AUSTIN – With the future of the Economic Stabilization Fund (ESF), often called the "Rainy Day" Fund, emerging as a major issue facing the 86th Legislature, the Select Committee to Determine a Sufficient Balance of the Economic Stabilization Fund (ESF) met today and set the ESF sufficient balance at $7.5 billion with Texas State Senator Jane Nelson, R-Flower Mound, presiding as co-chair.

"This sufficient balance will ensure the maximum transfer of resources to transportation and allow a greater return on our investment for a significant portion of the Rainy Day Fund," Senator Nelson, who chairs the Senate Finance Committee and has filed legislation to reform the ESF. "It also protects our credit rating by demonstrating Texas' commitment to keeping sufficient reserves on hand to address financial challenges."

The sufficient balance serves as a trigger to transfer a portion of oil and gas severance taxes to the State Highway Fund (SHF) as directed by 80 percent of Texas voters in 2014 via Proposition 1. Under the sufficient balance adopted today, approximately $3.2 billion will be directed to the SHF for the 2020-21 state budget. It also sets the benchmark above which ESF funds may be invested in accordance with prudent investor standards, allowing for longer-term and higher-yield investments than other ESF funds required to remain in the treasury pool.

Several lawmakers, including Senator Nelson, are calling for reforms of the ESF in the upcoming legislative session. On the first day of pre-filing, Senator Nelson introduced SJR 1 and SB 69, which include reforms to maximize the state's ability to generate ESF investment income. SB 69:

  • Abolishes the select ESF committee and sets 7% of available revenue -- a threshold that will protect the state's credit rating -- as the sufficient balance;
  • De-couples the sufficient balance with investment practices and allows 75% of the ESF balance to be invested under prudent investor standards;
  • Directs revenue generated by ESF investments into a newly established Legacy Fund to address long-term needs as authorized by the Legislature; and
  • Reduces the maximum amount of revenue that can be held in the ESF by removing federal funds from the ESF calculation -- which was the case when the ESF was originally established.

The accompanying SJR 1 proposes an amendment to the Texas Constitution authoring the transfer of ESF investment income to the Legacy Fund. The Comptroller estimates $11.8 billion will be available in the ESF at the end of the 2018-19 biennium.

"This legislation serves as a starting point for the Senate to begin our deliberations on this important cash management issue," Senator Nelson said. "No one believes this much money should be sitting in the treasury pool earning less than the rate of inflation. We should leverage these funds wisely and maximize investment income while ensuring there are sufficient reserves on hand. We must also ensure that future legislatures have the flexibility to access our savings account in the event of an emergency or financial crisis."

SENATOR JANE NELSON represents District 12, which includes portion of Denton and Tarrant counties. She is the highest-ranking Republican in the Texas Senate.

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