TxDOT to Receive $1.1 Billion Boost from Surging Oil Business, Economy

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Texas highways will get a $1.1 billion boost over the next year from the state’s vibrant economy, officials say, with much of that additional funding flowing from the booming oil and gas industry.

The added money for the Texas Department of Transportation — generated by taxes dedicated to the agency’s highway fund as a result of constitutional amendments passed in recent years — almost certainly will speed up certain highway projects in the near term, TxDOT Chief Financial Officer Brian Ragland said. Whether the agency has significantly more money at its disposal over the next decade will depend, he said, on the durability of the economic surge and the energy business’ uptick.

“We’ll definitely take advantage of this new funding to do projects sooner than we would have,” Ragland said. “Does this mean more projects will get done in the long run? I can’t say with any certainty because it is so volatile.”

According to the Texas comptroller’s revenue update for fiscal 2018 and 2019, released July 11, TxDOT in November should receive $1.37 billion under Proposition 1. That constitutional amendment, approved by voters in 2014, directs a portion of oil and gas severance taxes to TxDOT’s highway fund, money that otherwise would have gone to the state’s rainy day fund.

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Combined with the $734 million that TxDOT received last November, the agency will have received about $2.1 billion as a result of Proposition 1 during this two-year budget cycle. Under the two-year budget approved by the Legislature last year, TxDOT had been projected to get $1.3 billion in Proposition 1 funds.

Then there’s Proposition 7, the 2015 constitutional amendment that annually brings TxDOT up to $2.5 billion of Texas sales tax revenue, money that previously went to the state’s general fund for other programs. TxDOT receives the maximum of $2.5 billion only if the state’s annual sales tax revenue reaches $30.5 million.

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The Legislature in its 2018-19 budget had projected TxDOT would receive $4.7 billion from Proposition 7 over those two years. The comptroller now estimates that the agency will get the full $5 billion, Ragland said.

That amounts to an additional $800 million from Proposition 1 and $300 million from Proposition 7 over the next year. Added together, that would represent at least an 8% increase in TxDOT’s annual budget, which is supported primarily by the gas tax and vehicle registration fees. Since much of TxDOT’s budget goes toward maintenance of the existing highway system and other ongoing costs, the added money would have a much greater impact on highway expansion.

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Because highway projects take several years to plan, design and construct, agency officials tend to look at a decadelong horizon rather than a yearly one. So the surge in money now, while it will allow construction of some ready-to-go projects to commence sooner than expected, would translate into added roads over that long term only if the growing influx of money from propositions 1 and 7 continues.

Ragland said a relatively stable flow of money is likely from Proposition 7, given the history of sales tax generation in Texas. In addition, the Proposition 7 amendment could begin to generate even more money for TxDOT during the 2019-20 fiscal year. At that point, a provision of the measure begins to direct vehicle sales tax revenue to TxDOT, provided that stash of money exceeds $5 billion a year.

Officials are not ready to predict when that threshold will be breached.

As for Proposition 1, its revenue stream for TxDOT must be viewed with caution, Ragland said. The amendment generated $1.74 billion in its first year, the 2014-15 fiscal year, but oil prices and production slumped over the next couple of years, and TxDOT realized just $440 million from Proposition 1 in the 2016-17 fiscal year.

In the past two years, though, oil prices have more than doubled, from about $33 per barrel for West Texas intermediate crude in 2016 to $74 a barrel last month. Production has continued to surge, from about 3 million barrels a day in 2015 to more than 4.2 million barrels a day in April.