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Certification Revenue Estimate 2014-15
The State of Texas will have an estimated $98,885 million available for general purpose spending in the 2014-15 biennium, 8.9 percent more than the corresponding amount of funds available for 2012-13. This figure represents the sum of the 2012-13 ending balance, 2014-15 tax revenue, and 2014-15 non-tax revenue, less estimated transfers to the Economic Stabilization Fund (ESF) and State Highway Fund (SHF), and adjustments to General Revenue dedicated account balances.
The state’s tax system is the main source of General Revenue-related funding. Tax collections in 2014-15 will generate $88,256 million, and non-tax revenue sources will produce an additional $11,185 million. Factoring in the estimated $5,505 million ending balance carried forward from 2012-13, these three sources will total $104,946 million. Against this amount, $5,421 million must be placed in reserve for future transfers to the ESF and the State Highway Fund, and $640 million must be deducted for various adjustments to General Revenue dedicated account balances.
Taking all state revenue sources into account, the state is expected to collect $208,153 million in revenue for all state funds in 2014-15.
Texas Economic Outlook
The Comptroller’s state economic forecast projects continued growth for the Texas economy—despite national Gross Domestic Product (GDP) and employment growth rates that are weaker than those of other recent economic recoveries, and the possibility of further economic disruptions resulting from international economic instability and/or national political gridlock.
The recent recession began later in Texas, was much less severe, and ended sooner than in the overall U.S. economy. In fiscal 2009, Texas’ nonfarm employment declined by 1.7 percent and real (inflation-adjusted) Gross State Product (GSP) contracted by 1.4 percent. In contrast, U.S. nonfarm employment declined by 3.5 percent and U.S. GDP fell by 3.4 percent. Pre-recession Texas employment peaked in August 2008 at 10,635,700, and then fell by 422,100—or 4.0 percent—to its low point in December 2009. Texas nonfarm employment surpassed its pre-recession peak in September 2011, and since the pre-recession peak has added an additional 597,000 jobs. As of October 2013, Texas nonfarm employment was 11,232,700. For the nation, pre-recession employment peaked in January 2008 at 138,056,000, and declined by 8,736,000 — 6.3 percent — to its trough in February 2010. In contrast to Texas, the national economy has yet to regain all of the jobs lost during the recession, and as of October 2013 national employment was 1,502,000 below the pre-recession peak.
The Comptroller forecasts Texas nonfarm employment growth of 2.2 percent in fiscal 2014 and 2.1 percent in 2015. The growth rate for Texas real GSP is expected to be 3.7 percent in fiscal 2014, followed by 3.4 percent growth in 2015. (See Table 4.)
Texas Continues to Outpace National Job Growth. In fiscal 2013, the Texas economy continued its four-year post-recession expansion, adding 315,3001 nonfarm jobs, an increase of 2.9 percent from 2012. Private sector employment grew by 3.4 percent, while government employment (federal, state, and local) grew by 0.6 percent. In addition to adding more jobs than any state last year, Texas had the lowest unemployment rate among the 10 most populous states as of August 2013. The comparatively vibrant economic conditions during a slow national recovery has resulted in an influx of new residents into Texas, adding 215,000 net new residents (inbound arrivals less outbound residents) during the year, and has motivated previously discouraged job seekers to rejoin the labor force to search for work. Even with the growing labor force, the Texas economy produced enough jobs to allow the unemployment rate to fall from an average of 7.1 percent in fiscal 2012 to 6.5 percent in 2013. The Texas unemployment rate has remained below the national rate since January 2007 and is expected to continue to do so. In fiscal 2014 the Texas unemployment rate is projected to fall to an average of 6.1 percent, and to 6.0 percent in 2015.
Personal income in Texas grew steadily through the 2012-13 biennium, but at a tepid pace compared to previous recoveries. In fiscal 2013 personal income grew by 4.9 percent, and is projected to grow by 4.0 percent in 2014 and by 4.2 percent in 2015.
Texas’ population is expected to increase by about 896,000 over the 2014-15 biennium, an average annual growth rate of about 1.7 percent, to reach an average of 27.3 million in fiscal 2015. Half of the biennial population growth is expected to come from net new residents, and the other half from natural increase (resident births minus resident deaths).
Texas Industry Performance
All of the eleven major industries2 of the Texas economy had net employment growth during fiscal 2013. Goods-producing industries (manufacturing, mining/logging, and construction) expanded by 3.7 percent, significantly faster than the 2.8 percent growth rate of service-providing industries. Growth in the goods-producing industries was led by construction (up 35,400 jobs) and mining and logging (18,200), while service-providing job growth was led by professional and business services (59,000). Trade, transportation and utilities (56,700), leisure and hospitality (53,900), and education and health services (43,700) also had large increases. The industry that saw the largest percentage gain in employment was mining and logging (6.9 percent), while government had the smallest (0.6 percent).
Manufacturing
The Texas manufacturing industry lost a substantial number of jobs during the recession, but rebounded with gains of 18,300 in 2011 and 29,500 in 2012, and with smaller gains in fiscal 2013. The modest growth in 2013 (up 9,300 jobs) masked larger changes within manufacturing’s durable and nondurable goods sectors. Durable goods employment was up 13,200, led by gains in fabricated metal products (5,700) and machinery (4,400). Transportation equipment also increased significantly (1,600). Overall, durable goods employment grew by 2.3 percent. Nondurable goods manufacturing, on the other hand, saw an employment decrease of 3,900 (1.3 percent), with food manufacturing showing the largest decline (3,200). The largest percentage decline was in paper products, at 4.6 percent. The only nondurable goods sectors to see employment growth in fiscal 2013 were chemicals (up 1.9 percent) and petroleum and coal products (0.6 percent).
