Perry: “Protect Our Rainy Day Fund”

In a statewide teletownhall with Texans last night, Gov. Rick Perry said lawmakers must protect the state’s Economic Stabilization Fund, often referred to informally as the “rainy day fund.”

The Economic Stabilization Fund was established in the late 1980s, following an economically turbulent period in which lawmakers had to consider tax increases to deal with a volatile budget situation. The fund was designed not as a political piggy bank, but as a tool to even out budget problems and protect taxpayers.

Funded primarily through oil and gas revenues, the fund has grown robustly in the last several years.


Rick Perry
In his opening comments kicking off the statewide teletownhall sponsored by Texans for Fiscal Responsibility, the governor said that just as important as cutting taxes, lawmakers “also need to protect our rainy day fund.” He made protecting the fund a key plank in his Texas Budget Compact.

“We can’t, and won’t, drain it,” Mr. Perry said, adding he would be comfortable with some “one-time” uses. “In my State of the State [address] I called for maintaining a strong rainy day fund and I won’t waiver from that. We need to maintain an appropriate amount that will protect our credit rating and keep us prepared in the event of a major natural disaster.”

(Listen to the full audio of the teletownhall.)

Texas is the only large state with a “AAA” bond rating, which helps reduce the interest on bonds. In turn, this reduces the taxes needed to service public debt. The rating is based, in large part, on the state maintaining approximately 7 percent of the budget in the constitutionally protected fund.

Spending the fund balance below that level would make a credit rating downgrade all but certain, while also making Texas susceptible to future economic volatility. Taxpayers would end up losing both ways: higher taxes to pay for debt and higher taxes to deal with budget shortfalls.

The fund currently has a balance of $8 billion, just barely covering the approximately $7-$7.5 billion needed to maintain the state’s credit rating. The fund is forecasted — stress on forecasted — to have $12 billion in it at the end of the next biennium, which would be August 31, 2015.

Some big-spending legislators want to pull out large sums from the fund now — the Senate Finance Committee voted last week for SJR1, which would take $6 billion out later this year. That would put the fund far below the “protect our credit rating” and “keep us prepared” criteria set by the governor.

Indeed, taking out just $2 billion from the fund — as spenders in the Texas House want to do in the ill-considered HB11 would do on September 1 of this year — would similarly imperil the state’s credit rating.

Both efforts drawing dollars from the fund are for seemingly noble causes: water funding and road building. Unfortunately, both efforts rely on creating new debt – new debt that would be made more expensive by a downgraded credit rating. At the same time, neither scheme affords protections for the use of the dollars taken out. The hits to the taxpayer keep multiplying.

As Gov. Perry said last week, the forecasted $12 billion in the fund might be too much. But we also shouldn’t start spending money that isn’t there. Not only are the chickens un-hatched, but the eggs haven’t been laid.

Morally, Texas cannot spend ourselves out of a AAA credit rating, and the governor clearly won’t allow the legislature to do it anyway. The future of the state is too important.

Besides, the cash simply isn’t there to spend. Raiding the state’s piggy bank puts Texas in a very bad place, undermining the very reason for the fund’s existence and its benefit to Texans.

Have you contacted your legislators about the Texas Budget Compact? Learn more and take action!

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ABOUT THE AUTHOR

Michael is president and CEO of Empower Texans. A graduate of Texas A&M, former newspaper reporter, one-time Capitol Hill staffer, think tank vice president, and an Eagle Scout, Sullivan is married with three children. He divides his time between the Metroplex, the rest of Texas, and Austin.

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