Oil Slump: Spending cuts likely as Texas faces potential $6 billion budget deficit

A prolonged oil slump that has tested Texas’ economic resilience is now badly chewing away at the state budget, leaving a hole that could be as big as $6 billion just to maintain the status quo, a top Republican lawmaker said Monday.

That dismal outlook came in response to spending allowances handed to Republican Gov. Greg Abbott and the Texas Legislature, which returns to work Tuesday confronting a child welfare crisis and threat of repercussions from businesses over a proposed anti-LGBT measure.

“Obviously there’s going to be cuts in the budget. We’re going to have to talk about where those cuts can come,” Republican state Rep. Drew Darby said. He estimated the state would need another $5 billion to $6 billion to preserve current spending levels.

Democrats bemoan that baseline is already too meager to serve crowded public schools and overwhelmed social workers.

Oklahoma, Louisiana and other energy-producing states have spent the past two years absorbing the sting of budget cuts since oil priced began cratering in 2014. Texas had largely escaped that pain until now, and a strengthening U.S. economy is also hushing the state’s longtime boasts of economic supremacy.

The national U.S. unemployment rate of 4.6 percent in November was identical to the rate in Texas, ending a decade of the state asserting the upper hand over the rest of the country in the monthly jobs report. Even California – a longtime liberal punching bag for Texas Republicans – has shown better economic growth by some recent indicators, including gross domestic product.

Republican Texas Comptroller Glenn Hegar projected optimism and said the state remains more financially muscular than most. But Hegar said the downturn has “lagged much longer than we thought,” noting that taxes from oil and gas fell 52 percent in 2016.

Texas lawmakers will have just under $105 billion to spend, Hegar said, which wouldn’t even cover the current budget of $106 billion. And that small deficit doesn’t take into account the billions of additional dollars needed to keep up with Texas’ rapidly growing population.

“However you describe it, compared to what we’re doing already, this is not a good situation,” said Eva DeLuna Castro, a former state revenue analyst who is now a budget expert for the left-leaning Center for Public Policy Priorities.

Abbott suggested austerity in a statement Monday, saying he would work with lawmakers to fund “our most vital services.”

But there’s a potentially expensive to-do list. Texas was taken to task by a federal judge in December 2014 for an having an “unconstitutionally” broken foster care system, and despite Abbott taking an active role in an overhaul, child abuse deaths and caseworker backlogs have climbed under his watch.

Business groups are also warning that Texas’ financial woes could worsen if Republican commit to a North Carolina-style bill that would ban transgender people from using the bathroom of their choice. Texas’ largest business lobbying group says approving such measure and other anti-gay rights proposals sought by social conservatives could cost the state up to $8.5 billion and 100,000-plus jobs.

Some Republicans have been defiant over possible over any economic fallout. North Carolina’s law, which went into effect last year, caused corporations, entertainers and NCAA sporting events to back out to avoid being seen as endorsing discrimination – potentially costing the state billions in lost revenue.