Vaccines And Limits To The Economic Mindset

I’m a markets guy who believes in applying economic principles to situations requiring innovation and the allocation of scarce resources. Which probably explains why I think it’s so important to also point out the hard limits to markets. There are big downsides and limits to thinking like an economist. The COVID-19 vaccine development and rollout is case study for examining what free markets are specifically not useful for.

Vaccine

“Health care should be run more like a private business,” is one of the more misguided statements that well-meaning people like to make, up there alongside the equally misguided “schools should be run more like a private business.”

The miracle of this vaccine development and initial rollout in one year’s time can not be understated. This is an unprecedented scientific achievement. It should be understood not as a victory of market-based economics, but rather the opposite: the extraordinary application of central government planning. Sometimes, in the good old US of A, we forget this point.

The Trump administration made the correct call last Spring to directly fund six different private pharmaceutical companies to research, test, and manufacture vaccines. This initial $10 billion federal government investment – called “Warp Speed” – allocated in March 2020 was upped to $18 billion by October 2020. A seventh company, Pfizer, did not receive funds for research, but did receive a guaranteed order for 100 million doses. By guaranteeing demand for hundreds of millions of doses, the federal government induced pharmaceutical companies to essentially ignore market signals like risk, profit, and loss. The Warp Speed program understood that some unproven vaccine products might not work, and that hundreds of millions of manufactured doses could be wasted. And that was ok.

Markets are great for some things. But they would never have achieved this vaccine miracle in one year. Vaccine development driven by the private sector historically happens in the five to fifteen year time frame, but we obviously did not have that time. Pharma companies with an unproven product and uncertain demand would never have ramped up to manufacture enough doses by early 2021. The federal government – everybody’s favorite punching bag – made the correct choice to pay for it anyway, in the interest of speed. 

That’s how vaccine research and manufacturing was not left to the free market of efficient supply and demand signals. Now, when it comes to getting shots in arms, again we see the limits of economic-thinking. 

For the next few months of the vaccine rollout we face a classic economics problem: too much demand and not enough supply. To vaccinate 80 percent of the US population we need more than 250 million doses (or actually double that, as the Pfizer and Moderna vaccines each require two shots.) For now, however, we’re living the reality of severe shortages, crashing websites. Unavailable appointments and online signups that get filled within 6 minutes of opening. High anxiety.

Supply_demand
The usual supply and demand curve approach

The vaccine is free. But there’s not enough of it. Many of us expect to be waiting 3 or 6 months to get it. In the midst of severe scarcity, it feels like society is on a knife’s edge right now, looking for signs that some people are cutting the line. Who is using their money, or privilege, or network to get what other people need? 

The “markets” solution to a situation like this – in a different context – would be to allow prices to determine who gets the scarce thing. That is clearly a moral monstrosity. In the coming weeks, the media will cover the issue of what celebrity, rich person, or government official cut the line to get the free, but scarce vaccine. But we all understand that a market-based solution to vaccine rollout – “who can pay the most right now?” or “who has power and influence?” – is morally abhorrent.

Looking forward a bit to a few months from now – hopefully in three months but possibly six months from now – we will have the opposite economics problem related to the vaccine. Too much supply and not enough demand. I’m referring to polls back in December in which only 42 percent of Texans indicated they would sign up to get a vaccine. Soon we will have plenty of vaccine supply. But if a large plurality of Texans and Americans decline to get it, we may be unable to achieve the 80 percent herd immunity that public health experts say is necessary to stop the pandemic entirely.

Robert_Litan_Brookings
Bob Litan

How would an economist solve that problem? I asked economist Robert Litan from the Brookings Institution, who has argued for substantial payments to induce vaccinations to get us more quickly to herd immunity. He says we should pay people a lot.

