From the Midland Reporter Telegram
Several economists convened by state Comptroller Glenn Hegar said Monday that despite persistently low oil and gas prices, the state economy is unlikely to slide into recession anytime soon and will continue to grow at a modest rate.
That outlook echoes the views of Hegar, who brought the economists together as he prepares a biennial revenue estimate, which dictates how much money state lawmakers will have to dole out in the next legislative session for the 2018-19 budget.
“The state took this punch in the face and flattened a little bit, and it appears we have largely moved beyond the risk of recession at this point,” said Karr Ingham, an economist who works for the Texas Alliance of Energy Producers.
As fossil fuel prices have stayed low and Hegar has had to twice lower his revenue estimate for the current $209 billion two-year budget, the comptroller has faced criticism for painting an overly rosy picture of the Texas economy. However, the group of economists he met with Monday, which included representatives from the Dallas Federal Reserve, Moody’s Analytics and the University of Houston, agreed with his position that the Texas economy has diversified enough in recent years that the oil bust will not spell catastrophe for the state as a whole.
Oil prices are now just below $50 per barrel, more than double what they were in February but still only half of what they were during the 2014 energy boom.
For the fossil fuel industry to thrive, prices need to reach $60 to $65 per barrel, said Bill Gilmer, a University of Houston economist at the event Monday. None of the economists was willing to forecast a timetable for the oil and gas recovery, saying it could take years.
“We’ve seen just significant job losses in the last 18 months in the oil industry and in manufacturing,” Hegar said. “But to see that we have not gone in negative in jobs as a state month after month after month, unlike our sister energy states, has been pretty significant.”
Economic gains in other sectors, notably the service and health care industries, have helped keep the state’s unemployment rate low, but they have not been enough to reverse the effect of the energy slowdown on state coffers.
Depressed oil and gas prices weigh on the state budget by causing decreases in revenue from fossil fuel production taxes and, indirectly, from sales tax collections, the state’s primary revenue source, as energy companies make fewer purchases and lay off workers, who in turn spend less.
For the fiscal year that ended Aug. 31, the state collected $28.2 billion in sales tax revenue, down from $28.9 billion the previous year and about $1 billion short of Hegar’s initial projection.
State lawmakers last year set aside about $4 billion that will probably absorb any shortfalls in the current budget. But in the coming legislative session — the last before many of the state’s top elected officials will be up for re-election in 2018 — lawmakers will have to make tough choices to meet the demands of a growing population, fix scandal-plagued programs like Child Protective Services and decide to what extent they want to continue the state’s unprecedented and costly border security campaign.
