Richard Morgan: Why I voted against Prop 6
Without question, Prop 6 is the most controversial of this year's constitutional amendments. It seems that the Republican base is split down the middle, and people I respect are on both sides of the issue. According to the Texas Tribune, not a single Republican or Democrat statewide candidate opposes Prop 6, yet Empower Texans, Texas Public Policy Foundation, and a number of Republican legislators known for fiscal responsibility fought it during the session. After doing some research, I agree strongly agree with the second camp.
If Prop 6 passes, $2 billion will be transferred from the Rainy Day Fund to help fund water infrastructure. Supporters argue that we are facing a water crisis and that while this may be an imperfect solution, failure to pass this amendment would be potentially catastrophic to our economy, which depends on a stable water supply.
What bothers me is the Texas legislature allocated $20 billion in additional spending this biennium compared to last, and yet when it came time to allocate that money, for some reason water didn't make the cut. They spent the $20 billion on other stuff and had to dip into the Rainy Day Fund in order to find the $2 billion for water. We're being told that funding for water is of critical importance and that we should just pass the amendment because we cannot afford to risk the economy by waiting till next session. But if funding for water is truly so important, why was it not part of the budget?
A common claim made by supporters of Prop 6 is that the Rainy Day Fund has plenty of money and that it will have plenty more coming in over the next two years. A recent article in the Austin American-Statesman claimed that the Rainy Day Fund is about to "overflow" with new revenue. And yet, projections do not support that claim.
The Rainy Day Fund is capped based on a percentage of revenue. Currently, it has an $8 billion balance and a $12 billion cap. It's 2/3rds full. If Prop 6 passes and $2 billion is removed, that balance will drop to $6 billion, leaving it only half full.
But what about the additional revenue coming in?
By 2015, if projections hold true, our oil and gas industry will do well, and the Rainy Day Fund will bring in $4 billion of additional revenue (assuming that revenue is not diverted elsewhere). Also, the fund's capacity will be increased to $14 billion. Assuming we started with today's $8 billion balance, assuming we spend none of it, and assuming the full $4 billion in projected revenue goes into the Rainy Day Fund, it would reach a $12 billion balance in 2015 (just over 85% full). Not too bad. But the reality is the legislature has already decided to pull $2 billion out of the Rainy Day Fund over the next two years to spend on education, and if this passes, an additional $2 billion will be pulled out to spend on water, leaving us with an $8 billion balance in 2015 (less than 60% full). In addition, next year we will be asked to approve another constitutional amendment to fund transportation, which it does by diverting HALF of the Rainy Day Fund's revenue into transportation. If that passes (which it likely will), that would cut the Rainy Day Fund's annual revenue by $1 billion, leaving us with only a $7 billion balance in 2015 -- again, half full. That amendment would also permanently limit our ability to fill the emergency fund, making it all the more critical to fill the fund now while we're able.
In an opinion piece earlier this year, Representative Van Taylor explained that Texas is the only state of the top 7 largest states with a AAA bond rating, which saves us $10's of millions per year in interest, and that rating agencies such as Fitch, Moody's, and S&P have all said we need to maintain a minimum Rainy Day Fund balance of 7.5% of our general revenue to keep that AAA rating. He explained that our current general revenue is estimated at $96.2 billion, and that the 7.5% minimum is $7.2 billion. Our revenue (and that minimum balance) will go up if our economy continues to improve, and yet, if this amendment passes, our Rainy Day Fund balance would drop now from $8 billion to $6 billion, and it would not reach $7.2 billion even by 2015 if next year's constitutional amendment passes. This also assumes we don't have to spend any money from the fund to handle a legitimate emergency.
Unfortunately, today's vote to create the new water fund is also a vote to raid the Rainy Day Fund, and that is a vote I cannot support. I can't justify voting to spend a quarter of our current $8 billion emergency fund balance on this. I can't vote to sacrifice our AAA credit rating and our emergency readiness. To me, that is reckless and fiscally irresponsible, and we should vote no. If this truly cannot wait till next session, the Governor can call another special session and the legislature can try again.