“I think if you tell people $1,000, and then especially for a family of four, that’s $4,000, you’re talking real money. And I think at $1,000 you could get [anti-vaccine] people to switch,” he told me. He even had a clever finance-based incentive to encourage speedy vaccinations within society. Litan proposed that all citizens would be given an amount like $200 up front, with a promise of the $800 remainder when the United States as a whole achieved 80 percent vaccination. 

Karl_Marx_Adam_Smith
Karl and Adam

As Litan explained, “So what that does is it gives tremendous incentives to tell your friends, whether in real life or on social media, to go out and get the shot, because then we can all get the money.” 

For my part, I loved his idea. It would get herd immunity results fast. It uses “market incentives” as a carrot to induce desired behavior. The $300 billion or so it would cost would be a lot cheaper than the massive and complicated federal bailouts we’ve already resorted to. 

Medical ethicists, however, hate this idea. Although small payments would be appropriate for convenience’s sake – such as transportation or a small snack – large payments on the order of magnitude suggested by Litan would be considered coercive. It is apparently not ok to force people to choose between putting something in their body – however safety tested we believe the vaccines to be at this point – and a large payment like $1,000. So we have important ethical limits to applying an economic or markets perspective to the conundrum of vaccine rollout.

In sum, when it comes to our health, economic efficiency is not the right watchword.
Fairness and health outcomes are better guides. Enjoy your Socialism, everybody.

A version of this post ran in the San Antonio Express News.

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Audio: TPR podcast on oil and gas during COVID

The-Shakeout

The fourth installment of my collaboration with Texas Public Radio’s Paul Flahive, tracking the massive SHAKEOUT implications of the current pandemic. This interview includes insights from Gary Sernovitz, who I previously interviewed and who’s book, The Green And The Black – on the fracking revolution – is very good.

You can listen to the fourth episode HERE!

The-Shakeout

Please see related posts:

The Shakeout episode two – Universal Basic Income

The Shakeout episode three – Travel Industry

Book review: The Green and The Black, by Gary Sernovitz.

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Mortgage Forbearance in CARES Act

With national unemployment spiking this spring at 14.7 percent and climbing – and severe hardship in certain sectors like hospitality, tourism, oil and gas, and retail – the need for mortgage relief is also high, and climbing. 

Anticipating this trouble, the Coronavirus Aid, Relief and Economic Security (CARES) Act passed March 27th granted some relief for mortgage borrowers. 

Three unequivocal benefits for financially stressed mortgage borrowers granted by the CARES Act are:

  1. You likely qualify for automatic mortgage forbearance with your bank, simply by asking
  2. The forbearance agreement with your bank will not be reported to the credit bureaus, potentially protecting your credit score and credit report, and
  3. Residential foreclosure procedures are all temporarily frozen, at least until May 18th. Evictions are not enforceable until at least July 18th.

If you must suspend or lower your monthly mortgage payments because the COVID recession created a household financial emergency, then this relief is welcome. 

Nationwide mortgage relief like this is rare, because banks really, really, like to be paid on time, every month. 

The passage of time is strange right now in the COVID pandemic, right? What does “on time” even mean? For example, everyone acknowledges the month of April lasted, like, 5 years. 

My man Benjamin Franklin wrote in The Way To Wealth about how time passes, depending on whether you primarily lend money or borrow money. 

“Creditors have better memories than debtors; creditors are a superstitious sect, great observers of set days and times,”

Franklin wrote back in 1758. 

For debtors with a mortgage, however, time passes differently, says Franklin. 

“If you bear your debt in mind, the time which at first seemed so long, will, as it lessens, appear extremely short: Time will seem to have added wings to his heels as well as his shoulders. ‘Those have a short Lent, who owe money to be paid at Easter.’”

Anyway, as another mortgage payment day approaches on winged heels, forbearance options seem particularly important right now. If you have to ask for a break right now, you have to ask for a break.

ben_franklin

The CARES Act says that if you have a home mortgage with any kind of federal backing – whether from from the Federal Housing Authority, or Veteran’s Administration, US Department of Agriculture or the mortgage insurance giants Fannie Mae or Freddie Mac   – then you have the right to request forbearance on your mortgage. Very few people have a mortgage not administered in some way by these federal institutions, even if you didn’t know it already. Only a small percentage of private mortgages would not qualify for automatic forbearance under the CARES Act.