According to the U.S. Census Bureau, the value of Texas exports in fiscal 2013 was a record $272 billion, a 4.0 percent increase from 2012. Texas is the nation’s leading exporting state, a position held since 2002. Those exports are a major boost to Texas manufacturing, notably for companies producing chemicals, computers and electronics, petroleum products, industrial machinery, and transportation equipment.
The state’s manufacturing employment averaged 867,400 in fiscal 2013, up from 858,200 in 2012. Employment is expected to continue growing in the 2014-15 biennium, by an average of 1.7 percent per year, to reach 897,600 in fiscal 2015.
Mining and Logging
Texas is home to many of the nation’s oil and natural gas companies, and the mining and logging industry (predominately oil and natural gas related activity) has been an important factor in Texas’ post-recession economic performance.
During the recent economic recession, mining and logging employment declined by 20 percent to reach a low point of 191,700 in October 2009. Since then, industry jobs have increased by more than 50 percent to reach 288,900 in August 2013, the highest level ever. The 35-year slide in Texas oil production ended in 2008, and production has since surged, supported by firm market prices for oil and the broad implementation of improved exploration and drilling technologies. The number of operating drilling rigs in Texas has remained well above 800 for over two years. And because of the higher production and prices, state revenue from the oil and natural gas production taxes reached nearly $4.5 billion in fiscal 2013.
As in fiscal 2011 and 2012, mining and logging had the highest rate of job growth among the major industries in fiscal 2013, at 6.9 percent, adding 18,200 jobs. The state’s two fastest growing metropolitan areas in fiscal 2013 were Odessa and Midland, both with economies dominated by the energy industry. Odessa’s employment increased by 5.2 percent and Midland’s by 4.6 percent from August 2012 to August 2013, considerably faster than the state’s total nonfarm job growth of 2.5 percent over that period.
After strong mining and logging job growth for three consecutive years, growth is projected to flatten over the 2014-15 biennium. Employment is expected to grow at an average annual rate of 0.6 percent over the biennium, and average 286,500 in fiscal 2015.
Construction
The Texas construction industry lost over 17 percent of its workers from April 2008 to April 2011, with rapid declines during the early and middle months of the economic recession followed by approximately two more years with little job growth or mild losses. Employment began to recover in fiscal 2012, increasing by 15,300. In 2013 construction gained another 35,400 jobs (up 6.1 percent) to average 613,400.
Housing activity has also increased substantially. Total single-family building permits issued in the year ending August 2013 were up 19 percent from the year ending August 2012, while multi-family permits were up 7 percent. According to Multiple Listing Service data from the Texas A&M Real Estate Center, the median sale price for an existing Texas single-family home rose 11 percent over the last year, from $160,600 in August 2012 to $177,500 in August 2013. In August 2013 the inventory of existing homes for sale declined to only 4.1 months, a substantial improvement from the recent high of 8.2 months in mid-2011.
Nonresidential construction activity also is improving. McGraw-Hill Construction reports that the total nonresidential building area (offices, fabrication facilities, and warehouses) constructed in Texas in fiscal 2013 increased by more than 28 percent over the square footage built in 2012, while the value of that construction rose by 16 percent. In addition, the value of Texas non-building construction (e.g., highways, power/heat/cooling facilities, water/sewer systems, and bridges) increased by 13 percent over that period.
Construction employment is expected to increase over the 2014-15 biennium at an average annual rate of 4.6 percent, to reach an average of 671,500 in fiscal 2015.
Service-Providing Industries
Texas’ service-providing industries, accounting for over 84 percent of the state’s total nonfarm employment, had job growth of 2.8 percent in fiscal 2013, following annual increases of 2.1 and 2.2 percent in 2011 and 2012, respectively. Service-providing industries accounted for 80 percent of the nonfarm jobs added in 2013, and all eight service-providing industries saw job increases.
Professional and Business Services
The professional and business services industry was the service-providing industry with both the largest absolute and largest percentage gains in employment, increasing by 59,000 jobs or 4.2 percent in fiscal 2013. The industry, with 13 percent of the state’s nonfarm employment, accounted for almost 19 percent of the job growth in 2013. Employment in the professional, scientific, and technical services sector increased at a rate of 3.4 percent, adding 21,000 jobs. The management, administrative, support, waste management, and remediation services sector grew at a rate of 4.9 percent, to add 37,900 jobs. That sector includes temporary help agencies, and many of its jobs are temporary and/or part-time positions. Total professional and business services employment averaged 1,449,700 in fiscal 2013. Industry employment is projected to increase at an average annual rate of 3.9 percent over the 2014-15 biennium, to average 1,563,400 in fiscal 2015.
Education and Health Services
Texas employment in the education and health services industry, composed of the private education, health care, social assistance, and child day care services sectors, averaged 1,493,900 in fiscal 2013, a gain of 43,700 jobs or 3.0 percent from 2012. The relatively small private education services sector added 2,900 jobs (1.8 percent), while the much larger health care and social assistance sector grew at a 3.2 percent rate and added 40,700 jobs. Industry employment is expected to grow at an average annual rate of 2.4 percent over the 2014-15 biennium, to average 1,565,000 in 2015, with education projected to decline slightly and health services growing by 2.8 percent annually.
