By The Associated General Contractors of Texas

While a slower than expected rebound of the state economy may result in a modest reduction in sales tax revenue for highway construction, the anticipated $2.5 billion in funding per year may still materialize, Texas Comptroller Glenn Hegar told AGC members.

For now, the comptroller is projecting $2.2 billion toward Prop 7 highway funding that Texas voters supported by an 83.2 percent margin in 2015. This estimate could increase by $300 million to $2.5 billion if the state economy rebounds faster than initially predicted.

The ballot measure provides up to $2.5 billion for the State Highway Fund once the state's sales tax collection hits $28 billion. The measure takes effect in the 2018 fiscal year, which begins Sept. 1.

Sales tax revenue for state highways is in addition to traditional funding sources for highway/bridge construction and maintenance.

While Hegar's estimate guides Texas lawmakers as they debate budget and spending choices, the $2.5 billion allocation from sales tax revenue is enshrined in the State Constitution. 

Texas will continue to build and maintain roads to accommodate the state's ever-increasing population, Hegar said. Each day Texas' population grows by about 600 as a result of natural growth -of the number of births outpacing the number of deaths. Additionally, about 650 more people move to Texas each day.

"People want to come to Texas," Hegar said. "They want economic opportunity, which means we need more roads and infrastructure. A society that does not adequately fund infrastructure is going to deteriorate and go backward. We have to continue to put investments into those long-term balance sheet issues, and that's one of the things I continue to talk to (state) leadership and legislators about. We've got to make sure that we maintain those investments."

Hegar, a former Texas state representative and state senator from Katy, has been a longtime ally of the AGC of Texas.

The State Highway Fund also could get another $1.7 billion over the next two years from the 2014 voter-approved Prop 1 ballot proposal involving tax revenue generated by oil and gas production. Half of that revenue flows into the state's Rainy Day Fund and the other portion now goes to the State Highway Fund. The Rainy Day Fund, formally known as the state's Economic Stabilization Fund, currently holds $10.2 billion. The comptroller projects that balance will grow to $11.9 billion by the close of the next biennium barring any legislative appropriations out of the fund.

Hegar also emphasized the importance of oil and gas production levels while highlighting the difficulty in predicting prices. "I used to have a saying that the only people who know the price of oil are God or the Saudis and, in the last two years, I think only God that knows," the comptroller said, drawing chuckles from the audience. "I don't think the Saudis know any more since oil is such a volatile commodity."

Hegar pointed to oil's slow but steady recovery in the state, saying 49 percent of oil rigs operating in the United States are now drilling in Texas.

A significant drop in oil prices has cost approximately 100,000 oil-related jobs and about 60,000 manufacturing jobs, Hegar said. But Texas has avoided a devastating 1980s-like decline due to a significantly diverse state economy. Because of this economic insulation, Texas has weathered challenges much better than other oil-producing states, including Oklahoma, New Mexico, North Dakota, Wyoming and Alaska. 

"Because of the diversity of the state of Texas, unlike the 1980s, Texas has actually continued to grow jobs during this most recent downturn," Hegar said. "In the last 12 months, Texas has gained 210,000 jobs." 

"The state's growth in this fiscal year, which ends in August, is going to be about 2.5 percent, and then we will slowly grow back up to about 3 and 3.1 percent in the next biennium," Hegar said. "So the growth rate is going to continue. We will probably get back to where we outpace the U.S. economy, but we are not going to see quite the same growth as we have seen over the last several years."

The construction industry will continue to flourish as one of the state's leading growth sectors, Hegar said. Health care, financial services, professional services, hotel and retail will also be growth leaders.

"Your average pay is above that of the state average, so you are contributing a significantly larger portion," Hegar said. "Because of the growth in the state of Texas, your industry has been able have a larger contribution to our state's economy than compared to other states." 

Texas could tout its economy as the 12th largest in the world two years ago - bigger than the economies of Australia, Korea and Mexico, Hegar noted. The Texas economy only grew by 0.2 percent last year.

"When we got the (latest) data, we weren't the 12th largest any more. Was I upset? No, because we were the 10th largest," he said, explaining that the Texas economy has moved ahead of both Canada and Russia.