Out of curiosity, I looked up my own mortgage on the specially-created Fannie Mae and Freddie Mac websites for this purpose and found that indeed mine is covered by Freddie Mac, so I would qualify for forbearance if I chose to.

Incidentally, you may wonder why – if you only deal with your own bank and never with Fannie or Freddie – your mortgage shows up as qualifying on their websites? It’s very likely because your mortgage has been packaged up by Wall Street and sold into a mortgage bond that Fannie or Freddie guarantees.

Anyway, I found I have the right to request a fairly automatic forbearance on my mortgage, and so do you.

What would that look like? Forbearance comes in different flavors. Simply by stating financial hardship, and without having to present evidence, I could cease payments for a 180-day period. Then that could be extended by another 180 days at the end of the first period, at my request.

In addition, banks are forbidden from charging extra late fees or penalties, beyond the normal interest rate. Further, your bank is obligated by CARES – and subsequent guidance from the Consumer Financial Protection Bureau – to report a loan in forbearance as “current” to the credit bureaus, rather than delinquent for non-payment, as it normally would. So, even while not paying your mortgage for 6 months or a year, your credit would be fine.

Heck, this sounds so good, it’s a wonder anybody pays on their mortgage anymore! 

Not so fast. If you have some assets and income and were wondering about entering into a forbearance agreement in order to get strategic financial relief, the CARES Act is not a great deal, according to Wendy Kowalik of financial consultancy Predico Partners.

One version of forbearance you can get is a 3 or 6 month payment suspension, followed by a lump sum payment at the end of that time period to get back on track. That probably isn’t what most people expect. And it’s totally unaffordable to most. 

Wells Fargo, the largest mortgage lender by volume in 2019, offers a weblink to an extensive question and answer page on mortgage forbearance under the CARES Act. 

According to the Wells Fargo FAQ, maybe missed payments would be only due a long time from now, but it’s equally clear that that is only one possibility, among many.

Says Kowalik, “every conversation I’ve had – the assumption is that of course they are going to tack payments on to the end of the mortgage,” meaning 10 or 15 or 25 years from now, at the end of a mortgage term. “But if you have any liquidity, the likelihood is the bank will require you to pay the lump sum to get current on your mortgage right away.” That should worry most people considering a forbearance request.

Another version is a repayment plan that divides up the missed payments into a 3, 6, or 9 month repayment schedule. But that higher mortgage payment may then also become unaffordable. And prior to repayment, it will not be possible to draw further on lines of credit, or even to refinance the mortgage, without curing the forbearance.

Wendy_kowalik
Wendy Kowalik of Predico Partners

A key point that Kowalik worries borrowers are not considering is that the banks themselves set the terms of repayment. If your bank decides your assets or income can handle it, they will demand faster repayment. Failure to comply then could affect your credit. None of the CARES Act protections extend past a year, which means that the normal enforcement mechanisms – credit reporting, foreclosure, and eviction – are all back on the table a year from now, if not sooner. 

Kowalik thinks borrowers who have a choice should be very wary of putting themselves into temporary relief that will cause even more hardship within a year. Understood that way, the CARES Act is quite bank friendly after all, in the sense that they can set the terms of repayment.

The key, says Kowalik, is this. 

“Don’t go into this lightly. It looks like assistance. It looks like a simple answer to help me with my current cash flow, but that may not be the case. There is a lot of devil in the details, and I would hate for people to get surprises.”

“And about the Wells Fargo website that says ‘We want you to know we are here to help,’ Kowalik said, “Well, that just about killed me.”

A version of this post ran in the San Antonio Express-News and Houston Chronicle.