Financial Activities
The financial activities industry is composed of the finance and insurance sector and the real estate and rental and leasing sector. Finance and insurance is the larger sector, employing 487,400 in fiscal 2013, a 2.2 percent increase from 2012. Real estate and rental and leasing increased employment at a 2.1 percent rate to reach 181,900 in 2013. Overall, financial activities employment grew by 2.2 percent in 2013, adding 14,100 jobs. Employment is projected to increase by 2.5 percent annually in the 2014-15 biennium, and average 703,500 in fiscal 2015.
Trade, Transportation, and Utilities
The trade, transportation and utilities industry, the state's largest industry employer with 20 percent of total nonfarm jobs in fiscal 2013, added 56,700 jobs (up 2.6 percent) during the year. Employment in the retail trade, wholesale trade, and transportation and warehousing sectors increased from 2012 levels, while utilities employment decreased slightly. Overall, industry employment averaged 2,216,100 in 2013 and is projected to grow at an average annual rate of 1.9 percent over the 2014-15 biennium to reach an average of 2,302,800 in fiscal 2015.
Information
The information industry is a collection of diverse sectors, representing established sectors of the economy (newspaper publishing, data processing, television broadcasting, and wired telephone services) as well as some newer sectors (cellular telephone providers, Internet and DSL providers, and software). Following an employment peak in 2000, industry employment decreased in every fiscal year until 2012, when it increased by 0.6 percent (up 1,200 jobs). Employment increased again in fiscal 2013, adding an additional 1,300 positions, to average 197,900, a growth rate of 0.7 percent. Growth over the 2014-15 biennium is projected to be weak, averaging 0.5 percent per year, and employment is expected to average 200,100 in fiscal 2015.
Leisure and Hospitality
The leisure and hospitality industry experienced strong employment growth in fiscal 2013, adding 53,900 jobs (up 5.0 percent) and accounting for more than 17 percent of total nonfarm employment gains. Industry employment in 2013 averaged 1,125,800, more than 10 percent of total nonfarm employment. Industry employment is expected to grow at an average annual rate of 2.5 percent over the 2014-15 biennium, and average 1,182,900 in fiscal 2015.
Other Services
The “other services” industry is a varied mix of business activities encompassing repair and maintenance services; laundry services; religious, political, and civic organizations; funeral services; parking garages; beauty salons; and a wide range of personal services. Overall, industry employment increased by 12,200 (up 3.2 percent) to average 389,200 in fiscal 2013. Employment is projected to increase at an average annual rate of 1.9 percent over the 2014-15 biennium, to average 403,900 in fiscal 2015.
Government
Following jobs losses in fiscal 2011 and 2012, aggregate (i.e., federal, state, and local) government employment expanded by 0.6 percent in fiscal 2013. Employment in state government increased by 2,900 (up 0.8 percent) and local government employment increased by 11,400 (0.9 percent), while federal government employment fell by 2,800 (1.4 percent). Total government employment in Texas increased by 11,500 in 2013, to average 1,803,200. Employment is projected to increase at an average annual rate of 0.2 percent over the 2014-15 biennium, to average 1,811,800 in fiscal 2015.
Forecast Concerns
While the economic situation in the major European countries is better than it was a year ago (and much better than it was two years ago), the near-term outlook is still uncertain, and the fundamental structural weaknesses and deficiencies of the Eurozone have not been addressed. According to Eurostat, the statistical office of the European Union, real GDP growth for the Eurozone in the second quarter of 2013 was 0.3 percent, the first positive quarterly change since the third quarter of 2011.
However, Eurozone growth slowed to just 0.1 percent in the third quarter of 2013 and BBC news described the recovery as extremely tentative. Unemployment remains very high at 12.1 percent in October 2013 for the entire Eurozone, and rates in the struggling economies of Spain and Greece are significantly higher, 26.7 percent and 27.3 percent, respectively. The economic headwind for the U.S. brought about by an economically sluggish Eurozone, and present for several years now, has not abated. In addition, while China is recovering from an economic slowdown, it is not back to the economic performance levels seen prior to 2008.
In the Middle East, the escalation and expansion of the Syrian civil war to neighboring countries may be a possibility, and the political and economic impact of nuclear development in Iran and political/social unrest elsewhere are ongoing concerns. Such events, if associated with a significant curtailing of oil exports from that region, could propel the price of oil to uncomfortable—perhaps unsustainable—levels for U.S. and Texas consumers and businesses.
The seemingly intractable political disagreements with regard to how the federal government will address fiscal policy issues, as well as regulatory policies for business and the implementation of the Affordable Care Act—conditions which tend to make businesses and households cautious with their investment and spending decisions—are ongoing. Although another government shutdown, or delay or default in the payment of U.S. government obligations, are not likely outcomes, the potential for such outcomes cannot be dismissed. Recent history would indicate all federal fiscal policy uncertainties will not be resolved quickly and will continue to be debated through the 2014-15 biennium.
Within Texas, the economic toll of the ongoing drought may grow as competition for water resources among agricultural, energy exploration, and urban interests intensifies.
On the positive side, pent-up demand is still boosting automobile and housing sales. U.S. households have reduced their debt levels and are showing renewed, albeit moderate, optimism about the economy. The energy industry has burgeoned, most notably in Texas, leading to jobs both upstream and downstream. Overall, job growth in the U.S. remains positive despite the concerns noted above. Inflation remains a non-issue and national economic forecasters believe that the Federal Reserve Bank will seek to keep interest rates low at least through fiscal 2014.
