Texas is selling $5.4 billion in short-term IOUs to manage our cash flow over the next few months. The process is called “Tax and Revenue Anticipation Notes,” or sometimes called TRANs. It’s the first time we’ve had to do that in three years.
The bad news is, a slide in oil and natural gas prices along with a Medicaid shortfall have put the state in a budget pinch. In other words, expected revenue is lower than anticipated. The good news is, our economy is stable and we command very low interest rates. And we have $11 billion in savings, which no other state does. So we aren’t in danger. The loan is a cash-flow stopgap that is, in essence, borrowing against our future tax revenues. We have, therefore, a AAA long-term credit rating.
Comptrollers in our state have had the authority to get these sort of loans since 1987. Typically we face expenses well before revenues in Texas.
Of possible concern is the potential lostt of federal money that comes if a state underfunds Medicaid.
The ratings agencies also asked about long-term liabilities such as pensions and retiree health insurance plans, and whether the state’s savings account could be better managed “to achieve a more efficient use of the funds,” he said.
Hegar was referring to the Economic Stabilization Fund, or rainy day fund.
“They found it particularly interesting that, with the exception of Texas and Oklahoma, most other [energy] states have already taken steps to create sovereign wealth-like funds to better harness the power of distinctive revenue sources like that of our severance tax,” he wrote.
In this year’s regular legislative session, Hegar strongly urged lawmakers to divide the fund into two tiers. One would be the “Texas Legacy Fund,” an endowment-type fund that would be invested more aggressively. The state then could use the newly generated earnings to pay off state bonds early and tackle neglected items, such as deteriorating buildings and insolvent retiree funds, Hegar said.
The House passed a bill doing that. It died in the Senate, however.