Please see related posts:

An interview with Wendy Kowalik

Book Review: The Way of Wealth by Benjamin Franklin

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The COVID Revolution

With the great economic freight train of spring 2020 brought to a screeching halt by COVID-19, our usual supply chains buckled, broke, and then fell off the tracks. 

Our normal ways of satisfying our needs disappeared. In the midst of a scramble over the past month, in some ways we went back in time. In other ways, we went forward in time. 

I reacted to shortages at the grocery store by getting in the habit of ordering a dozen eggs weekly through my gym, which has a connection to a local farm. The eggs are very delicious, and very expensive, compared to grocery store-bought eggs. I feel very close to the land!

I admire on social media my friends and relatives home-sewing their custom face masks from old scarves and bandannas. Stylish! Unique! Hand-crafted! It’s all very Etsy.com.

I bought a 5-gallon bucket of hand sanitizer from a friend who converted his whiskey distillery to the task.1

So the question becomes, will the legacy of COVID-19 be a return to a slower pace of economic life, recognizable from a century ago? A life full of locally-sourced eggs, hand-sewn clothing, customized distillery products and of course quality time with a small family unit? Seen from a certain angle, it’s all very Little House on the Prairie. Is that our post-COVID future?

No, that fantasy is silly. That train left the station long ago.

What’s happening instead, and what will remain after, is a jump-start to new ways of doing things. 

In The Structure of Scientific Revolutions philosopher Thomas Kuhn argues that big change comes not as a slow evolutionary process, but rather in sudden paradigm shifts. What we’ve all experienced and observed in the last month of social distancing is a massive jump forward – maybe by many years – into the future of certain economic processes. Below are just a few trends that COVID-19 will rapidly accelerate. COVID-19 causes this paradigm shift, rather than evolutionary change.

The revolution in education

Online learning this month has offered an insight into the future of school and learning. For the first three week of school shutdown, the public elementary school where my fourth grader attends has worked on providing technology to all of her classmates. That technology procurement was necessary because it’s impossible to start online work if kids in the class can’t get connected. So administrators have rushed to acquire and distribute iPads, hotspots, and internet access for families for whom that was previously out of reach financially. 

Before COVID-19, they could never do much with online learning, because too many families would be left outside the digital divide.

Having solved that tech problem over the past three weeks, however, new online learning methods, assignments become both possible and necessary.

With the education world forced to adapt so quickly and so universally, will education ever be the same again? Will universities, for that matter, ever be the same? It feels like COVID-19 has forced a paradigm shift in what’s expected of teachers, schools, and kids. 

The revolution in payments

Apple_1984
From Apple, in 1984

I already used the touchless Apple Pay service before now. But I’ve noticed, to my frustration, that a huge number of retail establishments – like my local grocery store chain – never have the right kiosks to accept payment this way. If we understand that bills and coins are a germ-filled disease vector, and even that exchanging credit cards with a cashier is too much contact, then the contactless Apple Pay represents the future. COVID-19 may mark a sudden paradigm shift away from cash.

Apple, as always, sees the future before the rest of us do.

The revolution in retail.

Did we think Amazon’s deliver-to-the-door business model already threatened brick-and-mortar retail before 2020?

Of course. But the only reasonable observation to make now is that Amazon has accelerated its take-over of retail businesses in America. Much more brick-and-mortar retail will now die, much more quickly, in a step-change paradigm-shift way, not in an evolutionary way.

From the distance of time, let’s say two decades from now, my freight train economy analogy that I began this column with will seem even more quaint, and even more apt. We will look back at spring 2020 – before the COVID-19 transformation – and see the way we did things in 2020 as impossibly inefficient. Impossibly brutal, dumb, loud, linear, and tracked. Like a freight train that can only go from one point to another. So limited.
Our sleek, smart, creative, rocket ship economy of 2040 will have blasted off from 2020, no longer held back, no longer limited, by the rails of a freight-train economy.

