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Certification Revenue Estimate 2010-11

November 24, 2009

The Honorable Rick Perry, Governor
The Honorable David Dewhurst, Lieutenant Governor
The Honorable Joe Straus, III, Speaker of the House
Members of the 81st Legislature

Ladies and Gentlemen:

In accordance with the Texas Government Code, Section 403.0131, I present herewith the detailed tables for the revenue estimate that I used to certify the General Appropriations Act for 2010-11 and other appropriations bills approved by the 81st Legislature.

The estimates in this document reflect actual revenue collections through Aug. 31, 2009, the end of fiscal 2009. After accounting for statutory transfers, adjustments and balances on hand at the close of the 2008-09 biennium, the state will have a total of $77.7 billion in General Revenue-related funds available to finance appropriations in the 2010-11 biennium.

This estimate shows that available revenue supports current General Revenue spending of $77.6 billion for the 2010-11 biennium, yielding an expected General Revenue-related ending balance of $83.5 million on Aug. 31, 2011.

Fiscal 2009 concluded with revenue collections weakening substantially as the national recession began exerting its full influence on Texas. Notably, state sales and use tax collections registered a 2.7 percent decrease in fiscal 2009 compared to fiscal 2008. Those collections were affected by increasingly weak retail sales over the final months of fiscal 2009, reduced drilling activity in response to lower natural gas prices and the continuing low level of new single family home starts. Overall, state revenues to General Revenue in fiscal 2009 – after adjusting for amounts to be transferred to the Economic Stabilization (Rainy Day) Fund – were $650 million below projection, with the revenue declines largely offset by less-than-expected state agency spending. The state closed the 2008-09 biennium with a General Revenue-related balance of $2.4 billion.

The national recession appears to be abating and U.S. job losses, while continuing, are becoming less severe. The economic forecast underlying this estimate projects Texas employment, which began declining late in calendar 2008, will resume slow growth in the first quarter of calendar 2010. Employment growth is expected to begin slowly, building through the remainder of the fiscal year. More significant improvement will be seen in fiscal 2011 as job growth reaches 2.1 percent, after two consecutive years of net job losses. Texas is not expected to regain its previous peak employment level of 10.64 million until the end of fiscal 2011.

Following a decline of 1.8 percent in fiscal 2009, Texas' gross state product is expected to increase at 1.9 percent in fiscal 2010 in advance of significant job gains. Growth in gross state product of 3.4 percent is expected in fiscal 2011 – faster than the projected growth in the U.S. economy that year.

I must conclude with a note of caution, even as I describe what appears to be the bottom of the state recession and the beginnings of a recovery next calendar year. The national and state economies appear to be at turning points – going from contraction to expansion. As those economies recover, jobs will be added, more homes will be built and retail sales will increase. However, if consumer spending continues to lag through the second half of fiscal 2010, it could result in tax collections being lower than currently anticipated. The overall consequence is that there remains uncertainty that demands caution and vigilance.

I shall continue to monitor the Texas economy and revenues closely, and I shall keep you informed of any significant events as they arise.

Sincerely,

Susan Combs

Enclosure

cc: Capitol Office
     John O'Brien, CPA, Director, Legislative Budget Board