The 2012-13 Ending Balance
The ending certification balance for 2012-13 was $5,505 million after setting aside a required $2,515 million transfer to the Economic Stabilization Fund related to 2013 tax collections and transferred in fiscal 2014.
The Economic Stabilization Fund (ESF)
As required by the Texas Constitution, a total of $2,515 million was set aside from fiscal 2013 receipts and was transferred to the ESF in November 2013. This transfer, which represented a portion of the receipts from the oil and natural gas production taxes, was not included in the General Revenue-related funds available for 2014-15 biennial appropriations. The ESF reserve for transfers totaled $4,394 million for the 2012-13 biennium.
It should be noted that the result of the November 2013 constitutional amendment election in which voters approved certain water funding issues is reflected in the ESF’s estimated August 31, 2015 balance due to the $2,000 million transfer from the ESF to the State Water Implementation Fund for Texas in November 2013.
Additionally, this estimate assumes the November 2014 constitutional amendment election regarding transportation funding and the ESF will be approved by voters. As such, the fiscal 2015 transfer of oil and natural gas revenue into the ESF is expected to be $1,383 million. The remaining $1,383 million of the total of $2,767 million available for transfer is expected to be deposited into the State Highway Fund.
With respect to the 2014-15 revenues, the portion of oil and natural gas production tax collections reserved for transfers to the ESF and the State Highway Fund (SHF) should total $5,421 million over the biennium. Again, as required by the Texas Constitution, these estimated transfers to the ESF and SHF have been deducted from available revenues and balances.
At the end of the 2014-15 biennium on August 31, 2015—before the Fall 2015 required transfer of fiscal 2015 revenues—the ESF balance should total $8,070 million.
Tax Revenue
The state’s tax system is the main source of General Revenue-related funding. Tax collections are expected to yield $88,256 million during the 2014-15 biennium, contributing 89 percent of total net revenues. Compared with the $81,029 million collected in the 2012-13 biennium, total General Revenue-related tax collections in 2014-15 are expected to increase by 8.9 percent.
Since 1988, state sales tax revenues have accounted for more than half of all state General Revenue-related tax collections. In the 2014-15 biennium, sales tax collections are expected to be $54,393 million, a 62 percent share of the tax collection total. The motor vehicle sales and rental taxes, at $8,147 million, and the franchise tax, at $5,697 million, are the next largest sources of General Revenue in 2014-15. Note that additional revenues from the latter two taxes are dedicated to the Property Tax Relief Fund.
SB1, 82nd Legislature, 1st Called Session (2011), included provisions requiring taxpayers in August 2013 (the last month of fiscal 2013) to pay a portion of the sales, alcoholic beverage, and motor fuel taxes that ordinarily would have been paid in September 2013 (the first month of fiscal 2014). In addition, motor fuel tax allocations from the General Revenue Fund to the State Highway Fund that ordinarily would have been made in July and August of 2013 would be made in September 2014. These provisions were repealed (SB 559, 83rd Legislature, Regular Session, 2013) prior to implementation, and, consequently, never took effect.
Sales and Use Taxes
In fiscal 2013, General Revenue-related sales and use tax collections totaled $25,842 million, a 7.2 percent increase from 2012 receipts of $24,100 million. Growth moderated from the 12.6 percent gain in 2012 due largely to a leveling off in receipts from the oil and natural gas production sector, as well as subdued growth in retail sales. While oil and natural gas mining activity remains vigorous, sales tax receipts from the mining sector—after growing by 72.2 percent in fiscal 2011 and by another 58.0 percent in 2012—remained essentially flat in 2013, growing by only 0.2 percent.
Growth in sales tax revenues was led instead by activity in the manufacturing and construction sectors. Fiscal 2013 receipts from manufacturing rose by 14.3 percent over 2012, and from construction by 12.5 percent. Sales tax collections from the retail trade sector rose 3.7 percent in fiscal 2013, and accounted for 35 percent of total sales tax collections. Receipts from information (telecommunications) services grew 10.1 percent, and for restaurants growth was 6.3 percent.
Sales tax revenue growth is expected to further moderate in the 2014-15 biennium. The elevated level of oil and natural gas-related sales tax receipts, propelled by the development of the Eagle Ford Shale and drilling in the Permian Basin, is expected to continue but not to grow. Growth will be led by continued gains in housing construction activity. Only subdued growth in sales tax receipts from retail trade is expected in view of low inflation levels and employment growth of only slightly more than 2 percent annually.
Additionally, net sales tax collections will be reduced by a new exemption for items used in research and development (HB 800, 83rd Legislature, Regular Session, 2013) and by sales tax refunds for items used in the provision of cable and telecommunications services (HB 1133, 83rd Legislature, Regular Session, 2013).
Sales taxes are expected to generate $54,393 million in General Revenue-related revenue in the 2014-15 biennium. Compared to $49,942 million in sales tax collections in the 2012-13 biennium, this will represent an 8.9 percent increase in available biennial sales tax revenues.
Franchise Tax
Franchise tax collections in fiscal 2013 for all funds were $4,799 million, a gain of 5.1 percent from fiscal 2012, the third consecutive annual increase, and the largest amount collected for the franchise tax during any fiscal year. For the 2012-13 biennium, tax collections were $9,363 million, 20.2 percent above 2010-11 collections of $7,789 million. The economic recovery that began in the summer of 2009, and has continued since, was the principal reason for the strong performance of the tax during 2012-13.
