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January 12, 2009

The Honorable Rick Perry, Governor
The Honorable David Dewhurst, Lieutenant Governor
The Honorable Thomas R. Craddick, Speaker of the House
Members of the 81st Legislature
Ladies and Gentlemen:

In accordance with Article III, Section 49a of the Texas Constitution, I present herewith my revenue estimate for the remainder of fiscal 2009 and the upcoming 2010-11 biennium.

For 2010-11, the state can expect to have $77.1 billion in funds available for general-purpose spending. This represents a 10.5 percent decrease from the corresponding amount of funds available for 2008-09.

General revenue-related tax and fee collections in 2010-11 are estimated to reach $76.7 billion, with tax revenues accounting for 89 percent of the total. Approximately 65 percent of state tax revenue will come from the sales tax. Other significant sources of general revenue include motor vehicle sales taxes, the franchise tax, the natural gas tax, insurance premium taxes, and lottery proceeds.

In addition to the general revenue-related funds, the state stands to collect $91.0 billion in federal receipts and other revenues dedicated for specific purposes and therefore unavailable for general-purpose spending. State revenue collections from all sources and for all purposes should total $167.7 billion.

This estimate is based on my new economic forecast, which indicates that, after recording three years of vigorous economic activity, the Texas economy is now facing a serious challenge. Between fiscal 2006 and 2008, the state’s economy grew rapidly, expanding at an average annual rate of 4.3 percent in terms of real (inflation-adjusted) gross state product (GSP) over the three years. Remarkably, Texas GSP registered a solid 4.2 percent growth rate over all of fiscal 2008 – this despite the onset of the U.S. recession in December 2007.

The national downturn, unfortunately, has finally made its presence felt in our state, to the point where Texas is forecasted to lose 111,000 jobs during fiscal 2009. Also in 2009, the annual growth rate in real GSP is expected to drop down to 1.8 percent and then rise slightly to 1.9 percent in fiscal 2010, before jumping to 3.8 percent in fiscal 2011. To put the low 2009 and 2010 growth rates in perspective, real GSP rose at an average annual rate of 1.8 percent during our 2002-03 downturn. Overall, the Texas economy remains positioned to grow, but at a much slower pace.

Turning to two other funds of current interest, the Property Tax Relief Fund will enter the upcoming biennium with a $3.0 billion beginning balance. New revenue deposits, including interest, are expected to total $5.5 billion in 2010-11, putting the total amount available from the fund at an estimated $8.5 billion. Transfers to the Economic Stabilization Fund from oil production and natural gas tax revenues are projected to total $4.0 billion over the three-year period 2009-11. After the fiscal 2011 transfer, and accounting for outstanding appropriations, the balance for this fund is expected to total $9.1 billion, absent any appropriations during the upcoming legislative session.

Given the continuing turmoil surrounding the nation’s economy, auto industry and housing and financial markets, I believe that our wisest course is to remain cautious and calm, employing prudence and restraint. The estimates herein reflect those principles.

As always, of course, the current estimate remains subject to revision as our state and national economies evolve. Likewise, I shall continue to monitor economic conditions as they develop, to provide updates as the situation merits, and to revise this estimate if and when necessary – all to ensure that your deliberations are based on the most accurate and timely information available.

Sincerely,

Susan Combs
Texas Comptroller

cc: John O’Brien, Director, Legislative Budget Board