Note: This post ran in the San Antonio Express News in April 2020…I’ve just been remiss in posting my stuff on Bankers Anonymous! Forgive me.

Please see related posts

The coming death of brick and mortar (2016 edition)

The War On Cash

A small whiskey distillery near The Alamo that is also a family legacy

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  1. Next request to the distillery: Please hook me up with a 5-gallon bucket of moonshine to tide me over during this period of isolation, as I spend large amounts of indoor quality time with my family.

Social Security in COVID – Research and Ideas

Adding to a vast ocean of unrelenting bad news, let’s explore some troubling research into the fine print on Social Security benefits.

Andrew Biggs, a resident scholar of the American Enterprise Institute, has two papers out this Spring with interesting implications on our most important safety net for retirees. 

American Enterprise Institute
American Enterprise Institute

One paper has bad news for a particular cohort of soon-to-be-retirees. The other explores an idea for helping with current financial distress. I personally think his proposal is wrong, but worth discussing.

Biggs wrote in a recent paper that for a group of soon-to-retire folks – specifically those born in the year 1960 – the COVID recession could be very hurtful to their benefits claimed in 2027, at full retirement age.

In his paper, Biggs assumes the 2020 US gross domestic product (GDP) shrinks by 15 percent in 2022, and that average wages also drop by a similar amount. The net effect of this drop in average wages – as a mathematical input into the Social Security benefits calculations for people born in 1960 in particular – will drop benefits by 13 percent overall. If that happens, for a medium-wage worker born in 1960 in particular, Biggs calculates an annual and ongoing hit of $3,900. For that same medium-wage worker, lifetime social security benefits drop by a present value of $70,193 due to the 2020 COVID effect.

The math justification behind Biggs’ claim isn’t obvious unless you enjoy building your own Social Security benefits spreadsheet.1

The math trick to know is that before calculating your first benefit check, Social Security indexes your annual earnings to a national wage index – rather than an inflation index, as you might expect.

andrew_biggs
Andrew Biggs

If the wage index declines by 15 percent in 2020 (Biggs’ assumption), then this national wage indexing of 2020 earnings has a substantial negative impact on your benefit checks starting at age 67. Subsequent retiree benefit checks do increase according to inflation, known as the Cost of Living Adjustment. But if benefits start at a low base, for example, they will remain permanently lowered, even as they move upward with inflation over the years.

An economic recovery may mean later cohorts do not suffer this same temporary drop. Biggs recommends Congress consider interventions to protect this specific born-in-1960 cohort.

The COVID recession – depending on its duration and lasting effects on national wages – may also affect near-retirees born in 1961. So that’s your not-so-great news of the day on COVID.

Biggs also has written another paper in April 2020 which should be filed to the “interesting, but bad idea” pile. In the midst of our national discussions around stimulus payments, Biggs and his co-author Stanford Economist Joshua Rauh propose allowing pre-retirement individuals to take loans from their future Social Security benefits, which could be paid back at retirement age.

For context, private lenders do not make loans specifically collateralized by future social security payments. But Biggs and Rauh propose the federal government become that type of lender.

If a not-yet-retired individual decided to take a $5,000 check now, the authors suggest, the borrower could pay that loan back at retirement age by simply delaying owed benefits until the loan is repaid. 

Part of the benefit to borrowers, Biggs and Rauh argue, is that the federal government could offer extremely low interest rates, knowing that it can recoup the money at the individual’s retirement date. This low interest rate helps the individual who could not otherwise borrow cheaply. In addition, warming the cockles of an economist’s heart, this cash infusion can be made budget neutral. Money paid out today during the crisis will be repaid, with low interest, by the worker at retirement.

In their scenario analysis, they show that most workers 45 or older who borrowed this way would likely only delay taking their social security benefits by three months, based on a $5,000 loan made today. 

In simplest terms, Biggs proposes a mechanism for financially-strapped workers during the COVID recession to access their social security benefits early, with the obvious implication that they will have less later on, in retirement. 

