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."

Background

Senate Joint Resolution (SJR) 1 amended the constitution to include Proposition 1 funding, and House Bill (HB) 1 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. HB 1 included a sunset date of Dec. 31, 2024. The legislature passed both pieces of legislation in the 83rd Legislature (3rd Called Session).

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.

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. The minimum amount of ESF funding is known as the sufficient balance. Proposition 1 funds transfers are set to expire after the FY 2025 transfer, unless a future legislature votes to extend them.

Figure 1

Figure 1

Proposition 1 Deposits to the SHF

Proposition 1 deposits to the SHF fluctuate year-to-year because they are dependent on yearly levels of oil and natural gas production activity. The table below shows Proposition 1 transfers to the SHF from FY 2015-2018.

Fiscal Year Deposits to SHF Total Deposits to Date
2015 $1.74 billion  
2016 $1.13 billion  
2017 $440 million  
2018 $734 million $4.044 billion
2019 $1.37 billion1  

1The FY 2019 amount of $1.37 billion reflects the Texas Comptroller of Public Accounts' Certified Revenue Estimate (2018-19, Revised July 2018) and does not directly align with the estimate in Senate Bill 1, General Appropriations Act, 85th Legislature (Regular Session). The estimated transfer of Proposition 1 funds to the SHF in FY 2019 is expected to occur November 2018.

Factors Affecting Proposition 1 Deposits to the SHF

Some of the factors affecting Proposition 1 deposits are as follows:

  • Fluctuations in oil and natural gas production may affect Proposition 1 deposit amounts.
  • The sufficient balance of the ESF is established by a joint legislative committee or the full legislature prior to each legislative session. A higher sufficient balance, or legislative appropriations made from the ESF that reduce the amount of cash available to meet the sufficient balance, could mean less money is available for transfer to the SHF.
  • Proposition 1 funds are set to expire after the FY 2025 transfer if the legislature does not extend the statutory expiration date.

More Information

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