On Nov. 4, 2014, 80 percent of Texas voters approved the ballot measure known as Proposition 1, which authorized a constitutional amendment for transportation funding. Under the amendment, a portion of existing oil and natural gas production taxes (also known as severance taxes) would be divided evenly between the Economic Stabilization Fund (ESF) and the State Highway Fund (SHF). Pursuant to Section 49-g(c), Article III, Texas Constitution, the funds may only be used for constructing, maintaining, and acquiring rights-of-way for public roadways other than toll roads.

Ballot proposition language:

The constitutional amendment providing for the use and dedication of certain money transferred to the state highway fund to assist in the completion of transportation construction, maintenance and rehabilitation projects, not to include toll roads.

Background

The 83rd Legislature (3rd Called Session, 2013) passed Senate Joint Resolution (SJR) 1, which amended the constitution to include Proposition 1 funding, and House Bill (HB) 1, which created a sufficient balance committee to determine a minimum balance of the ESF before transfers of severance taxes to the SHF may begin to occur. The minimum level of ESF funding is known as the sufficient balance.

The 86th Legislature (Regular Session, 2019) passed Senate Bill (SB) 69 and SB 962, both of which will impact Proposition 1 deposits in the years to come. SB 69 and SB 962 extended the expiration date of Proposition 1 fund transfers to the SHF from Dec. 31, 2024, to Dec. 31, 2034. After Sept. 1, 2021, SB 69 eliminates the sufficient balance committee, and it automates the process of selecting the sufficient balance threshold. The balance threshold after fiscal year 2022 will be determined by seven percent of the amount of certified, general revenue-related appropriations for that fiscal biennium.

Methodology

Figure 1 explains the method of transferring severance taxes to the SHF. It begins with a preset collection threshold consisting of fiscal year (FY) 1987 oil and natural gas production tax levels. Oil production tax revenues in FY 1987 were $531.9 million and natural gas production tax revenues in the same year were $599.8 million. A quarter of total severance tax collections above the threshold are deposited into the state’s general revenue fund. The remaining severance taxes are divided evenly between the ESF and SHF. However, before transfers to the SHF may occur, the balance of the ESF must meet the minimum amount as determined by legislative committee or the legislature as a whole.

Figure 1