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‘Hard choices’ in Texas as oil bust, costly lawsuits collide

AUSTIN, Texas (AP) — The oil bust already shrinking Texas’ coffers is colliding with the possibility of the state getting socked with multibillion-dollar verdicts in major lawsuits, budget officials said Tuesday, which could test years of Republican resistance to cracking the state’s emergency piggybank.

No lawmakers or budget-crunchers raised the potential of spending cuts or a shortfall when the Legislature returns in 2017. But state Comptroller Glenn Hegar urged caution, even as he rejected comparisons to financial reckonings unfolding in other oil-producing states like Oklahoma and Louisiana.

On top of imminent court rulings over school finance and tax refunds that could cost the state billions, Texas is piling up unpaid bills over Medicaid and most recently will have costs from this week’s flooding in Houston that has killed at least five people.

“There’s going to be some hard choices that need to be made when we come back in January,” said Ursula Parks, director of the state Legislative Budget Board, testifying to House budget writers at the Capitol.

Hegar said Texas has lost more than 100,000 jobs, mainly in the oil and gas sector, since energy prices began tumbling and the price of crude dropped at one point below $30 a barrel. This week began with the oil prices hovering around $40 a barrel, still well below highs that exceeded $100 a barrel in 2014 and left Texas flush with money to spend and put into a rainy-day fund that now holds nearly $10 billion.

Related: Once wedded to oil, Houston economy carries on despite bust

Because of the oil downturn, Hegar already has taken off the table nearly $3 billion he originally projected Texas would have available to spend. The oil and gas industry accounts for about 13 percent of Texas’ gross state product, down from nearly 20 percent during the boom of the 1980s as the Texas economy has grown more diversified and resilient.

But forthcoming court decisions could sting as much as dried-up oil patches. The most expensive could be a ruling from the Texas Supreme Court over how the state funds public schools, many of which sued after lawmakers cut $5.4 billion from classrooms in 2011 to close a budget shortfall following the Great Recession.

Hegar told lawmakers the state also could lose $4 billion if that same court sides with oil drillers in a long-running lawsuit over whether certain oil equipment should be exempt from sales taxes.

Then there’s a lawsuit filed by the parent company of AMC movie theaters, which is also in a legal squabble over taxes that Hegar’s office has said could cost the state more than $1.5 billion a year.

Those potential liabilities come as Texas lawmakers are also under pressure to put more money into the state’s foster system, which a federal judge in December ruled was violating the rights of youngsters in long-term care and Gov. Greg Abbott wants overhauled.

“There are challenges on the horizon that will require significant fiscal resources from the state,” Republican House Speaker Joe Straus said in a letter to budget-writers Tuesday.

One option, raised again on Tuesday, could involve tapping the state’s emergency fund — which Republicans have fiercely guarded for years with a mix of political pride and purported necessity for maintaining the state’s high credit rating.

Hegar still insisted that Texas’ situation was not as dire as neighboring states that are grappling with steep shortfalls in the wake of the oil collapse. Oklahoma has ordered state agencies to reduce budgets for the current year while looking at a $1.3 billion shortfall next year.

“Everyone wants to lump us with our sister states,” Hegar said. “But we’re not in the same situation.”

Copyright 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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