In 1987, the Texas Legislature passed a joint resolution proposing amending the Texas Constitution to allow for the creation of the Economic Stabilization Fund (ESF), also referred to as the “Rainy Day Fund”, and in 1988, a majority of voters in Texas approved this constitutional amendment at the polls, at which point the amendment was formally adopted.
The Rainy Day Fund can be viewed as “a type of savings account for the state of Texas” (Lumen Learning, Texas Revenue, n.d.). The Rainy Day Fund was created in response to the downturn in the state’s oil and gas industries during the 1980s “as a way for the state to set aside money, earned when oil and gas revenues were robust, to be spent during times of economic hardship — effectively insulating public programs from whiplash as oil and gas prices rose and fell” (Walters and Essig, 2019). Since 1990, “any surplus from previous budget cycles, and collections from oil and gas production are deposited into this account” (Lumen Learning, Texas Revenue, n.d.).
The Rainy Day Fund is a contingency fund, which means that spending monies within the Rainy Day Fund can only be approved in certain circumstances. The Texas Constitution of 1876 (as amended) gives the Texas Legislature the authority to use money from the Rainy Day fund for:
- a budget deficit (when expenditures exceed revenues) – requires approval by 3/5 of the Texas legislature
- projected revenue shortfalls (when the Comptroller of Public Accounts forecasts lower revenue in the upcoming biennium) – requires approval by 3/5 of the Texas legislature
- general purposes (i.e., any other purpose they choose) – requires approval by 2/3 of the Texas legislature
In 2020, $1.13 billion was deposited into Texas’s Rainy Day Fund – down 30% from the previous deposit into the Rainy Day Fund in 2020 (Johnson, 2020) and $500 million from what would have been deposited “if not for the pandemic-driven recession and weak oil prices” (Ramirez, 2020). This deposit brought the balance of the Rainy Day Fund to $10.7 billion.
There have been several withdrawals from the Rainy Day Fund since its creation, most notably in 2011 when the Texas Legislature authorized a withdrawal of $3.2 billion amid the Great Recession and massive cuts to public schools. Nevertheless, the size of the Rainy Day Fund has continued to grow because the money deposited into this contingency account has greatly exceeded the money that has been withdrawn.
From Walters and Essig (2019).