Policy Documents

Tapping the Rainy Day Fund & School Fund Balances

March 28, 2011

Balancing the 2010-11 Budget without Raising Taxes

The Economic Stabilization Fund (ESF): Appropriate Uses and Legislative History

The language in the Texas Constitution governing the use of the ESF reads in part as follows:

If an estimate of anticipated revenues for a succeeding biennium prepared by the comptroller pursuant to Article III, Section 49a, of this constitution is less than the revenues that are estimated at the same time by the comptroller to be available for the current biennium, the legislature may, by a three-fifths vote of the members present in each house, appropriate for the succeeding biennium from the economic stabilization fund an amount not to exceed this difference. [Tx. Const. Article III, Sec. 49-g(l)]

Based on this language, it is clear that a current biennium revenue shortfall is the appropriate time to consider utilizing the ESF. This is seen in the language that created the Fund (HJR2, 70R) and in analyses of the constitutional amendment. The House Research Organization (HRO) noted that "*a+mendment No. 2 would create an Economic Stabilization Fund in the State Treasury. State revenue would be set aside in the fund and saved for appropriation when revenue shortfalls occur."

The HRO also quoted supporters of the amendment arguing that:

If the Economic Stabilization Fund had existed in 1986 and 1987, the state might have been spared the hard choice between reducing essential state services and raising taxes during difficult economic times. Money could have been appropriated from the fund to reduce or eliminate the budget deficit that occurred when state revenues fell below earlier estimates and might have prevented the record tax increase.

While it is appropriate to spend some amount of the ESF to help balance the current biennium (2010-11) budget, legislators must remain vigilant and ensure that they appropriate the smallest possible amount from the Fund.