Texas lawmakers indicate they may use rainy day fund for school security, hurricane recovery and teachers' pensions

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A group of state leaders with huge influence over what public services receive funding said Friday they were prepared to make a significant withdrawal from the state’s savings account.

At a public hearing, House and Senate leaders listed myriad needs they could pay for out of the savings account, including leftover costs from Hurricane Harvey, a bill coming due for retired teachers’ pensions and unspecified public school safety improvements. That savings account, known formally as the Economic Stabilization Fund and colloquially as the rainy day fund, is projected to reach an unprecedented $15 billion in the coming budget cycle if left untouched.

“I think we all are realistic that we may have to tap into the rainy day fund for one-time expenditures, more than we have in the past,” said Lt. Gov. Dan Patrick at the end of a roughly 10-minute meeting of the state’s Legislative Budget Board.

That would include money for Hurricane Harvey recovery — something the state will “for sure” pay for out of the rainy day fund, said state Sen. Jane Nelson, the upper chamber’s lead budget writer.

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“And we have school security issues,” Patrick said.

“Retired teachers,” added House Speaker Dennis Bonnen.

“There are a number of issues,” Patrick said. “So we’ll have to be very careful how we spend our constituents’ dollars, but we have a lot to do this session.”

After the hearing, Nelson said she hoped public school security funding would include investment in both “school hardening and mental health.”

In addition, the board on Friday unanimously approved a cap that would limit how much money the state can spend in the next two years, which was just short of 10 percent above the current spending amount.

The cap is a requirement of the Texas Constitution, which mandates that government spending cannot grow faster than the state’s economy. The Legislative Budget Board fielded projections from economists about how much Texans’ personal income would grow over the next two years and settled on a cautiously optimistic growth rate of 9.89 percent.

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The good news for lawmakers is that they will likely have enough tax revenue available to them to reach the spending cap, should they want to. Comptroller Glenn Hegar predicted this week that the state will have about 8.1 percent more revenue available in this two-year budget cycle compared with last cycle, not counting the rainy day fund’s record-breaking balance.

Typically, the Legislative Budget Board sets a spending cap late in November before an upcoming legislative session. But with then-House Speaker Joe Straus’ retirement imminent, the board last year opted to punt the decision until January. Straus at the time said there was no reason to rush into a decision that lawmakers might come to regret.

In the subsequent months, economists revised their projections of Texas’ income growth slightly upward, giving lawmakers slightly more wiggle room to boost funding for public schools or slow the growth of Texans’ property taxes — two priorities the House and Senate have agreed on so far.

The spending cap only covers nondedicated revenue, those parts of the budget that are funded by taxes but are not required by law to go to specific programs. While the Legislature can vote to break the cap, it’s a politically dicey move that lawmakers have avoided in recent sessions.