In the 2014-15 biennium, franchise tax revenue is expected to decline by 0.7 percent from 2012-13, to $9,295 million. There are two reasons for this small decline. First, the rapid expansions of the tax base (margin) which occurred during the early years of the economic recovery are mostly behind us. Businesses are likely to experience cost pressures from tightening labor markets, the need for new investment, and continued domestic and international competition. Second, actions by the 83rd Texas Legislature will provide tax relief to businesses subject to this tax. Those actions included, among others, a temporary reduction in the tax rate applicable to fiscal 2014 reports; an additional rate reduction in 2015 (see explanatory note to Table 2); and a franchise tax credit for research activities conducted in Texas. Provisions were also enacted that give taxpayers in certain lines of business tax relief through a lower tax rate or more generous deductions for calculating tax liability.
Franchise tax revenue is split between the General Revenue Fund (GR) and the Property Tax Relief Fund (PTRF) according to a procedure specified by the Legislature at the time the tax revision was enacted in 2006. The procedure allocates to GR the amount of revenue equal to what the tax would have brought in if the tax revisions of 2006 had not occurred as estimated by the Comptroller. Any amount in excess of the GR estimate is credited to the PTRF. That procedure was modified by the 83rd Legislature in HB 800, which established research and development incentives in the sales and franchise taxes. HB 800 required that all revenue loss from the bill’s provisions be charged to GR including the revenue loss associated with the franchise tax credit created by the bill. Under that modified procedure, the estimated amount for the 2014-15 biennium to be credited to GR is $5,697 million, and the amount to be credited to the PTRF is $3,599 million.
Motor Vehicle Sales and Rental Taxes
The Texas motor vehicle sales and use tax (including seller-financed sales) applies to the retail sales of new and used motor vehicles at a rate of 6.25 percent of the sale’s total consideration. Also included in this group of related taxes are the motor vehicle rental tax (10 percent of gross receipts on rentals of 30 days or less, or 6.25 percent of gross receipts on rentals of 31 to 180 days), and the manufactured housing sales and use tax (5 percent of 65 percent of the sales price of a new manufactured home).
Motor vehicle sales in fiscal 2013 continued to increase after making a dramatic post-recession comeback during 2011 and 2012 following a dramatic plunge in 2009 as the recession began to fully affect Texas. Fueled by pent-up consumer and business demand, manufacturer and dealer incentives, and continuing improvement in the Texas job market, motor vehicle sales tax collections were up 9.0 percent in fiscal 2013.
The number and value of new and used motor vehicle sales are expected to continue growing through fiscal 2015. General Revenue-related collections from the motor vehicle sales tax were $3,594 million in 2013, and are expected to be $3,787 million in 2014 and $3,836 million in 2015. For the 2014-15 biennium collections are expected to reach $7,623 million, an increase of 10.6 percent from 2012-13. This follows the dramatic post-recession rebound in 2012-13 of 33.0 percent over 2010-11.
Motor vehicle rental tax collections, the other major element in this tax category, were $236 million in fiscal 2013, up by 7.1 percent from 2012. For the 2014-15 biennium, rental taxes are expected to generate $498 million, an 9.2 percent increase from 2012-13 collections of $456 million.
General Revenue-related collections from this entire group of motor vehicle-related taxes reached $7,373 million in the 2012-13 biennium, an increase of 32.3 percent from 2010-11. For the 2014-15 biennium, tax collections are expected to reach $8,147 million, an increase of 10.5 percent from 2012-13.
Oil & Natural Gas Taxes
The taxes in this group consist of the oil production tax, levied at 4.6 percent of value; the natural gas production tax, levied at 7.5 percent of value; and the oil regulation tax, levied at 3/16th of one cent per barrel of oil produced in the state.
Texas oil production peaked almost 40 years ago in 1972, when calendar year production reached 1,263 million barrels. After a decades-long decline in production volumes and reaching a low of 343 million barrels in calendar 2007, the trend reversed its course and increased to 595 million barrels by 2012, largely due to the development of the Eagle Ford Shale in South Texas.
In January 2002, the average oil price was $17.54 per barrel. From there oil prices steadily moved on a long-term upward path, which ended when they dramatically, and briefly, spiked in June 2008 at an all-time monthly high of $131.34. From that point prices began a precipitous decline to $32.64 by February 2009, during the recession. Prices recovered and began a steady climb to average $93.20 in fiscal 2013, 5.8 percent below the fiscal year record of $98.95 per barrel set in 2008.
Due to rising production and firm market prices, fiscal 2013 oil production and regulation tax revenue increased to $2,991 million, an all-time record, surpassing 2012 collections of $2,103 million by 42.2 percent. Although the U.S. economy’s growth remains tepid, the demand for oil in the Eurozone countries, India, and particularly China has weakened, and domestically-produced oil supplies continue to rise, oil prices on world markets are expected to be stable in 2014, then to gradually decline through 2015.
The average oil price in fiscal 2014 is expected to be $93.98 per barrel, then decline to $86.71 in 2015. With Texas oil production increasing, and prices relatively stable in the near term, oil production and regulation taxes are expected to generate $6,500 million in the 2014-15 biennium, compared to collections of $5,094 million in 2012-13, a 27.6 percent increase.
Natural gas prices were very low throughout the 1980’s and 1990’s, near $2 per Mcf . Following the trend in crude oil, natural gas prices began to rise during the second half of fiscal 2000, to average $2.63 for the year. In July 2008 the monthly average price reached its highest level ever, at $11.63, then fell by three-fourths later in that year.
