What recession? Texas looking at $10.7 billion surplus Oil prices help Texas rake in $10.7 billion surplus

Sales tax revenue also aids projected overflow Perry hopes to share with you

AUSTIN — The nation may be on the verge of a recession, but the Texas economy is doing well enough for Comptroller Susan Combs to predict Tuesday that the Legislature will have a $10.7 billion surplus when it convenes in January.

Much of the extra money can be attributed to record oil prices. While motorists are being socked with ever-increasing gasoline costs, oil and gas employment in Texas has been booming, the comptroller's office reported.

If Combs' early forecast holds up, Gov. Rick Perry would like to return part of the money to the taxpayers in the form of tax cuts or rebate checks, spokesman Robert Black said. But those steps would need legislative action.

Oil and gas employment in Texas grew by 7.5 percent between March 2007 and March 2008, leading an overall increase of 214,000 Texas jobs, comptroller's spokesman R.J. DeSilva said.

Consequently, sales tax revenue, a major source of state government income, also continues to grow.

And, DeSilva added, Texas has been insulated more than other states from the sub-prime mortgage lending crisis. Texas, he said, avoided the housing price bubbles that hurt states like California and Florida.

Combs won't make her official revenue estimate until about the time the Legislature begins in January. She made an early forecast when asked about Speaker Tom Craddick's recent prediction, in a speech in South Texas, that the surplus could be as high as $15 billion.

"Counting the Rainy Day (savings) fund, I believe we are about $10.7 (billion)," she said.

Her forecast is higher than the $10.1 billion surplus with which the state ended the 2007 fiscal year last Aug. 31.

Combs said she believes the speaker's office "misread" a revenue figure.

"The comptroller is correct as things stand today," Craddick spokeswoman Alexis DeLee said later. But she said the speaker still believes the surplus could be "significantly higher" by the time lawmakers convene.

'Some sort of tax relief'

Black said Perry was anticipating a large surplus as well.

"With a surplus of this magnitude, I know the governor believes we need to look at some sort of tax relief, whether it be on property taxes, business taxes or some type of actual rebate, like the federal government can do but we haven't been able to," Black said.

The last installment of school property tax cuts ordered by Perry and the Legislature in 2006 went into effect last year, but much of the savings already has been eroded by rising property values and appraisals.

An expanded business tax, enacted to help pay for the property tax reductions, is still untried and under fire. Companies had until May 15 to file their first reports under the new levy, and Combs recently extended that deadline by 30 days.

Perry floated the tax rebate idea in the 2007 session, but it went nowhere. It would require a constitutional amendment, including a two-thirds vote in both the House and the Senate plus approval by Texas voters.

Black acknowledged that there will be a need for increased spending on crucial needs, such as Medicaid and public education, including higher fuel costs for school buses, and the Legislature will have to balance those demands.

But, he added, the governor wants to keep Texas' economic engine "going and growing."

In budget-preparation instructions this week, the governor's office and the Legislative Budget Board asked agencies to submit zero-growth spending requests plus options for reducing spending by 10 percent.

Dick Lavine, senior policy analyst for the Center for Public Policy Priorities, which promotes programs for low- and middle-income Texans, warned that the rosy forecasts still may be premature.

'A lot of uncertainty'

Texas has weathered the economic downturn better than many other states, he acknowledged, but he added, "There's still a lot of uncertainty in the financial markets."

And, Lavine pointed out, it will be next May before lawmakers draft a final version of the next two-year state budget.

"There is certainly no way to know" what the budgetary demands on lawmakers are going to be then, he said.

Legislative budget-writers also have expressed caution.

Sen. Steve Ogden, R-Bryan, chairman of the Senate Finance Committee, recently warned that no one knows how well the new business tax will perform or whether a weakening economy will force the federal government to reduce spending on programs, such as health care, that it helps the state to fund.

clay.robison@chron.com