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Rep.Metcalf, Will

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Metcalf Proposes State Financial Reform Legislation  print page

by: Rep. Metcalf, Will
01/09/2019

AUSTIN State Representative Will Metcalf (Conroe) has filed two pieces of legislation aimed at reforming and improving the way the state conducts some of its finances. "Like any family, the state needs to work with what it has and get more creative in finding solutions," said Metcalf. "This is about putting the state in a position to be more financially responsible with taxpayer dollars and maximizing the returns for those dollars."

In 1988, voters approved a Constitutional Amendment creating the Economic Stabilization Fund, also known as the Rainy Day Fund. This fund is the state's savings account. The Economic Stabilization Fund's Cap is equal to 10% of the previous biennium's general revenue deposits. Today that would be a cap of $16.9 billion. The Economic Stabilization Fund's current balance is $12.5 billion. The primary source of funds for the Economic Stabilization Fund was 75% of oil and gas severance tax revenues above 1987 levels. However, in 2015 voters passed a Constitutional amendment to dedicate half of that revenue to the state highway fund for transportation needs. The minimum sufficient balance of the Economic Stabilization Fund is currently $7.5 billion. This balance is determined prior to Session and is the minimum balance determined to be necessary in order to maintain state credit ratings and address potential emergencies.

House Bill 690 requires that the state prioritize the payment of outstanding debts when the state savings account, the Economic Stabilization Fund, reaches its Constitutional cap. Current law says that if this cap is reached, the excess funds would be returned to General Revenue for additional spending. HB 690 would instead require that excess funds be used to pay outstanding state debts. "This legislation does not specify which debts to prioritize," Metcalf stated. "The Comptroller would have the freedom to prioritize which debts to pay first: those with higher interest, those near the end of their payment term, or paying down debts with the highest principal amounts. Addressing our outstanding debt load needs to be a higher priority going forward, and I believe this is a positive step in the right direction."

House Joint Resolution 42 would create an endowment fund for future state use by taking an initial investment of $1 billion from the state's Economic Stabilization Fund. This amounts to 0.4% of the total state budget. Texas currently has $5 billion in excess in the Economic Stabilization Fund over the sufficient minimum balance. Growth in the proposed endowment fund would be sustained through continued reinvestment, not new money from the state. Over the first twenty years that reinvestment will be worked down to a 50% reinvestment threshold, which would be maintained from there to keep the fund growing. The remainder of the investment income, averaged out over five years, would be distributed to various state needs such as general revenue, some back to the Economic Stabilization Fund, investment in education, and payments to lower property taxes. Investments under HJR 42 would be governed by the reasonably prudent investor standard and at least 10% of the investments must be in Texas based companies. This would be an additional endowment managed by the state through Comptroller Hegar's office invested with a goal of creating returns that do more than keep up with inflation. "Leaving money sitting idle yields poor returns as inflation eats away at the overall value of your money." Metcalf explained further, "House Joint Resolution 42 is a way to put our taxpayer's money to work in a conservative manner, earn more money, and do more than just barely keep up with inflation. My goal is to relieve at least a little bit of funding pressure from the state's taxpayers and provide a solution that gives real relief over time. This is good financial common sense that will put the state balance sheet on better footing."

For more information, contact our Capitol office at (512) 463-0726.

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Conroe, TX 77301

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