Natural gas prices fell as the U.S and world economies cooled, with a fiscal 2009 average of $5.11, and a 2010 average of $3.91. Despite the slowing economy, production remained strong, and storage levels soared. Natural gas in storage reached more than 3.8 trillion cubic feet (Tcf) in fiscal years 2010 through 2013. Demand growth is primarily in the power generation and manufacturing areas; production and storage levels are remaining stable. In fiscal 2014 natural gas prices are expected to average $3.30, rising to $3.42 in 2015.
With the development of the Barnett Shale in North Texas, the state’s natural gas production has been on an upward path since 2006, exceeding more than seven Tcf each year from 2008 forward. Improvements in drilling technology have been an important factor in the production growth. The number of operating natural gas drilling rigs in Texas swung from a high of 756 in September 2008 to a low of 243 in July 2009, and after a small rebound fell again to 113 in October 2013, as high oil prices keep the drilling focus on liquid-rich plays. The number of operating oil drilling rigs is over 700.
General Revenue-related natural gas production tax collections in the 2012-13 biennium were $3,030 million. While drilling activity has temporarily cooled in the Barnett Shale in response to weak natural gas prices, current interest in more liquid-rich plays such as the Eagle Ford has accelerated. As a result, tax collections are expected to reach $2,994 million in the 2014-15 biennium, a decrease of 1.2 percent from 2012-13.
Insurance Taxes
Most of the insurance purchased in Texas is subject to two types of taxes: insurance premium taxes and insurance maintenance taxes. While the tax base for each is generally the amount of gross premiums written, the rates vary depending upon the type of insurance.
Insurance maintenance taxes are used to fund regulatory costs, with the tax rates adjusted annually based on each regulatory agency’s appropriation and unexpended balance from the previous year. Insurance premium tax collections are deposited into the General Revenue Fund and are available for general purpose spending. The rate for life, accident, and health insurance is 1.75 percent; the rate for property and casualty insurance is 1.6 percent; the rate for title insurance is 1.35 percent; and the rate for unauthorized, surplus lines and independently procured insurance is 4.85 percent.
Beginning in fiscal 2009, premium tax revenues have been reduced by two temporary factors: Texas Windstorm Insurance Association (TWIA) assessment credits and Certified Capital Company (CAPCO) premium tax credits. Following Hurricanes Dolly in July 2008 and Ike in September 2008, TWIA imposed assessments of $229 million on insurers. A maximum of 20 percent ($46 million) of these assessments were available as premium tax credits in any fiscal year. As of fiscal 2013, $223 million in assessment credits have been redeemed, leaving $6 million available. An estimated $3 million of these credits will be used in fiscal 2014 and a further $3 million in fiscal 2015, exhausting the pool of available credits. CAPCO investment premium tax credits, pursuant to legislation passed in 2001 and 2003, were also first available to take in fiscal 2009. These credits, available at a rate of $50 million per year, will run through fiscal 2017.
Tax revenue from all insurance taxes for all funds totaled $2,707 million in the 2008-09 biennium and $2,674 million in 2010-11, a decrease of 1.2 percent. However, insurance tax revenue jumped 21.9 percent in 2012-13 to $3,260 million, in part due to the transition of the Texas Medicaid program from fee-for-service coverage (not taxable) to managed care (Medicaid managed care premiums are subject to the insurance premium tax).
Fiscal 2014 tax collections are projected to decline slightly, due to timing issues in the collection of premium taxes, but fiscal 2015 revenue is expected to increase to $1,742 million. Total 2014-15 biennium collections are estimated to be $3,466 million, a 6.3 percent increase over 2012-13.
Motor Fuel Taxes
This group includes gasoline and diesel fuel, each taxed at the rate of 20 cents per gallon; and propane, liquefied natural gas, and compressed natural gas, all taxed at the rate of 15 cents per equivalent gallon. In fiscal 2013, collections from motor fuel taxes for all funds grew by 1.6 percent over 2012, with revenue from the gasoline tax up by 1.3 percent and from the diesel tax up by 2.7 percent.
Collections from motor fuel taxes for all funds in the 2012-13 biennium were $6,391 million, and in the 2014-15 biennium collections are expected to grow by 1.7 percent to reach $6,498 million. After deducting for transfers to State Highway Fund, General Revenue-related collections from motor fuel taxes for the 2014-15 biennium are expected to rise by 1.7 percent from 2012-13, from $1,714 million to $1,744 million.
Cigarette, Cigar, and Tobacco Products Taxes
On January 1, 2007, pursuant to HB 5, 79th Legislature, 3rd Called Session (2006), the cigarette tax rate increased by one dollar to a total of $1.41 per pack of 20 cigarettes. The additional revenue attributable to that rate increase was dedicated to the Property Tax Relief Fund (PTRF), while the revenue from the cigarette tax at the former rate ($0.41 per pack) remains dedicated to the General Revenue Fund (GR).
Cigarette distributors receive a discount on their cigarette tax stamps for affixing the stamps to the product. The 82nd Legislature (SB 1, 1st Called Session) lowered this stamp discount from 3 percent to 2.5 percent; however in the 83rd Legislature (HB 3536, Regular Session) the discount was returned to 3 percent for distributors who remit a newly created non-settling manufacturer fee. Price increases, ongoing health concerns, the increasing number of restrictions on public smoking, and growth in the use of substitutes such as electronic cigarettes and smokeless tobacco have exerted a significant downward force on cigarette consumption.
