dead. And that has mostly been the case in some sessions. And so, when they get a fiscal note that shows a cost or a loss of revenue, they assume their bill’s dead, and so… and then they are working with us to try and fix it.

And I just would add that we’re always happy to listen to people if they’ve got data that we haven't seen. We're happy to look at it. Occasionally, they provide us with something that causes us to reassess what we've done. But usually we've actually already considered those things, but they're worried that we haven't considered…

GH: ‘Cause a lot of times these bills have been over here before.

TC: Right.

GH: They just might have been a different session, a different author, but… and sometimes there's not. But, I don't know, you’d have to tell me, Tom, but nine times out of ten we've seen them already. In multiple different times. But again, we still need to take the time, the effort, and the energy to explain it. Why? Because they wouldn't be filing it if it wasn't a constituent or an issue that they think is important to address. And then if we can be of assistance to help them still get to that path it really doesn’t matter to them if it's road A, B, or C. They just want to get to their destination, to try to help solve a problem. Sometimes, we can give that guidance.

CB: Another interesting point that I think I've heard a little bit touched on throughout this whole conversation is how dynamic session is. It is not a series of bills. It is very interconnected. Every bill has the potential to impact another piece of legislation, or the overall budget, or priority legislation. And in many cases, the budget that we see coming out of committee very early on in the session is full of holes and caveats and “What if?” scenarios. Comptroller, can you explain how you are kind of taking a holistic approach, and how you're kind of keeping all that in your head as session progresses?

GH: Well, obviously for the staff here is very involved in the details of all these different aspects and pieces, and some divisions are tracking the revenue sources, like Tom. Others are tracking the expenditure side, but you got to piece all this together. But my point being, for me, I'm trying to look at the greater holistic point — which is the question you asked — as okay, the revenue I gave them that we think is coming into the budget, the cost that they have, and these holes — what are the potential holes, what are the potential costs? Which I ask my team no different than we’re already doing it for next session is in just hypotheticals. What are the cost drivers for next cycle? What are we looking at? What can be the potential revenue to make everything match up? So during session I want to make sure that the directions they’re going gets to a landing spot to where I can put my signature on that budget and make sure it certifies. That is one of the most critical constitutional duties I have and there is nothing worse than Legislature working all session and say, “Oh, by the way, your numbers don’t add up.” And they may not add up from the expenditure side or from the revenue side. You know, so I'm trying to take that bigger view and having communications with them and/or issues that are important to the state that we may or may not be working on. So I'm not as in the weeds as the staff is, otherwise I would have had completely gray hair by now.

We are very engaged in the last couple weeks because once they pass that budget, we can't go back in time, even though our work is not done on the certification of it until roughly about eight or 10 days after session. We are very, very engaged through the whole process, but especially very intently in the last couple weeks.

CB: So you had legislators sort of acting like it was Christmas morning after you issued the BRE. Was it still Christmas morning at the end of session?

GH: Well, it was, because the economy had done better than we thought. Over here, you want to get the number exactly right, but you want to make sure that if you're going to favor one side or the other in your assumptions, you'd rather be a little more cautious and a little more conservative than overly optimistic. And the economy has been growing at such a rapid pace it can’t continue to grow at that pace. And so therefore, at the end of session Tom and I have been visiting and tracking all of our numbers as we do every single month and just felt like we were very confident that we could increase the revenue estimate by little over half a billion dollars. And I could tell that that was money that they probably really needed to be able to put a bow on the package of school finance and property tax reform, which I think was a very welcomed gift at the end to be able to give them a way to get out of this legislative session.

TC: You know half a billion — it's a lot of money, but it was less than 1% of our general revenue for a year. So, it’s not terribly surprising that that might show up as an additional source of revenue by the end of session.

LC: But it could go... just as easily could go the other way…

TC: That’s right.

LC: And you could adjust it downward so it's not… I mean that's why they're constantly looking at it throughout the session is to see, is the economy continuing to grow? Or has it slowed? Because they want to give as accurate a number to the Legislature so that Glenn can certify the budget when it's all said and done.

GH: Sales tax comes in every month, franchise tax… really, we get that number in May, which is just about two weeks before the end of session. You also want to make sure that you don't — if you're going to adjust that number — that you don’t do it in a manner that they've already finished with the budgeting process and they have decided that the budget is over with. And then you say, “Oh by the way, I’ve changed your number.” So timing is very critical, and you don't want to do it in a manner or a timing that maybe one side or another has priorities. Because yes, the priority was public education, but the way they address public education — that was not in agreement among everybody. There were different priorities. And so therefore you don't want us, and what we see in that revenue adjustment, to essentially somehow change the balance of the policy discussion among them. And so as a former member I'm pretty sensitive to that and want to make sure that we hit the timing at the right time. That we don't cause a disruption to the negotiations and discussion that they’re doing.

CB: So, your signature is on the budget, but the work of state government continues. What are the issues that you see moving, as we look into the future, as we look towards the 87th session…. What are some of the things that are on your radar screen as far as potential future priorities?

GH: Well, I think a couple things. One we were talking about what they did accomplish this session and one of the things that I wish we would have been able to address is employee retirement pensions. That's something I've been talking a lot about. That if you look at all the states in the nation, the recession in ‘01 and ‘07 really hit those pension funding abilities and Texas took a little bit of a hit as well. And so that's an issue that I would like for us to shore up and address. We didn't quite get there this session. So that's one that I'm going to continue to talk about over the course of the biennium leading up to next legislative session. Also making sure that, again, what is the health of the economy, what can we or cannot do? We're doing a lot more deeper dive into both the property tax bill and the public education bill. As in trying to look out, as in what are the costs that these are going to be for the state of Texas upcoming in the next budget cycle, the one after that, the one after that. And again, these are long-term trends, but I think it can help guide legislators where they may go next session.

And then I'm going to continue. They took significant strides this session again in giving us some more tools in the toolbox to how we deal with the money that’s sitting in the economic stabilization fund or the rainy day fund. You know our hands have really been tied. It’s like we dig a hole in the lawn and just bury the money in the dirt. Which nobody would do in today’s world. And so that’s something I’ve talked about — The Legacy Fund — and another tool in the toolbox to address some of these issues. And so they took one more step forward —which was a good step forward — it wasn't as far as I’d want them to go, but again legislative processes are about one step after another step.

CB: Well, thank you, Comptroller, for taking the time to visit with us today; I want to thank Tom Currah; I want to thank Lisa Craven; I want to thank Nikki Cobb, as well, for contributing to this discussion. It has been fascinating. It really has given us a lot to think about as we go forward. And I know this is really the first of many of these types of podcasts and we're going to dig into a lot of these issues in a lot more depth. So I hope those folks who have been listening will continue to stay with us and listen as we move on into the future.

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GH: And I would just suggest in closing, Chris, you know we deal with a lot of numbers and data, and we may find it very interesting over here and others may not. So, if you don't find this too intriguing than maybe you play it right before you go to bed and it can help you with your insomnia problems.

[laughter]