If enacted, (Narrator: this won’t be enacted) this form of pre-retirement loan would clearly impact the most vulnerable folks – people who have no other source of savings. 

In general, I like considering any so-crazy-it’s-possibly-good wonky financial idea. But this is more like a so-crazy-its-possibly-terrible financial idea. I can’t endorse robbing future Peter to pay present Peter as a humane way to solve a short-term financial crisis.

When I am declared the National Personal Financial Benevolent Dictator (NPFBD) sometime in the future, I have a few different plans for Social Security. Different from both the current plan and Biggs’ suggestions.

My plan eliminates the need for complicated math and indexing as mentioned by the first Biggs paper. In my plan, basically, everyone gets the same amount of money. It doesn’t matter what your average 35 best earning years are, indexed for wages, then further adjusted for cost-of-living, then made progressive by counting different percentages of a specific workers’ earned wages. That’s a description of the current complicated math, simplified.

Instead, in my simple plan you get, say, $32,000 a year. Or whatever flat amount we choose. Everyone gets the same amount. No math. Congratulations, you’re 67. End of story.

If your lifestyle is above that cost, so be it. You should save some money now so you can maintain your lifestyle. If your lifestyle is below that cost, so be it. You’ll feel rich in retirement.

The complicated math we currently do for social security benefits is a very convoluted way to express a couple of wrong ideas. By wrong ideas, I specifically mean the ideas that:

1. We ‘earned’ our social benefits by a lifetime of working, and 

2. If we worked more or harder or got paid more, then we should get a bigger chunk of cash in retirement.

I understand the implications of not doing any tailoring of benefits to individual workers and retirees. I understand why the current system feels “fair” to many. But I think the benefits of simplicity outweigh those implications, leading to a fairer outcome overall.

A spokesperson for the Dallas office of Social Security Katrina Bledsoe said they do not comment on projections or proposed policies, so declined to respond to my query about Biggs’ ideas.

Biggs responded to my query that he is very confident about the math behind his warning about the cohort of near-retirees born in 1960. His biggest doubt is whether the national wage index will actually fall by the estimated 15 percent – a sharp decline – or whether that’s too steep an assumption. At this point – not yet halfway through 2020 – we just don’t know yet.

A version of this post ran in the San Antonio Express News.

Please see related post:

Running for Personal Financial Benevolent Dictator

Building Your Own Social Security Spreadsheet

Building Your Own Social Security Spreadsheet, Part 2

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  1. Whoops, guilty as charged!

Texas, Inc.

Meat_Loaf

So, anyway, how are finances for the State of Texas going these days?

[Editor’s Note…this post ran in the newspaper in the beginning of July 2020]

Pretty well, thanks for asking. 

If you were to whiteboard the best financial practices for a big state, you would want three things. First, you would want transparency, both for officials making decisions as well as for citizens paying taxes. Next, you would want a conservative match balance between expected revenues and expected spending. Finally, you would want to ensure those revenues stayed strong and steady throughout an economic cycle.

In Texas, we’ve actually got significant amounts of financial transparency, which I’ll describe below. We’ve also got a conservatively-matched balance sheet, for specific reasons worth remembering.

Unfortunately, with the COVID-recession, there’s a lot to worry about when it comes to ongoing revenues. But, as Meat Loaf used to sing, two out of three ain’t bad. 

Damn that’s a great album cover

Actually, that last statement is a bit exaggerated for the purposes of making a late ‘70s rock reference, so let me qualify a bit. I expected to find financial devastation at the state level, but instead found merely areas of concern. 

Let’s start with the transparency part. The State Comptroller’s office supports a website all you Texas taxpayers should know about, called the State Revenue and Expenses Dashboard. This lets you create color-coded visualizations of all state revenues and expenses from 2011 to 2020. The “picture is worth 1,000 words” idea is that we can intuit changes over time, and relative sizes of fiscal categories, by building with and working with a visual dashboard that shows exactly what categories we want it to. The tool also lets you download data into a spreadsheet for further nerdy fun. Which I have done. And, oddly enough, enjoyed.