Effective in fiscal 2010, the tax on tobacco products other than cigarettes and cigars (snuff; and chewing, pipe and roll-your-own tobacco) was converted from an ad valorem rate (40 percent of the manufacturer’s list price) to a rate based on a product’s list weight (HB 2154, 81st Legislature, Regular Session). The tax rate in 2010 was set at $1.10 per ounce, and the rate increased by 3 cents per ounce every September to the current and final rate of $1.22 per ounce. Of the additional revenue attributable to the weight-based taxation method, 50 percent is dedicated to the Physician Education Loan Repayment Program Account (in GR) and the remaining revenue is available for general purpose spending.
In the 2014-15 biennium, collections for all funds from the cigarette and cigar and tobacco products taxes are expected to total $2,906 million, 4.0 percent below collections of $3,026 million in 2012-13. From 2014-15 revenue, $1,178 million will be available for General Revenue-related spending, while $1,658 million will be dedicated to the PRTF and $70 million will be dedicated to the Physician Education account.
Alcoholic Beverage Taxes
Texas imposes several taxes on alcoholic beverages. The taxes on beer, liquor, wine, malt liquor (ale), and airline/passenger train beverages are based on the volume or quantity sold, while the taxes on mixed beverages are value-based. The 83rd Legislature (HB 3572, Regular Session) reduced the rate for the mixed beverage gross receipts tax (imposed on the beverage seller) from 14 percent to 6.7 percent, and, further, imposed on the beverage purchaser a mixed beverage sales tax at a rate of 8.25 percent, the combination of which, after allowing for any changes in consumer behavior, is intended to be revenue-neutral for state and local governments.
The 14 percent mixed beverage tax, in recent years, accounted for over three-quarters of alcoholic beverage tax revenue; the combined mixed beverage taxes are expected to continue this trend. Collections from the combined mixed beverage taxes are expected to reach $1,640 million in the 2014-15 biennium, 9.4 percent above 2012-13 mixed beverage gross receipts tax collections.
Combined alcoholic beverage tax collections, all of which are deposited to General Revenue, are expected to be $2,057 million in the 2014-15 biennium, up 7.9 percent from collections of $1,907 million in 2012-13.
Utility Taxes
In addition to other taxes, investor-owned utilities pay several state utility taxes on their gross receipts, the collections from which are deposited to the General Revenue Fund. The gas, electric, and water utility tax is the largest, comprising roughly 83 percent of all utility tax revenue in the 2012-13 biennium. Collections from this tax were $739 million in 2012-13, a 7.2 percent decline from the $796 million collected in 2010-11. In the 2014-15 biennium, collections are expected to decline by 5.5 percent to $699 million, due to the net impact of small increases in electricity generation and nominal declines in retail electricity prices.
Public utility gross receipts assessments are paid by electric and telecommunications utilities. In the 2012-13 biennium, revenue collections were $109 million, down slightly from 2010-11. Revenues for the 2014-15 biennium are expected to be $109 million, unchanged from the previous biennium. Gas pipeline tax revenues, levied on the receipts of natural gas utilities, totaled $37 million in the 2012-13 biennium and are expected to be $40 million in the 2014-15 biennium, an increase of 6.1 percent.
Overall, utility tax revenues in the 2014-15 biennium are expected to be $847 million, a decline of 4.4 percent from 2012-13 collections of $886 million.
Hotel Occupancy Tax
The hotel occupancy tax is imposed on a person who pays for a room or space in a hotel costing $15 or more each day. The rate is set at 6 percent of the total cost of a room. The tax covers hotels, motels and bed and breakfasts, as well as condominiums, apartments and houses rented for less than 30 consecutive days.
Fiscal 2013 hotel occupancy tax collections of $441 million were 9.9 percent above 2012 collections, continuing the rebound seen in the two previous years. Tax collections in the 2012-13 biennium, at $843 million, were 24.0 percent above 2010-11, and 2014-15 collections are expected to grow by 11.2 percent to reach $937 million.
Other Taxes
The state’s remaining taxes include taxes on such disparate subjects as cement, sulphur, coin-operated machines, oil-well services, attorneys, and bingo rental receipts. Other tax collections are expected to generate $299 million in General Revenue-related collections in the 2014-15 biennium, down 2.9 percent from collections of $308 million in 2012-13.
Non-Tax Revenue
In addition to the $88,256 million in tax revenue estimated for the 2014-15 biennium, the state’s General Revenue-related funds are expected to receive $11,185 million in non-tax revenue, a 9.5 percent decrease from the $12,356 million collected in 2012-13. The major non-tax revenue sources are licenses, fees, fines and penalties; state lottery proceeds; and proceeds from the state's investments, particularly distributions from the Permanent School Fund to the Available School Fund for public education spending.
Licenses, Fees, Fines and Penalties
Texas collects revenue from charges levied on business and personal activities, such as for transportation (e.g., vehicle registrations and drivers licenses), business regulation (professional licenses), natural resources (environmental permits), parks and wildlife (parks fees and hunting/fishing licenses), education (university tuition), and court charges. General Revenue-related collections from these sources in the 2014-15 biennium are expected to reach $2,646 million, an increase of 11.6 percent from 2012-13 collections of $2,371 million.
Lottery Proceeds
Texas lottery sales in fiscal 2013 were $4,376 million, an increase of 4.4 percent from 2012 sales of $4,191 million. Powerball sales in Texas during 2013 increased 73 percent, surpassing the other draw games. Sales of Daily 4 tickets also increased at a double-digit rate. Instant (“scratch-off”) games, which account for nearly three-fourths of all lottery sales, increased by 4.4 percent.
