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Economic Stabilization Fund
Article By: by Texas State Rep. Larry Phillips
Posted: 4/30/2013 Views: 1768  Impressions: 8461
Categories: Financial, Politics

One topic of much debate this session has been the possible use of the Economic Stabilization Fund (ESF), which is more commonly referred to as the Rainy Day Fund. This week, I will discuss the ESF, how it is funded, its purpose, and the rules regarding its use.
The Economic Stabilization Fund was created in 1988, in a constitutional amendment approved by voters. The ESF receives most of its funding from oil and gas production taxes. The fund also retains interest earned on its fund balance. The Legislature also may make direct appropriations to the fund, but has never done so.
The ESF received its first funds in 1990. Deposits and withdrawals directed by the Legislature usually kept the ESF balance below $100 million until 2001. In 2002, ESF deposits and interest exceeded $700 million, and the fund's balance rose to over $900 million. However, the 2003 Legislature, facing a $10 billion shortfall, appropriated nearly all of the fund's balance that session. Since that time, the state has seen a dramatic increase in oil and gas production in areas of the state like the Permian Basin, Barnett Shale, and the Eagle Ford Shale. Unless otherwise appropriated, the ESF is estimated to reach over $9 billion later this year.
For money to be appropriated from the Rainy Day Fund, 2/3 of the members of both the House and Senate must vote to do so. However, if the appropriation is used to close a budget deficit, the 3/5 of the membership must vote to do so. These super-majority votes were put in place to ensure that the funds could be used only for purposes that had overwhelming state-wide support.
The balance in the fund is also used by credit-rating agencies to rate the state's credit worthiness. By having a significant balance in the fund, the state has been able to maintain a high credit rating. This high rating allows for the a favorable borrowing rate when the state or other political entity issues bonds, and saves money by providing for low interest rates.
Traditionally, the legislature has not readily used money from the ESF for items that constitute an ongoing expense, but rather for one-time expenditures. In this way, the fund is not used biannually as part of the overall budget, but rather only in times of economic hardship as was intended.
This session, although many of the cuts made during the 2011 recession have been restored, there are calls to use the ESF for many programs. Currently, there is legislation to appropriate one-time amounts for the purpose of funding water and transportation programs throughout the state.
For more information on the Economic Stabilization Fund or any other matter of state government, please contact my office by writing to P.O. Box 2910, Austin, TX 78768-2910 or by e-mailing me at

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