Public Finance Newsletter: Fall 2020

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FEATURED ARTICLES The Impact of 2020 on the 2021 Legislative Session By Barron Wallace, Peggy Christman and Andrew Prihoda

While 2020 continues to be one of the most challenging years on record, the events of 2020 may offer more challenges to the State of Texas in the upcoming 87th Legislative Session, scheduled to convene January 12, 2021. This article reflects our observations of certain issues, and it should be noted that it is written before the results of November 3rd election are known. The outcome of certain federal and state races could have additional material impacts. Regardless of the outcome of the election, it is safe to say that the Texas Legislature will be confronted with difficult issues that will require tough choices. Over the summer, the State Comptroller reported that the COVID-19 pandemic resulted in or contributed to declines in State sales and use tax revenues and oil prices. As a result, when the Texas Legislature returns it will likely face a revenue shortfall impacting the State’s biennial budget. While some early estimates projected a shortfall approaching $30 billion, more recent estimates indicate an amount closer to $10 billion. The first question the Legislature will have to tackle is how to balance the budget. Will the State’s leadership be willing to use the rainy day fund? How the Legislature will meet its growing education funding obligations under House Bill 3, enacted by 86th Legislature, which reduced school district tax rates and replaced lost revenues with State funding? Will the State be able to enact reforms or modifications to Senate Bill 2, enacted by the 86th Legislature, to drive further ad valorem tax relief? One of the House Ways and Means Committee’s interim charges in preparation for the 2021 legislative session was to consider possible methods of providing property tax relief, including identifying sources of revenue that may be used to reduce or eliminate school district maintenance and operations taxes, so that gives us some insight into their priorities. Given the foregoing, political subdivisions, including particularly school districts, will be watching closely to see what spending gets cut, and by how much. Without legislative action this session, chapter 313 tax abatements will expire soon. Reauthorizing and retooling this economic development tool will be front-and-center for next session. Since the adoption of House Bill 3, it was clear that the 2021 session would be critical to funding for school districts.

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