TPPF: Protect the ESF

With spend-happy politicians already clamoring to use the state’s upcoming budget shortfall as an opportunity to drain the state’s savings account, the Texas Public Policy Foundation is reminding lawmakers of the importance of saving for emergencies.

In a white paper released today, TPPF is calling for raising the barriers to access the Economic Stabilization Fund. Formed on the heels of a major budget shortfall that required massive budget cuts, the ESF was created under a constitutional amendment that asked voters to approve a savings account for “unforeseen shortfalls in revenue.”

Though the ESF has a constitutional balance ceiling, the floor is determined by lawmakers each legislative session. Last year that number was $7 billion, nearly 5% of the state’s biennial budget. However, according to the paper, neither the constitutional cap nor the floor determined by the legislature necessarily represent ESF levels that are “appropriate and prudent, but instead  the amounts legislators are comfortable having in the fund.”

Additionally, while the ballot language voters approved requires a “shortfall in revenue”, lawmakers face no consequence for tapping the fund otherwise. As a result, the ESF is often tapped to cover the costs of a single one time expenditure item. In 2003, lawmakers used the reserves to create the Texas Enterprise Fund, and ten years later they withdrew $2 billion for the state’s boondoggle water plan.

TPPF writers argue that such diversions are favored by lawmakers because they skirt the state’s spending cap and are counter to the fund’s purpose of covering emergency needs.

They recommend that the Texas Legislature pass a constitutional amendment that would constrain the fund from being used for non-emergency purposes and increase the votes required to use the fund “at any time and any purpose” from the current threshold of two thirds of members present to four fifths of all members.

Another recommended change is placing the fund’s floor in the constitution as well, a move that would protect it from interference from spendaholic lawmakers.

“At a time when legislators are already calling for dipping into the rainy day fund because of a potential tight budget session, the ESF must be reformed to reduce the use of severance tax dollars for purposes other than unforeseen budget shortfalls,” said Dr. Vance Ginn, an economist with the organization. “This is essential to passing conservative budgets that increase by no more than population growth plus inflation while keeping taxes lower than otherwise to support economic opportunity for Texans.”