Some initial insights you can get from the Comptroller’s visualization tool.

  1. Transfers from the federal government are the largest single source of state revenue. (Sorry for you folks who believe in the sovereignty and self-sufficiency of the state.)
  2. The biggest source of locally-derived revenue is retail sales taxes, at 57 percent of taxes in 2019, and 26 percent of all state revenue. This means state revenues will be impacted by recessions, like this one.
  3. Oil extraction tax and gas extraction tax revenue is smaller than I expected, at about 3 percent and 1 percent of all state revenue, respectively.

A related page on the Comptroller’s website, the “Monthly State Revenue Watch”  shows state taxes and other revenue sources updated monthly. 

I know this is updated in real time because I checked it on July 1st, and the June 2020 numbers were already inputted. Impressive! So here is where we can get an idea of how well or how badly things are going in 2020.

Texas runs on a September 1st to August 31st fiscal year, meaning we have two months left in the year. Which further means we already know ten of the twelve months’ worth of numbers, to see any shortfalls versus budget projections.

If you were a worrying type person, you would ask questions like how badly the retail recession, and oil and gas industry disruptions, plus drops in hotel occupancy and car sales and car rentals might wreck state budget projections.

Tax revenue is down, it’s true. But it has not fallen off a cliff. Yet. Retail sales taxes are the largest single tax source, at 57 percent of all taxes. Collections through June are up slightly from 2019, although on track to fall short of the budget by about $2 billion of the projected $35.6 billion, on a total tax revenue base projection of $61 billion.

Franklin_dollars

Again, because we can see ten of the twelve months of the year already, we can see from the transparency website that revenues will fall short by approximately $2 billion in franchise taxes and maybe $1 billion in a combination of oil and gas taxes, with smaller effects in other areas. 

While this is not perfect and possibly a bit frightening, transfers from the federal government are already $4 billion above budget, with two months to go. So we could imagine this will roughly balance out this fiscal year ending in August.

I’m going through this partly because it is interesting on its own, but also partly to point out that the online transparency tools of the Texas state government are kind of awesome. 

Now a word about the fiscally conservative setup of state finances in Texas.

Texas sets its state budgets two years in advance. Future state government spending depends upon a Comptroller estimate – known officially as the Biennial Revenue Estimate (BRE). This is due at the next legislative session in 2021. Unlike the federal government, Texas is highly constrained from borrowing at the state level.

The Comptroller, by constitutional mandate, must sign an oath to certify that the BRE contains accurate revenue forecasts for the next two years. The next legislature must, again by constitutional mandate, produce a spending plan that does not exceed expected revenues in the BRE.

Spare a moment to imagine the difficulty for the Comptroller of signing this next BRE. Like, there are so many different possible economic scenarios in 2021 as a result of the COVID pandemic. 

Financial forecasting is extremely challenging right now. The chief financial officer of any given company must be pulling her hair out trying to estimate future revenue, but at least a private company can kind of wing it on future projections, and then borrow as needed, if things go awry. The Texas Comptroller may not wing it. And there are huge constraints on borrowing. The result has been conservative fiscal state management, which is good. The result in the future – I fear and expect – is a pretty austere two-year revenue projection and therefore spending plan beginning in 2021. This won’t be fun.

Between a pandemic, a recession, and specific oil and gas industry woes – not to mention the 17-year locusts and murder hornets surely set to arrive any moment now – I had expected worse financial numbers for Texas. Can we be blamed for flinching into a reflexive crouch of endless worry in 2020? With strong transparency and a fiscally conservative set-up, I feel a bit better about Texas, Inc, having seen the state’s transparency tools. 

It’s safe to expect budgeting next year will be tougher than this year.

A version of this ran in the San Antonio Express News.

Please see related posts

Transparency Tools in Texas

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