Sixty-three percent of total lottery sales revenue was returned to players as prizes in fiscal 2013, and $1,033 million was transferred to the Foundation School Fund. An additional $5.7 million went to the Texas Veterans Commission, under terms of a 2009 law authorizing a lottery game to benefit veterans. Retailers receive a 5 percent sales commission, with a bonus for tickets that are redeemed for large jackpots. The lottery’s administrative costs are legally capped at 7 percent, but actual costs remained between 4 and 5 percent.
Unusually large jackpots spurred sales in fiscal 2013, but lottery sales revenues are expected to return to normal levels in 2014. The Texas lottery, in operation since 1992, is a mature operation, with gradual erosion of per capita participation balanced by the growth in the population of potential players. Large jackpots can create waves of sales, but with an expectation of average jackpots the transfers to the Foundation School Fund are projected to total $2,075 million in the 2014-15 biennium, a decline of 2.5 percent from the $2,129 million transferred in 2012-13.
Interest and Investment Income
General Revenue-related interest and investment income in the 2014-15 biennium is expected to decrease by 27.4 percent to $1,665 million from $2,293 million in 2012-13. The $28 billion Permanent School Fund (PSF) historically produces nearly all of the investment income accruing to General Revenue-related funds.
Two main factors will cause the lower interest income in the 2014-15 biennium. First, in November 2003, voters approved an amendment to the Texas Constitution to change the way funds are transferred from the PSF to the Available School Fund (ASF) for use in providing aid to school districts. Under the old system, only earnings from interest and dividend proceeds were transferred. With the change, a disbursement system known as “total return” was put in place. The distribution percentage rate from the PSF is adopted biennially by the State Board of Education (SBOE). In the 2012-13 biennium, the distribution rate was 4.2 percent, and for the 2014-15 biennium the SBOE has adopted a distribution rate of 3.3 percent. Second, in 2013 the ASF received a non-recurring $300 million distribution from the General Land Office of revenue derived from school lands.
Remaining Non-Tax Revenues
In addition to the three revenue sources discussed above, the non-tax revenue category includes the settlement of claims (primarily tobacco settlement proceeds); federal payments to the state for treating indigent patients; third-party payments from private vendors in the state-federal Medicaid program; the sales of goods and services; land income; and contributions to employee benefits.
In fiscal 1999, Texas began receiving regularly scheduled court settlement payments from tobacco product manufacturers. Beginning in fiscal 2000, payments were adjusted for changes in the national consumer price index, the settling tobacco companies’ U.S. cigarette sales, and those companies’ domestic operating profits. In the 2014-15 biennium, Texas tobacco settlement receipts are expected to total $916 million, a 4.5 percent decline from the $959 million collected in 2012-13. Tobacco settlement payments have been affected negatively by cigarette tax increases imposed by federal, state, and local governments. The resulting higher consumer prices have accelerated the decline in cigarette consumption, reducing the sales volume of the settling cigarette manufacturers and thereby lowering settlement payments.
The Disproportionate Share (DSH), Upper Payment Limit (UC), and Delivery System Reform Incentive Pool (DSRIP) programs are designed to help pay for indigent care at state and local hospitals. These programs have been used to draw down federal funds to help pay for the health care of individuals who have no third party coverage. In the aggregate, funding from DSH, UC, and DSRIP is expected to be $333 million in the 2014-15 biennium, an 18.9 percent decrease from the $410 million received in 2012-13. The General Revenue portion of federally-mandated and state-supplemental Medicaid vendor drug rebates is expected to increase by 5.6 percent in the 2014-15 biennium, to a total of $1,192 million, compared to the $1,129 million received in 2012-13.
Revenue to All Funds
Revenue collections from all funds are expected to total $208,153 million in the 2014-15 biennium, a 7.5 percent increase from the $193,677 million collected in the 2012-13 biennium. Of this amount, General Revenue-related collections are expected to total $99,441 million, 6.5 percent above the $93,385 million in corresponding collections in 2012-13. Dedicated federal income in 2014-15 is estimated to account for $73,916 million, 12.9 percent above the $65,452 million received in 2012-13.
Most of the federal funds will be used for health and human services, highway construction and maintenance, and public education programs. A second large source of all funds revenue is the State Highway Fund’s share of motor fuels tax revenue. This fund is constitutionally dedicated to activities associated with the state highway system.
Total estimated revenues do not include certain local funds that are appropriated but not deposited into the State Treasury, but they do include certain revenues that are deposited in the State Treasury but not appropriated, such as royalties deposited to the Permanent School Fund.
1 Unless otherwise stated, fiscal year Texas employment figures in this report are based on the average of Texas Workforce Commission monthly employment estimates (for fiscal years 2013 and earlier) or an average of the Comptroller’s quarterly employment projections (fiscal 2014-15). Back
2 These industries are defined as “supersectors” by the U.S. Bureau of Labor Statistics, but referred to as major industries in this report. They include Mining/Logging, Construction, Manufacturing, Trade/Transportation/Utilities, Information, Financial Activities, Professional and Business Services, Education and Health Services, Leisure and Hospitality, Other Services, and Government. Back
3 In this section, the prices for oil and natural gas refer to the taxable price for those products subject to the Texas taxes on production in this state. Back
4 All natural gas prices in this section are per Mcf, or thousands of cubic feet. Back